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In my last blog, I discussed the “Temp-to-Perm” hiring model that has been a pervasive way for companies to add talent. Now the real question: Is the temp-to-perm model here to stay?
The short answer is yes. However, the model’s usage will decrease due to one critical reason: People that are currently employed in a permanent position are less likely to leave a stable position to accept a role that is temp-to-perm. This dramatically affects the talent pool available for companies that are dependent on this method, and that will cause a shift in the usage to satisfy their hiring needs. Here is an example business case:
A Fortune 500 partner of ours in the Payment Processing industry (that uses the temp-to-perm hiring model exclusively with much success) was having a difficult time identifying a quality hire for a critical role. They needed a Business Intelligence Manager that could be based in either Denver or Atlanta. The candidate needed to have experience with a very specific BI tool. They approached us to help them recruit for this position and asked us to make the role priority #1. We advised them that the talent pool for this skill set was extraordinarily finite, and that hiring temp-to-perm would make this significantly more difficult. Regardless, we performed a targeted search and found them one candidate each for Atlanta and Denver. Both candidates were highly qualified for this role and willing to “consider” temp-to-perm. However, both preferred permanent employment. The client went through the interview process, and after careful consideration, decided to hire both candidates…as permanent employees from day one.
This business case shows where temp-to-perm hiring stands in the marketplace: For searches that have a wide talent pool, temp-to-perm hiring still works. However, if a search requires candidates with very specific skills in which there is a limited number of actively looking candidates, temp-to-perm hiring is not a truly viable option.
That doesn’t mean that temp-to-perm is going away. It just means that organizations must be flexible enough to use various means of on-boarding to enable them to be competitive in “The War for Talent”, which is occurring in the technology hiring market right now and will be the topic of my next post.
One of the biggest concerns to technologists that are passively looking for their next role is the abundance of companies (typically Fortune 1000’s) that want to hire people on a temp-to-perm basis. For those that do not know, temp-to-perm (AKA contract-to-hire) is a hiring method that allows companies to hire the candidate as a contractor with the right to convert to a permanent employee after a pre-determined period, typically six months. This staffing method started before the recession, but became a much more common method of hiring following the downsizing and budget cuts that came with the economic downturn.
Let’s look at a few rationales for hiring entities using a temp-to-perm strategy:
1) Large organizations have a difficult time “firing” employees that are underperforming or are “divisive figures.” Firing an employee for cause requires extensive documentation and even with the paperwork in place, can still result in a frivolous lawsuit. Temp-to-perm hiring allows employers to make better permanent hiring decisions based on actual performance. Companies are now hiring candidates that are proven to be “good or better” at what they do.
2) Because temp-to-perm is the ultimate trial period, it allows the companies to make faster hiring decisions.
3) Temp-to-perm hiring eliminates the one-time fee to recruiting agencies. Instead, a company pays for the “fee” over the course of the contract.
From a candidate’s standpoint, it’s very easy to look at these rationales and say this is another example of large corporate greed.
However, there are benefits to this hiring method for potential employees:
1) Accepting a permanent position typically requires a candidate stay at a company for 2+ years to avoid being labeled a “job-hopper”. However, they base the decision to make this 2+ year commitment on a few interviews where everyone puts their best foot forward. Would you commit to a 2 year relationship with a companion after 1-3 dates? Unlikely. Temp-to-perm hiring allows the candidate to spend 6 months getting to know their company “warts-and-all” before committing to a longer-term relationship.
2) There is typically a final negotiation at the end of the contract period before the person joins permanent. This can allow the salary offer to be based on actual performance. That can be a huge benefit for employees who excel at what they do.
3) Hazard Pay! For the consulting period, the candidate will get paid typically 10%-15% above the target base salary (based on a 40 hour week) for the risk of not being a permanent employee right away. This allows candidates to save additional money in their “rainy day fund” during their contract period.
4) Candidates get paid for every hour they work. This often leads to either a 40 hour/week cap (which few permanent roles offer) or the ability to make substantially higher compensation due to hours worked during the contract period.
5) Due to your firms ability to weed out underperformers and divisive figures, the permanent staff is often a more cohesive unit and of higher median skill.
The net-net of this is that Temp-to-Perm hiring has many benefits for Fortune 1000 companies. However, there are benefits to potential candidates. To reap these benefits, you must be confident in your abilities and be willing to capitalize on the fact that true stability lies in the level of expertise that you have in your given field.
Is the temp-to-perm hiring model here to stay? We’ll discuss that in my next post. Stay tuned…
Musical Chairs in the Atlanta Technology Marketplace
The Great Recession. Is it over? Will it get worse? Anyone who claims to know the answer is deluding both you and themselves. And the purpose of the Atlanta Tech Recruiting Blog is not to delude anyone. So if you are looking for an answer to those questions, you’ve come to the wrong place. If you are hoping for an understanding of what is going on in the Atlanta Technology Hiring Market, I believe I can provide some perspective. We’ll start with my vision of the history of technology hiring in my 16 years in the recruiting industry:
When I started recruiting in 1994, the U.S. economy was coming out of the recession of the early 90’s. The Internet was in its’ formative stages. My first employer has just rolled Mosaic out to our desktops and the World Wide Web was in it’s infancy with only a handful of websites up and running. Then the Dotcom’s got rolling. Hiring for engineers was at a fever pitch by the 1997 and continued getting hotter through the new millennium. If you could fog a mirror and spell C++, you could get 5 job offers with multi-million dollar stock option packages in less than a week on the market. The “hiring pendulum” was pegged all the way to the right, in favor of the engineers. At the height of this boom, I moved to Atlanta. It was the best of times.
Then 9/11 happened. Suddenly, AOL acquiring Time Warner didn’t seem like such a great idea anymore. Dr. Koop was actually a quack, not a DotCom with over a billion dollar market cap. And hiring in the technology industry hit the wall. All of the great talent had chased their million dollar dreams to startups, and now a large percentage of those start ups went out of business pushing that great talent into the job market rapidly. The select few companies that had the ability to hire could pick and choose from a large crop of the “best-of-the-best” that were banging on their door to get in. Recruiters weren’t necessary from 2002 until the middle of 2003. The “hiring pendulum” was now nailed to one left in favor of the hiring entities. It was the worst of times.
By the end of 2003, the pendulum began moving back towards the middle. This was primarily driven by larger organizations gobbling up the best talent and the startups with real business plans entering growth modes coming out of the recession. Technology hiring continued very steadily through early 2008. But it wasn’t a boom. The tech industry had its’ boom, and its’ bust. It was just steady growth. Salaries in the tech industry never eclipsed their high points of 1999-2001. Techies performed their jobs for accurate salaries in stable situations. The “Hiring Pendulum” for technologists had settled near the middle, moving slightly in favor of the engineers by early 2007. Meanwhile, the home builders and the banks boomed. And on September 15th, 2008, Lehman Brothers collapsed. And in one brief moment, the hiring pendulum for everyone, including technologists, went all the way beyond the left into the “Dead Zone”. Massive layoffs occurred across the board at almost all companies. There was near zero hiring. BUST.
The “Dead Zone” continued into Q1 2009. But for the technology industry, it was different. Instead of the market being flooded with great engineering talent because so many startups shuttered their doors, a very different dynamic was taking place. Only a small percentage of technology organizations closed. Large-scale layoffs were occurring, but they weren’t letting go of the best people. It was pure “top grading” organizationally. A good 25% of the Bottom 50% of technologists were washed out. But very few of the best engineers were on the market. Companies cut to the bone. Worker productivity increased because there were less people to complete the same workload. But you can’t get blood from a stone. Eventually they had to add talent.
In Q2 2009, the technology job orders started coming in. But they weren’t the job orders of the past. Clients wanted to add multi-faceted talent that could actually fill two roles or more. They wanted a 90% skill fit. They wanted them cheap. And in most cases, they want to bring them on board temp-to-perm. This didn’t work. The decision makers “thought” they could pluck premium talent like in 2003. But the dynamic was different. The best-of-the-best was not on the market. The people that could fill these roles were often employed.
However, employed does not mean happily employed. According to market research organizations, up to 60% of employed workers are unsatisfied in their current role. This is driven by salary freezes since 2008, lack of bonuses and being overburdened in their workload. But we were in the middle of a recession, and people were willing to stick with the devil they knew, as opposed to the one they didn’t. So the open positions at companies remained unfilled.
By Q3 of 2009, companies realized they needed to hire and couldn’t hold out for that 90% skill fit. Unsatisfied employees were confident enough in market condition improvements that they were willing to take a chance in leaving their current firms. Hiring occurred. But each person leaving the current company left a large void. Organizations had to scramble to backfill these positions, or they would fall behind in their corporate initiatives.
In Q4 2009 the dam broke. Hiring in technology was back in full swing. The basic tenets of “supply and demand” dictated it. Organizations need to hire. Engineers changed jobs. Companies need to backfill those positions. And the game of “musical chairs” was on. And it’s still in its’ early stages.
Technologists are the definition of highly skilled labor. Only a small percentage of workers have the ability to even understand the work that needs to be done in technology, no less be effective at it. And technology, when used effectively, is a value proposition for the organizations that embrace it. Capital spent on technology initiatives is capital well spent, because it improves the bottom line.
Regardless of the US economies overall woes, technology is one of the first areas to show positive improvements in hiring. And I expect this to continue. We see it continuing right now, in Q1 of 2010.
That being said, there are still hurdles. There are very few large scale initiatives in hiring. Organizations are, for the most part, looking to hire individualized skill sets. But the skill fit is dropping to more reasonable levels. Hiring velocity is improving. Candidates are beginning to get multiple offers, as opposed to just that one right offer. And every unhappy employee that sees’ one co-worker leave is pushed one step closer to joining the massive game of “engineering musical chairs” that will change the org charts of almost every technology company in Atlanta and beyond.
Best of luck finding the right seat!
-Douglas Kling
Atlanta Tech Recruiting Blog 