Talent trouble tops the C-suite agenda

Insights from KPMG conversations with senior executives, where staffing shortages loom large amid economic challenges.

The economic slowdown, mounting inflation, and rising interest rates are already a daunting triad of challenges for U.S. businesses. At the same time, senior executives are coming to the realization that talent shortages and wage pressures may be their most acute pain points for years to come. 

Although lack of workforce participation may have reached its height during the pandemic, difficulties attracting talent promises to be a lasting challenge. Childcare shortages have only improved minimally. And retiring Baby Boomers, the Great Resignation, and incidences of long COVID will take a large swath out of the available talent pool for years to come, according to KPMG Chief Economist Diane Swonk. Long COVID is currently sidelining two to four million workers, and, on any given day, the number of people out sick is 60% above normal.1

Retaining talent amid the pressures of inflation and wage demands was cited as a top concern by 73% of respondents to the KPMG 2022 CEO Outlook survey. And, through KPMG’s conversations with senior executives, it has become clear that staffing concerns are at the top of the agenda across the C-suite.

“We are operating with a headcount that is 25% lower than what we actually need to operate our plants,” says one manufacturing Chief Financial Officer (CFO).

73%

of CEO's cite retaining talent amid inflation and wage pressures a top concern.
 

60%

The increase in workers out sick, on any given day, compared to normal levels.

We need to see either a very large increase in productivity growth or a sharp slowdown in wage growth to alleviate the upward pressure on unit labor costs and inflation.
Chief Financial Officer

Wishful thinking

Many C-suite executives echo the comments of one CFO who says, “Softening in the economy is likely to help ease the staffing shortage by making employees think twice about looking elsewhere for employment.” Carl Carande, KPMG Advisory Vice Chair and International Global Head of Advisory, cautions that this mindset could backfire.

Many C-suite executives are taking this advice to heart. “We’re trying to keep up with the competition and do as much as possible to keep key people on staff,” says one equipment and components CFO. “In many instances, however, we are out of step with the market and playing catch-up to address the bottom-line issue of base compensation.” Others are offering incentives beyond compensation including quarterly bonuses for key contributors and up-front payments for new employees.

Some executives hold the view that the recession will help drive people back to the office. However, according to 45% of respondents to our 2022 CEO Outlook survey, hybrid work models are likely to continue to be the most popular way of working over the next three years.

Leading with trust

Trust engenders stability, but in an era of increasing distrust, strong and resolute leadership is essential.

Navigating uncertainty by leading the way

Uncertainty no longer feels like a short-term challenge, but an ongoing reality to plan for—and perhaps even leverage to expedite new opportunities, such as digital transformation.

Teaming for success

The large majority (86 percent) of the female leaders in our survey emphasized the importance of collaborative decision-making with teams to further build trust while also expanding the range of valuable insights.

Enhancing the future of work

An employee-first culture means providing essentials like workplace flexibility, opportunities for growth, mental health support, and more.

Moving forward with confidence and clarity

Times of crisis are also opportunities for leaders to step up, instill confidence, and establish a larger spirit of resiliency for the entire organization.

A recession, along with higher unemployment, will not cure structural labor problems, he says. At least in some industries, attracting top talent is going to take unprecedented flexibility and a whole new mix of incentives.
Carl Carande, KPMG Advisory Vice Chair and International Global Head of Advisory

When it comes to wages, there is some concern that succumbing to pressure can be a slippery slope: “As we consider increasing wages, we have to keep in mind that, once you do it, there is no going back,” says one automotive Chief Supply Chain Officer (CSCO). There may be some justification for this concern: After factoring in a 2.4% productivity decrease, unit labor costs in Q2 of 2022 increased 9.3% nationally—the fastest pace in history, according to KPMG Economics.2 And it is predicted that average wages will increase another 6% over the next year.3

Some companies are getting around this issue by hiring more remote employees from out of state. According to one government agency CIO: “With flexible work-from-home policies and a focus on recruiting from outside our geographic area, we have more wiggle room with our wage offerings. And, at the same time, we have become a more attractive employer, particularly among younger talent.” 

It’s not just about money

Of course, compensation is important to almost all employees. However, there are other factors that should not be overlooked.

Remaining competitive requires senior executives to “articulate how employees can contribute to the strategy and success of the company,” says Sandy Torchia, KPMG Vice Chair of Talent and Culture. In addition to fostering an environment where people can grow and thrive.

Encouragingly, many C-suite executives are committed to holding fast on DEI programs, even in the face of potential downsizing. 

Organizations should keep a regular pulse on how employees are holding up professionally, physically, and mentally, and put diversity, equity, and inclusion (DEI) at the center of everything they do.
Sandy Torchia, KPMG Vice Chair of Talent and Culture

A leading technology Chief Diversity Officer (CDO) applauds companies’ fortitude on diversity, even in the face of the economic downturn: “It’s about more than just filling roles. It’s about cultivating talent for the long run.” 

Footnote

1. Intelligent Compliance with Global Regulations, KPMG LLP (US), 2022.

2. Fernald, J.G. and H. Li, The Impact of COVID on Productivity and Potential Output, August 26, 2022.

3. Fernald, J.G. and H. Li, The Impact of COVID on Productivity and Potential Output, August 26, 2022.

Contact us

Carl Carande

Carl Carande

Global Head of Advisory & U.S. Vice Chair, Advisory, KPMG U.S

+1 212-909-5650