Managing portfolio company talent in the ‘Great Resignation’

Even as firms keep a closer eye on their own internal talent pipeline and adjust their strategies for recruiting and engaging with employees accordingly, they must also be mindful of the effects of labor market constriction on their portfolio companies.

By Angela Geffre, Sun Capital Partners

As the US economy continues to rebound – in fits and starts – from the depths of the pandemic, companies across virtually every industry are grappling with a hyper-competitive labor market. Good talent is harder to attract, more expensive to add, and more challenging to retain than ever before.

Angela Geffre, Sun Capital Partners

In addition, as can be seen in numerous breathless headlines, workers are leaving the labor force in historically high numbers, as part of what many are calling the “Great Resignation.” Though the reasons for the sharp increase in exits from the job market are complex and the numbers vary from industry to industry, quit rates are undoubtedly also playing a role in the tightness of the labor market. From April 2021 through November 2022, nearly 33 million people, representing a fifth of the total US non-farm workforce, left their positions, according to the Bureau of Labor Statistics.

For the private equity industry, this confluence of factors presents some unique problems. Even as firms keep a closer eye on their own internal talent pipeline and adjust their strategies for recruiting and engaging with employees accordingly, they must also be mindful of the effects of labor market constriction on their portfolio companies, especially among high-value employees.

That means actively engaging with portfolio companies on strategy and tactics, regardless of whether they have a robust HR function. Bringing an outside perspective and extra capacity can be invaluable for overworked HR teams.

With that in mind, here are four key strategies private equity firms can adopt to keep themselves ahead of the curve to ensure that talent shortages and resignations won’t overly disrupt operational performance:

More frequent communication

With the drivers of retention changing regularly, organizations need to better understand the factors that are influencing and motivating employees. That requires both more active listening from HR leaders and more frequent surveying to take the pulse of the workforce on issues such as work-from-home, covid-related challenges, compensation, benefits and career growth.

There are a number of cost-effective, off-the-shelf survey products that can help, such as Glint, owned by LinkedIn, or SurveyMonkey, so this does not need to be a heavy lift or cost burden. But if organizations are not showing employees that they are listening to their concerns, and doing it regularly, they leave themselves open to unpleasant surprises.

Focus on critical roles

Companies must take a hard look at their most critical players below the C-level and consider offering retention agreements to retain staff they can simply not afford to lose. This is especially important for companies getting ready for sale, where having the right talent in place can make or break a deal. For some employees, the idea of signing a retention agreement can seem restrictive, but there are ways to structure arrangements that do not make staff feel handcuffed.

Over-recruit and widen the funnel

Now more than ever, over-recruiting and volume hiring is necessary – especially in industries such as retail and food service where turnover tends to be higher. Having a pipeline of qualified candidates that can fill gaps in the event of resignations can help ease operational challenges, but it requires leg work up front by HR teams. Proactively working with recruiters, as well as using new technology tools to widen the talent funnel, will allow HR managers to pivot quickly. HR leaders can also partner with external firms, like ECA Partners, to help continually source qualified talent.

Companies might also consider looking for talent in new places. One such resource is The Mom Project, which focuses on helping skilled women with families return to the workplace. Being more creative about the pool of candidates in consideration can bring new ideas and vitality to the organization while at the same time driving diversity.

Exploit the network effect

Private equity firms commonly leverage the scale of the portfolio to optimize vendor relationships, lower costs of goods and realize other benefits across companies. Similarly, it’s a standard practice for portfolio CEOs to come together once a year to strategize and share learnings. This principle should be applied to the HR challenge. Scheduling quarterly or biannual meetings where HR teams from companies in multiple industries can brainstorm and exchange successful strategies has the potential to pay huge dividends.

As labor market challenges continue to play out in 2022, we would expect to eventually see some easing for employers, but change will be slow rather than sudden. Instead of waiting for portfolio companies to raise the red flag that employees are heading for the door, private equity firms should be working with them now to navigate the talent shortage. This will require listening more closely to their employees, maximizing the chances of retaining their best and brightest, rethinking how they identify and bring aboard new talent, and leveraging best practices from peers.

Angela Geffre is chief human resources officer at Sun Capital Partners