Fire-Rehire Practices Particularly Inefficient in a Tight Talent Market

It was an excellent question for which there was no easy answer.

“How much are we spending to lay off people and then rehire them within a year?”

The person asking the question was a senior HR executive at one of our largest clients. The people fielding the question were all the senior members of the HR team.

There was a lot of nervous fidgeting. Like so many employers, this company did not formally track its boomerang employees—people who were let go from one position but rehired for a different job in the same company—and thus had no firm answer.

Finally, one of the people on the hot seat spoke up. “It’s hard to be specific, but I think you could easily say ‘millions of dollars.’”

The nervous shifting in seats was replaced by hard gulps.

In many organizations, the financial resources wasted on firing and rehiring the same people can be enough to make grown HR professionals cry. We know of client organizations that, in the course of a single year, hire back as many as 25% of the people they lay off. Our data further suggest that larger corporations on average rehire 10-15% of their laid off employees. With numbers like that, it’s easy to see why the fire-and-rehire cycle is among the most wasteful talent management practices today.

The bigger question in this scenario—one which senior HR executives will eventually get around to asking—is what should be done to reduce or eliminate this wasteful practice? 

While there is no easy answer, one solution is to embrace a redeployment strategy—and not just as part of a redundancy process, but as part of a larger talent retention strategy.

Indeed, a strategic workforce plan that features an integrated redeployment strategy would allow an organization to analyze every layoff decision to ensure that the person involved does not have value in some other role within the organization or that their skillset and experience won’t be needed sometime in the immediate future. 

Redeployment ensures that talented individuals are not inadvertently shown the door to meet head count targets. It also ensures that a company is seizing the opportunities to reskill and retrain highly valued employees, rather than going through the costlier and less certain process of recruiting people externally. 

It seems simple enough, except for the fact that it doesn’t happen all that often. 

In LHH’s 2018 Severance and Separation Benefits survey, respondent organizations were asked if they had conducted an analysis to compare the costs of terminating employees to the cost of redeploying them.

A remarkable 61% indicated they did not compare the costs of a layoff with redeployment. And of those who did an analysis, only 19% followed through and implemented a redeployment strategy. 

For many organizations, the failure to do this type of comparison could be a costly mistake.

One of our clients, a global technology company, agreed to conduct a detailed comparison of the costs of termination versus redeployment. With our help, this company found it could save just over $1.17 million US in severance and outplacement costs in its European region alone.

There are a variety of factors that stop organizations from embracing redeployment, but the biggest hurdle may be the structure and culture of HR itself.

Too many silos. To be effective, redeployment must involve all areas of Talent Management, from search and recruitment to hiring, assessment, learning and career development and, ultimately, career transition. Unfortunately, HR professionals will tell you that there just isn’t enough collaboration between key HR functions to make that possible. As a result, hiring and firing decisions are often made without effective collaboration across the HR expertise fields.

A lack of C-suite support. The successful redeployment programs we’ve helped facilitate require executive mandates to consider internal candidates ahead of external hires. Then, internal job advocates work with talent managers to identify human capital needs and assist with the matching of qualified internal candidates. In the absence of that executive mandate, there will be resistance to redeployment.

A tendency to hoard. At the front line of leadership, many managers hoard talent to the point where they would rather keep someone mired in a limited role rather than let them grow into a new and more demanding role in another part of the same organization. This prevents other areas of the company from reaping the benefits of redeployment or reassignment through reskilling.

These challenges explain why some companies endure waste rather than implement a solution. However, current labor market conditions should give most employers the motivation to revisit the redeployment option.

All over the world, employment numbers are reaching their highest levels since the 2008 global recession. The OECD unemployment rate has been falling steadily and is expected to reach 5.3% by the end of 2018 and 5.1% the following year. 

In the U.S., the Bureau of Labor Statistics reported this summer that for the first time ever, there were more job openings than unemployed people. This speaks to the profound talent shortage that slows productivity and growth. And it adds to operating costs that come from being unable to find talent when it is needed most.

According to the World Economic Forum, the talent shortage is extremely costly for employers and for national economies. In China, inability to source talent is estimated to cost the economy $250 billion US annually. In the U.S., the annual cost is $160 billion US. In the United Kingdom and Australia, respectively, the skills gap costs $29 billion US and $6 billion US per year.

In the midst of such a chronic and lengthy shortage of talented workers, employers should be encouraged to start building a strategic workforce plan to ensure that top talent isn’t inadvertently being jettisoned to meet other HR goals.

However, that’s not the only scenario under which redeployment should be implemented. Mergers and acquisitions, or any transformation initiative that will result in significant change to your workforce, arguably could include some form of redeployment program. Lamentably, those programs remain out of reach for many organizations. 

One of the biggest barriers to redeployment is that far too many organizations do not have the structures or processes in place to map the talent they currently employ. Outside of some basic job descriptions, most organizations do not know what other talents their employees may have, what skills or competencies they have acquired on the job, or what career goals their employees may desire. In addition, many employers have not done a talent or skill analysis to find employees with transferable skills that could be easily applied to another job within the same organization.

Too many of these employers also lack a system that notifies employees on a regular basis of job opportunities in other areas of the organization. This is a big problem when you consider that, thanks to social media platforms like LinkedIn, most employees are already being bombarded with notifications of external job opportunities, while getting little or no information about internal openings.

The really frustrating part is that, across the spectrum of HR functions and departments, much of that information is theoretically available. Unfortunately, in some companies there is very little information sharing between, say, talent acquisition and the people managing career transition. When the people hiring are not talking to the people doing the firing, you have a high likelihood that you’re going to waste valuable talent.

Organizations need to start working now on solutions that will provide greater insight and transparency into their existing talent ranks. 

Beyond saving money on severance and recruitment costs, the benefits of utilizing a redeployment strategy include higher engagement rates, increased talent flexibility and retention of top employees. Without redeployment, organizations run the risk of a high turnover rate, which in turn means a loss of institutional knowledge and a massive increase in the costs of recruiting new talent. 

Talent mobility is not just good for employers; employees too can benefit from taking control of their career paths and opening themselves up to the possibilities that come with acquiring new skills or transferring skills to an entirely different area of the same organization.

Talent is in short supply right now. Best-in-class organizations that have already implemented redeployment strategies not only save considerable financial resources on severance, career transition and recruitment, they also have a definite competitive advantage in the war for talent. It’s an excellent time to put the processes and solutions in place to ensure that you don’t get caught in the fire-and-rehire cycle.