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Hiring Employees

Managing Hiring Risk and Employment Costs in an Evolving Labor Market
 
American Chamber of Commerce Magazine, Vilnius, Lithuania
 
 by Al Kris
Not too long ago, hiring the “right” people meant surrounding yourself with acquaintances or people that someone in your organization knew… sometimes referred to as the “friends and family” program of hiring practices.  This still exists but there has been a gradual shift to hiring based on merit, qualifications and potential rather than whom you know or who you are.
 
Western companies in particular have been doing this from the start; i.e., attracting the best and the brightest at the expense of local companies who sometimes found it hard to retain top talent.  The initial attraction was the image and novelty of the new company or affiliate, the potential for long-term, steady employment and of course a salary that was competitive by local standards and most importantly, paid officially and on time.
 
Despite all the positives, this did prompt many individuals to switch jobs in pursuit of higher salaries. This trend eventually subsided as job hoppers started to realize that frequent changes didn’t look good on a job application.  Employers for their part were starting to invest more in their employees in terms of training and development so it was important that they not only hire employees who had the right skills and attitudes but those with a commitment to the company as well. 
 
Lithuania’s recent entrance in the EU as well as the lure of off-shore employment opportunities prompted many skilled and unskilled workers to try their fortune elsewhere although European destinations such as the UK, Ireland and Spain seem to be the most popular.  If not for the tight visa requirements the US could easily be added to this list.  No one knows for sure how many will return but the hard reality is that Lithuania is now experiencing a very tight employment market that is prompting companies to review the way they hire, develop and retain employees.
 
Companies that have already committed to doing business in Lithuania are using some creative alternatives to mitigate some of the uncertainty associated with traditional hiring and employment practices. Three of these are discussed in some detail below.
 
Qualifying Potential Employees
 
The Trend - The most noticeable change in hiring practices in recent years has been the need (attempt) to better qualify job applicants prior to hiring.  Some companies have established requirements or standards for all employee grades while others are selective using special screening tools for “high-value” employees.
 
Managing Risk – A standard unstructured job interview and a CV were once considered enough to make a good hiring decision but unfortunately the statistics and validity of this process are very low.  If you hired a “brilliant” sales executive who can’t lead or get along with other members of the team, then you have a real problem on your hands.  It’s not always easy to fire someone but at the same time you know that the sales team could be much more effective with a replacement.  In hindsight, you wished you had had an opportunity to observe how the sales executive works with other people prior to making the job offer.
 
Hire for Attitude – Train for Skills – To get this extra “hiring edge”, many companies try to pre-qualify a job applicant for job-related skills and competencies.  For analytical, reasoning, knowledge or hard skills there’s a variety of well-developed written tests that are good at measuring job-related skills. For competencies such as leadership, interpersonal relations, achievement orientation, creativity, etc., which cannot be easily measured using written tests, simulated practical exercises are very effective. Observing an individual perform and interact with others in a group exercise, for example, provides much more insight into the “real” person than a standard interview.
 
Pay Now or Pay Later – Companies using these tools as part of the selection process are simply buying some additional insurance which makes sense when you consider the cost of hiring the wrong person. The process is not 100% foolproof but it is statistically a much better predictor of an applicant’s future job performance than a CV and an interview. If you hire the wrong person, you may have to find a replacement as well as repair collateral damage (relations with fellow workers, clients, suppliers, etc.).
 
Employee Leasing
 
This is the new “kid on the block” so to speak.  Used for decades in such markets as the US, Canada and more recently Western Europe, it is only starting to surface in this market. A “leased” employee is carried on someone else’s rolls (administratively attached for payroll purposes to an agency/recruitment firm) but works for a third party/company who has “operational” control of the employee. This third party has all work-related responsibilities over this employee (supervision, safety, pay, promotions, time off/vacation, etc.).
 
In the US, the employee “leasing” option is frequently used by companies to avoid or reduce health care and benefit payments which are much higher for permanent full-time employees. Head-count limitation on permanent staff is another reason for using this option.
 
In Lithuania, employee leasing is used primarily to put employees officially on a payroll although some companies are using this to manage permanent head-count limits. The impetus to get employees paid “officially” is now coming from both ends of the spectrum; i.e., sometimes it’s driven by the employer to do things legally and more recently, demanded or suggested by employees themselves who want and understand the benefits of getting paid officially.
 
Periods of employment can range from a few months (fixed term) to several years. Typically, there is no recruitment involved; the company (client) already has one or more employees identified and they simply need to be placed on someone’s payroll.
 
The leasing option is an attractive, cost-effective alternative for companies planning to open a small regional representative sales or distribution office in Lithuania and who don’t want the distraction of payroll administration or the cost of hiring an accountant.
 
Temporary Hires
 
To meet short-term fills and seasonal demand (several days to a few weeks) temporary employees (hires) are ideal for companies that don’t want to invest the time and effort to recruit, hire, train and pay new employees.
 
Unlike employee leasing, an agency is responsible for selecting and qualifying a temporary employee instead of the company (client).  Likewise, the agency and not the company sets the employee’s compensation.  In most cases the company (or client) simply wants to have a certain function covered (secretarial, receptionist, data entry, etc.) on a temporary basis.  The personality (worker) who actually fills the position is secondary.
 
Use of temporary hires is just starting but more companies are using this alternative to cover employees on sick-leave, maternity leave, vacation, especially for smaller firms who may not have the redundancy to shift or reassign workers internally.
 
Most agencies providing temporary help specialize in a narrow set of jobs or positions that don’t require a lot of training “on-the-job” because the assignment, after all, is temporary. For general office help, the list would include secretaries, receptionists, data entry, office administrators, etc.  For factory help, loaders, packers, janitorial, etc. would be included.  Once this becomes a mainstream hiring practice, agencies offering this service will likely expand the choices (job skills) available.
 
Summary – As the local labor market evolves, the one ever-present trend is that people (employees) are increasingly valued as a resource that needs to be treated differently than a hard asset because this investment can literally walk out the door.  As with other investments in a business, managers are clearly interested in acquiring the “right” person from the start – to do that they realize that they need something besides the standard CV and job interview. The tight labor market and increasing cost of doing business has also prompted companies to look for alternatives to traditional hiring practices.  Employee leasing and temporary employment are still unexplored options which should get much more attention and use in the near future.
 
 
 
The Trend to Convergence - US and EU Corporate Governance Standards
 
American Chamber of Commerce Magazine, Vilnius, Lithuania
 
by Al Kris
 
Corporate governance standards on both sides of the Atlantic have always varied in some respect.  That’s natural given the different corporate structures, business codes and laws.  Regardless of the differences, the intent and need to have a workable code of corporate ethics and best practices in place has evolved in a remarkably similar fashion despite the geography.
 
US and EU governments and financial institutions both recognize the importance of transparency, shareholder rights as well as management oversight and accountability for free markets to thrive, prosper and attract new investment.  Corporate governance in Europe, in that regard, had been evolving for some time prompted by other factors such as globalization, EU expansion plans, increased cross-border corporate ownership and stock market activity, the internet explosion, general public awareness and demand for accurate information about companies.
 
The US has long been viewed as the innovator of best practices regarding corporate governance although the Enron scandal of 2001 did blemish this reputation and prompt many outsiders including emerging markets to question the value and credibility of US practices.  As if to add insult to injury, Enron was closely followed by other scandals such as WorldCom and Tyco as well as Parmalat and Ahold in Europe.  For a while it appeared as if the corporate world was coming apart at the seams.
 
Despite the irreparable damage to careers, reputations and personal savings of employees and investors associated with these scandals, there is a silver lining to all this.  Within a year of the scandal, the US Congress passed the Sarbanes Oxley Act (SOX) in July 2002 which mandated new company accounting procedures and other reforms aimed at protecting investors and stakeholders. Company CEOs and CFOs are now required to “certify” financial reports; there are also longer jail sentences for willful misstatement of financial statements and a requirement for auditor independence among other changes.
 
Enron and Sarbanes-Oxely didn’t result in copycat legislation within the EU but it did prompt institutions and regulatory agencies to review and update their guidelines on corporate governance. As in the US, the EU has been careful not to over-legislate corporate governance but rather to set guidelines and encourage implementation of best practices. This approach sets minimum expected behavior for corporations in key areas, allows flexibility and choices for individual situations while encouraging firms to comply with higher, best practice standards.
 
The Corporate Governance Code for Companies Listed on the National Stock Exchange of Lithuania (2004) mirrors this approach. A clear distinction is made on rule of law (local business law) which must be “followed” by companies versus regulatory codes consisting of “recommended” practices which are highly encouraged. The intent is that good corporate citizens will strive to adhere to the “higher” standard rather than choosing to accept the default option of “explaining” non-adherence.
 
The three areas where there appears to be the greatest tendency to convergence or adoption of similar standards includes the following:
 
Independence of Board Members – What used be the “good old boys club” of corporate governance staffed with former company CEOs, friends, inside directors, etc. is slowly being replaced by larger numbers of outside (non-management) directors with no direct ties to the company.
 
In the single-tier corporate board system used in the US and much of Europe, this means that the CEO, in many cases, is the only board member representing management.  As far as having a separate CEO and Chairman of the Board, the EU has made more progress in this area with several countries mandating this separation of duties.  In the US, this has not been mandated; but recommended as a best practice. Since Enron, some companies have adopted this practice but not as many as expected. By comparison, the transition to independent board members has been much greater.
 
Several EU countries have a two-tier system consisting of two boards (a supervisory board and a management board) so this arrangement includes an inherent separation of CEO and Chairman and to some extent independent board members.
 
Audit Committee Independence and Expertise – Most large public companies have three committees (Compensation, Nominating and Auditing) tasked with very specific functions that would be too cumbersome for the board to deal with as an entity. There was a time when committee members either didn’t have any expertise in these areas (especially compensation and auditing) and deferred to the information or expert advice provided my management specialists in these areas.  Resulting decisions lacked objectivity and were tainted by management influence which didn’t bode well for shareholder interests.
 
As a result of Enron and the Sarbanes-Oxley Act that followed, auditor independence is now required while regulatory codes have gone as far as requiring auditor expertise on this committee. The point has been well taken by many listed companies. To minimize risk and/or avoid the perception of symbolic compliance, some firms have fully staffed their audit committee with experts. The recent corporate scandals are still fresh in everyone’s mind and auditing/financial reporting is the one area where corporate boards are not willing to take any risk.
 
Transparency & Disclosure – Even before Enron, there was a general trend for greater transparency and disclosure prompted by increased shareholder activism, globalization, the internet and corporate responsibility. Except for majority holders, shareholders in general have always been kept at arms length from the “real” corporate agenda.   Most didn’t complain as long as the stocked price continued to move upwards and the company was profitable.
 
That all changed with Enron. Some jurisdictions have mandated disclosure of certain information such as CEO and other top management compensation packages.  Boards have come under greater scrutiny as well.  EU countries have their own disclosure requirements but most require information about director compensation, seats on other boards, tenure, shareholdings in the company and age as a minimum requirement.
 
Shareholder activism has been made easier over the years because of improvements in technology, consumer education, changes in personal investment habits and generally higher consumer expectations, so the trend and demand for more disclosure and transparency is likely to increase.   

Summary - Corporate responsibility is on the rise but still has a long way to go.  Company boards and CEO now include this issue in their annual reports and see a business value in being a good corporate citizen.  In today’s environment, following or setting best practice standards makes sense.  Over time, I suspect that that we’ll see a natural convergence and a desire to adopt the highest standards, rather than choosing the path of differentiation or worse, non-compliance.

 

 

You’ve Come a Long Way…Beata!
A Recruiter’s Perspective on Women in the Workforce
 
British Chamber of Commerce Magazine, Vilnius, Lithuania
 
by Al Kris

To borrow a cliché from a popular 60’s commercial, “Women have come a long way”. It’s hard to make an apples-to-apples comparison between Lithuania and established western markets that far back but the local trend today is definitely in the right direction in terms of employment and career opportunities for women

This is not an overnight phenomenon but if one reads the news and connects the dots, there is clear evidence that women are breaking through the proverbial glass ceiling. Today we see very successful and prominent role models not just in government but also in the private sector with women holding top management positions in the banking, insurance, retail, legal and manufacturing sectors, just to name a few.

Demographics, changing attitudes and the new economic realities are contributing factors. Education levels in any country are good indicators of future economic potential and living standards. In Lithuania, this is one area where women pursuing professional careers are not being left behind. One of the most important foundations is access to education. Average female enrollment at Lithuanian universities continues to outpace that of males (59 versus 41% for 2011-12).  That difference is even higher in Master’s programs (68 versus 32%).

Looking at the enrollment numbers by discipline, the advantage remains for women in some areas i.e., 64 versus 36% over men for business studies and 59 versus 41% for law.  For IT and Engineering, the reverse is true; however; i.e., only 11 and 14% respectively for women enrolled in these programs and trending downwards since 2008.

Female students actively participate in foreign exchange programs (Erasmus) and internships. When they enter the professional job market, they’re eager to work, compete and start their careers. In other words, there is life after college and most women want to take advantage of that early on. Staying at home is not a popular option these days unless it’s for maternity leave.

Women comprise 54% of the overall population in Lithuania and they comprise 46% of those employed so at least statistically, they appear to have an advantage. The latest unemployment statistics also show that a fewer percentage of women are unemployed compared to men.

From a recruiter’s perspective, women are serious, assertive, competitive job seekers and often outdo their male counterparts during the interview-screening process.  For most women, a job and a career are serious life pursuits and that’s reflected in their CVs, motivation letters and job interviews. In that regard, many are taking the next step; i.e., starting their own businesses. Examples abound from small enterprises to retail boutiques and consultancies.

Over the last several years, the balance of CVs received for mid-level managerial and specialist positions has been from women. To them, it’s about earning a decent salary, a modicum of financial independence, acquiring work experience and being able to parlay that into promotions, compensation and career opportunities later on.

For hiring managers, it’s about finding the best person regardless if it’s a local or multinational company. Companies today are looking for employees with professional competence, fit, potential and who can ultimately contribute to their bottom line. If a prospective candidate happens to be a woman, she will likely get the job. That said, many firms are interested in having a healthy balance of male/female employees so that might be a hiring consideration over time, but not during the start-up phase.

Job ads in Lithuanian are required to list the position as open to both men and women…so the welcome mat is in plain view…and this encourages applicants of both sexes to apply and compete.  Based on numerous recruitment projects over the last 15 plus years, we have noticed that clients and hiring managers are genuinely open and interested in hiring the best person for the position, whoever that may be.

There is some natural deselection during the recruitment process; i.e., more women apply for traditional jobs such as accountants than male applicants and vice versa for engineering and IT, for example. In an environment of negative demographics (i.e., migration, birth rate, population trends, etc.); however, companys cannot casually discount job applicants; so everyone is important. That is more than a truism in Lithuania whose population is barely treading 3 million compared to 3.5 just 10 years ago.

If there were biases in the past about hiring or promoting women, many of them have faded into the background. In that regard; however, there is still room for improvement in the area of equal pay, promotions and representation in the boardroom. The new reality today is that women are taking advantage of numerous opportunities in the private and public sector to demonstrate their skills and competence …and continue to solidify their role, importance and relevance in today’s job market.

You’ve Come a Long Way… rang true for women in the 60’s (relatively speaking) and remains even more true today.