How The CEO-CHRO Relationship Must Shift

To meet today’s daunting human capital challenges, CEOs need to work with CHROs on a whole new level of support and collaboration.

For years, human capital was abundant. But today, human capital has become a scarce and precious commodity—and it’s only going to get worse.

Short-term labor shortages are rising, with Microsoft’s 2021 Work Trend Index finding that 41% of the U.S. workforce is considering leaving their employer this year. Long-term trends are even more disturbing.

And long-term trends show labor shortages will not go away soon. According to a report by the Conference Board, the pool of working-age people in the U.S. will barely grow over the next decade, with 85% of employers in “mostly blue-collar industries” already experiencing tight labor markets.

These trends portend widespread challenges in attracting and retaining workers. CEOs must now prioritize human capital strategies by elevating HR and giving Chief Human Resource Officers a seat at the top leadership table.

CHROs and Business Outcomes

CHROs must be transformed from program administrators to top-tier advisors who work with CEOs on meeting human capital business objectives. It starts by studying the reasons employees are leaving and developing action plans based on exit interviews, surveys and focus groups. 

According to an article by McKinsey, many companies don’t understand why their employees are leaving in the first place. “Rather than take the time to investigate the true causes of attrition, many companies are jumping to well-intentioned quick fixes that fall flat…They’re bumping up pay or financial perks, like offering ‘thank you’ bonuses without making any effort to strengthen the relational ties people have with their colleagues and their employers. The result? This transactional relationship reminds them that their real needs aren’t being met.”

CEOs and CHROS must remove the guesswork about why employees are leaving and create informed executive-level strategies based on validated employee needs, which might include paying living wages, providing career paths or more workplace flexibility.

For example, research shows that burnout and lack of work-life balance are factors in worker attrition. To meet these challenges, CHROs will need CEO support in areas like job advancement opportunities, designing supportive workplace cultures and creating new workplace policies.

Moreover, CHROs should be granted authority to initiate sweeping changes like redefining the company’s purpose, redesigning company culture, collaborating with customer service and working with PR to boost the company’s reputation as a great place to work. 

Ensuring Workplace Well-Being

Abundant research shows that employee well-being is core to retention, engagement, and performance and must become a C-Suite priority.

But CEOs must first understand that “workplace wellness” has evolved from physical fitness programs to whole-person approaches that address mental health, financial security and supportive workplace cultures.

This is why CEOs must stop approving outdated wellness programs that focus disproportionately on physical health and insist that HR enact whole-person well-being initiatives that more fully address employee well-being. 

Because no two workplaces are the same, well-being initiatives must combine evidence-based best practices with informed insights into particular workplace populations to ensure meaningful employee outcomes and business returns.

Target took this approach after workers criticized the retailer in 2019 for increasing wages, but also cut employee hours which made it difficult to keep their health insurance and in some cases to pay their bills.

The company responded by raising minimum wages to $15 an hour, creating flexible work schedules, providing more work opportunities, allowing some associates to train in other roles and giving bonuses during the pandemic.

The result? Turnover is significantly lower than 2019, noted John Mulligan, Target’s Chief Operating Officer. “And as turnover decreases…we get team members that know their job. We get team members that know their guests that are in their stores because they are in there weekly. They can engage with them,” he said during a recent earnings call.

Boosting Employer Reputation

Employers must cultivate reputations as great places to work. This includes articulating a purpose that ignites employee morale and engagement.

A recent McKinsey survey of over 1,000 U.S. companies found only 42 percent felt their company’s stated “purpose” had much effect because most purposes are “so generic that they do little to challenge business as usual, and others don’t emphasize the concerns of employees.”

A Porter Novelli Purpose Tracker Survey (2020) found that 70 percent of employees won’t work for a company without a strong purpose, 60 percent would take a pay cut to work at a purpose-driven company and 92 percent of employees at companies with a strong sense of purpose are more likely to recommend their employer to job seekers.

CEOs and CHROs must collaborate on purpose to ensure companies speak to employees’ desire for affiliation, social cohesion, purpose and meaning. Purpose can not only help companies become employers of choice, it can also serve as a foundation for meeting new human capital challenges.

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