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Workforce Trends in the Twenty-First Century

“Two things we know for sure: turnover is costly, and high performers drive business performance.”

—August Aquila and Coral Rice

There couldn’t be a better time to write a book about performance and compensation. One may argue we are amidst a perfect storm. On the one hand, firms are fighting a war for talent that may not end soon. On the other hand, employees (the talent) are increasing their demands in terms of what they want in the work environment.

Welcome to the twenty-first century with all its challenges and opportunities. As we begin this book, we can share immediately that creating a high-performance culture is more difficult than ever, and you can no longer evaluate, compensate, and reward owners and staff members the same way you did just a few years ago.

The only constant of which we’re aware at this time is change. The United States may or may not be moving out of a long and deep recession that began in late 2007. Although the stock market (Dow Jones Industrial Average) returned in late 2011 and early 2012 to its near historical highs, the number of unemployed people remains high by historical standards. The lingering question is, “Where are the jobs?”

The past few years (from 2009 to early 2012) have not been kind to the accounting profession. Many firms, especially those in the top 100, reported flat or declining revenue and find themselves in what some call a no-growth industry. This downturn came after significant layoffs of owners and staff members the previous year. This may well be one reason for the increase in mergers among the large regional and midsized firms.

These “one-two punches” of poor job growth and merger mania, along with succession challenges due to the demographics of most accounting firms, are causing firm leaders to rethink how they operate; compete; and, above all, compensate owners and employees. Unfortunately, it often takes a crisis to cause firms to be less complacent, more open to change, and more accountable.

Current economic and market changes, organizational and job restructuring, as well as changes in compensation philosophy, are causing firms to revisit and change their compensation plans and reward mechanisms. Firms are also linking compensation more closely to executing business strategy and achieving desired outcomes. We have identified 11 work trends that have significant implications for compensation. We are sure others exist, but we believe these 11 will continue to have the most influence on your practice over the next decade:

1. Rapid pace of technological change

2. Shifting demographic patterns

3. Job sharing

4. Permanent part-time positions (roles) at the owner and employee levels

5. Globalization of the workforce

6. Employers demanding higher skills

7. Lack of clearly defined and stable jobs

8. Flattening of organizations

9. Women in leadership roles

10. “Around-the-clock” economy (24/7)

11. Trust

We elaborate on each of these 11 trends in the following sections.

Rapid Pace of Technological Change

Only a fool would doubt that the Internet and other tools and technologies (iPhone, iPad, Facebook, Twitter, LinkedIn, and so on) have drastically changed the way we work and communicate, market, and build and retain client relationships. More than anything else during the past 20 years, technology has revolutionized the workplace and the way we produce services and products. It has created more workforce flexibility. For example, it’s not unusual for people to work remotely from another site or state. Although it has raised the skill requirements for many jobs, it has lowered the skill requirements for others.

Although no one can predict what the workplace will look like in the next 50 years, it has been said that the pace at which things change will continue to increase, and we are only seeing the tip of the iceberg. As a result, the nature and face of today’s accounting firm and its people will also change.

Shifting Demographic Patterns

Baby Boomers (born from 1946–66), Generation X (born from 1967–80), and now the Millennials (born from 1980–89) coexist in the workplace. The Millennials, 70 million strong, will soon become the largest segment of the U.S. workforce. Like the Baby Boomers before them, they will change and redefine the workplace. In fact, they have already started to do so. Unlike the Baby Boomers who lived to work, however, this generation has a more balanced approach to life, and some might say they work to live. They also expect their work to be more meaningful and challenging. Baby Boomers were certainly interested in climbing the career ladder, and Millennials are interested in doing so at a much faster pace.

Even though Millennials say they don’t want to leave, if that movement doesn’t happen according to their plan, many are willing to move on. Millennials are either looking for their next challenge or do not want to perform the same duties and responsibilities for the next 3–4 years. The following statement, quoted in the Fall/Winter 2009 edition of Notre Dame Business, from 21-year-old Chanel Scott, a senior accountancy and economics major, sums it up when she accepted an offer from True Partners Consulting in Chicago. “Everyone being respected on an even playing field was something that really sold me on the company,” she said. In addition, the company’s transfer policy allows employees the option of switching jobs after 12 months in their current positions.

According to the United States Census Bureau, 1 in 6 Americans will be age 65 or older by 2020 (compared with 1 in 8 today). If firms continue to provide salary increases each year to employees who meet and exceed expectations, will they be able to afford these employees as their salaries approach or exceed market levels? What about health benefits? Will firms be able to provide large portions of insurance premiums, especially when an aging workforce will naturally have more health issues and physical disabilities. For those firms that are unable (or unwilling) to provide such compensation increases or health care benefits, or both, will they be subject to more allegations of discrimination, potential lawsuits, or regulatory investigations?

Perhaps the most significant employment trend over the next 20 years will be the aging of the American population. During the past several decades, Baby Boomers, most of whom are non-Hispanic whites, have dominated the U.S. population and labor force. As they reach old age, however, they are being replaced by a younger cohort that is much more likely to be more representative of the population (Hispanic, Asian, or multiracial and women).¹

The AICPA’s Diversity Statement provides firms with a clear vision of today’s and tomorrow’s workforce:

The American Institute of Certified Public Accountants is committed to being recognized as the premier national professional organization. To achieve this status, it must lead in encouraging, valuing and fostering diversity in its membership and in the workforce. The AICPA has decided to reaffirm the importance of diversifying the accounting profession and promoting workforce diversity by making these objectives among the AICPA’s highest priorities.

Many firms are embracing the AICPA’s diversity statement. For example, in 2006, Ernst & Young LLP was honored as one of the top 50 companies for diversity by DiversityInc magazine. In recognition of the firm’s commitment to workplace equity, Ernst & Young ranked 24 overall, and it ranked sixth on the magazine’s top 10 companies for GLBT (gay, lesbian, bisexual, and transgender) employees list. The firm also appeared for the eighth consecutive year on both FORTUNE magazine’s 2006 100 best companies to work for list and Working Mother magazine’s 2006 100 best companies for working mothers list.

Job Sharing

Job sharing is often considered part-time employment. On the contrary, job sharing is when two people share the responsibility for performing one job. Often, they do it to achieve a healthy work-life balance (many employees who job share have small children). Job sharing requires the sharing employees to work as a team and figure out how they will get the job done. Although job sharing is still a novelty in the accounting profession, some firms are starting to explore its viability.

Job sharers rely on the old saying, “Two heads are better than one,” and there’s truth to the lore. Two people often do a better job than one, especially when it comes to client service. Job sharers have the advantage of a partner to bounce ideas off and to whom they are more accountable. Plus, they often have greater job enjoyment and satisfaction.

Permanent Part-Time Positions at the Owner and Employee Levels

The accounting profession has utilized the employment of permanent part-time people for some time. Firms began by hiring the same per diem tax preparers each year, and we now see permanent part-time employees, including owners and senior-level professionals. In several of our client firms, owners have reduced work schedules, most often working 50 percent to 75 percent of the time. Our experience has been that a permanent part-time position works well for women with children. Although compensation is reduced accordingly, these arrangements work well for all parties: the owner and employee, colleagues, the firm, and even clients. One of August’s clients, a sole practitioner, created a part-time position for himself by transferring many client relationships to others in the firm.

Temporary employment always seems to grow whenever the economy is unstable. Given the unknowns about the economy in years to come, organizations are much more open to permanent part-time hiring, and we expect to see such employment arrangements become a permanent fixture to the labor market.

Globalization of the Workforce

Many can still remember a time when there was a geographical bond between producers and consumers (for example, Whirlpool and Maytag products were manufactured and assembled in the United States and most buyers lived in the United States). Today, that geographic bond is gone. Manufacturing and the jobs that go with it have spread to far-reaching areas of the planet. Some call it anti-American to outsource jobs, but professional services firms, along with so many other providers of products and services, must decide not only how work gets done but where it gets done. Law firms, financial services firms, banks, and technology firms have been outsourcing work to India and China for some time. Accounting firms in the United Kingdom also outsource work to lower-cost countries.

Although some firms have decreased how much they outsource, a few firms today outsource most, if not all, of their tax and accounting work to states or countries in which employee compensation is significantly lower than their own. This gives these firms a financial, if not competitive, advantage. More than at any time in the past few decades, we have seen the deflation of product prices. Will the same happen to professional services? If so, this will compel them to take a closer look at whether they should use the global labor market.

Employers Demanding Higher Skills

Long gone are the days when a number 2 pencil and an eraser were all you needed to go into accounting. Not only do the entry-level professionals of today need accounting, technology, and other business skills, but those who stay in the profession generally continue to upgrade and develop new consulting and business skills. Over the years, the AICPA has added several specialist designations, such as Personal Financial Specialist (PFS); Accredited in Business Valuation (ABV); Certified Information Technology Professional (CITP); and, most recently, Chartered Global Management Accountant (CGMA).

Clients are demanding that their professional services providers are more than generalists. Hence, the profession has responded with these designations to meet a market need. Growth in most firms today comes from specialty services and niches, not general accounting. The 2011 top 100 firms published by Accounting Today magazine lists 30 niche services, with the top 10 as follows:

1. Business valuations

2. Nonprofit organizations

3. Forensics and fraud

4. Litigation support

5. Estate, trust, and gift tax planning

6. International tax

7. State and local taxes

8. Industry specializations

9. Attest services

10. Mergers and acquisitions

Sarbanes-Oxley Act of 2002 compliance and risk management engagements, which ranked at the top as recently as 2004, is now listed as number 19. So, the challenge is not only keeping up with the number of niches that require specialty skills but also with the speed at which they rise and fall. No doubt firms will continue to invest in the development of their people, so they are well-qualified to deliver current services. However, they also need to reward those who develop needed skills for the future. The December 2011 issue of Money magazine contained the following chart (table 1-1) that points out that over the last 3 years, companies are having a more difficult time finding highly skilled talent:

Table 1-1: Locating Highly Skilled Talent Trends

Lack of Clearly Defined and Stable Jobs

There was a time when jobs were more clearly defined and did not change rapidly. In today’s environment, that is no longer the case. As firms offer more diverse services and serve clients through teams, professionals must learn how to work under different roles: team leader, contributor, and so on.

Positions today are tied more to the firm’s strategic initiatives that change from year to year, if not more often. Firms now need to define (or redefine) on an annual basis firm, team, and individual goals and ensure employees understand their roles and develop the mindset and skill set to perform within this structured organizational framework.

Flattening of Organizations

Over the past few decades, we have seen firms move to flatter organizational structures. Simply put, they have fewer layers of management. All owners no longer report to the managing owner. The belief is that a “flat” organization can make decisions faster. In a rapidly changing environment, this can serve as a competitive advantage. In a “flat” organization, department and function leaders make more daily decisions, such as client service and new client acceptance, with limited overview. These leaders should, of course, be held accountable and responsible for the success of their areas. Wow! Can you imagine holding owners and others accountable for their department or team performance? You can’t be a control freak in a “flat” organization because there is no room for micromanagement. A “flat” structure requires you to let others make decisions and even err at times.

Women in Leadership Roles

Over half of accounting graduates in recent years are women, and there are a significant number of firms in which a majority of professional employees are women. Even so, women still have some catching up to do, or should we say, firms have some catching up to do.

Only two women are currently managing owners of the top 100 accounting firms. When it comes to pay equity, the average salary of female accountants in the United Kingdom is currently 81 percent of the average male salary, up from 77 percent in 2010, according to research by specialist financial recruitment company Marks Sattin.² In 2007, Smart Pro conducted the opt-in unscientific online survey from November 28, 2006, to February 12, 2007, and received 621 qualified entries from SmartPros readers. This survey indicated that, on average, female CPAs were making 66.5 percent of what their male counterparts were averaging.

The results (CPA-certified respondents only) are as follows:³

According to a study (“A Decade of Changes in the Accounting Profession: Workforce Trends and Human Capital Practices”) conducted by the AICPA’s Women’s Initiatives Executive Committee, women now account for 19 percent of all public accounting firm owners.⁴ This is a 58 percent increase over the last 10 years, and this trend will only increase based on the number of women graduating with degrees in accounting. The report concluded that the accounting workforce is changing faster than human resources policies can adjust, noting significant gaps between what firms think motivates and retains people and what is effective in actual practice.

Because of the large percentage of women (and Millennials) in the profession, firms will be challenged to provide family-friendly schedules, roles, and other solutions for men and women who need flexibility in light of child and elder care. These solutions may include

• job sharing.

• part-time employment.

• working from home or telecommuting.

• flexible start and stop times.

• flexible core business hours.

• periodic paid and unpaid work interruptions for child and elder care.

“Around-the-Clock” Economy (24/7)

We live in a global economy that never seems to stop. In fact, both August and Coral have recently attended meetings or conducted webinars for international clients. We can be in our offices on Thursday afternoon conducting training for firms in Australia where it’s already Friday morning. Technology such as Skype, videoconferencing, GoToMeeting, Adobe Connect, smartphones, and even e-mail keeps us connected to work, friends, and the rest of the world 24/7.

Most people yearn for a healthy work-life balance, and although it can certainly be achieved, the reality is that it’s becoming increasingly difficult in this nonstop world. Work days no longer end at 5:00 PM or 6:00 PM. We no longer walk out the door considering ourselves finished with work and go home to enjoy the rest of the evening.

We now check our e-mail at our child’s swim meet or baseball game and pick up our voice messages while driving or waiting for a colleague. Welcome to the virtual world of work. To be successful in the 24/7 environment, both employees and employers are taking advantage of opportunities to work on virtual teams. This often reduces travel time and allows you to work from home. Finally, we are beginning to judge others on their contributions and results rather than the number of hours in the office (often called “face time”). We urge you to embrace new technology rather than fall behind your peers.

Trust

A good portion of today’s Millennials and Generation Xers have seen their Baby Boomer parents rightsized or downsized out of their organizations. As a result, many of them harbor distrust for the employer-employee “contract” and may rebel against the rigid rules of the conventional workplace. What does this mean for leaders who are striving to create loyal clients when, as we learned from the Harvard Business Review article, “Putting the Service-Profit Chain to Work,” it takes loyal employees to create loyal clients?

Although the individual caught in downsizing may not feel it’s an opportunity, downsizing will breed a new generation of entrepreneurs. This will start the process of regeneration again, and firms that don’t even exist today will be on the top 100 list 15 or 20 years from now. Firms in the future, either through outsourcing or downsizing, will have fewer employees. Hence, it is critical that the compensation plan reward those you want to keep: the top performers.

Nevertheless, a lack of trust within most organizations today is a serious problem. In a recent interview, Stephen M.R. Covey, author of The Speed of Trust: The One Thing That Changes Everything, shared the following:

Most organizations have no clue of the enormous cost of low trust …, and low trust has a huge tax associated with it. It creates a culture of toxicity …. Imagine what it costs the human body to be full of poison. And that is what a low-trust culture is—it is full of poison. You see people embracing and promulgating what I call the six metastasizing emotional cancers … criticizing, complaining, comparing, competing, contending, and cynicism.

Low-trust environments are filled with hidden agendas, political games, interpersonal conflict, interdepartmental rivalries, and people bad-mouthing each other behind their backs while sweet-talking them to their faces. With low trust, you get rules and regulations that take the place of human judgment and creativity; you also see profound disempowerment …. Ultimately, the culture will become driven by urgency rather than importance.

Trust is absolutely necessary in business today. Covey goes on to say that trust “is not only important, it is absolutely vital.” He also knows, based on his research, that it can be measured. Bottom line, when trust is low, costs are higher, and things take longer. When trust is high, costs are lower, and speed goes up, thus “the speed of trust.” Trust is considered to be the leadership competency of the twenty-first century.

Final Thoughts

The preceding trends affect all of us to one degree or another, and we predict they will continue to do so for some time. If firms are serious about creating an environment of superior performance and rewards, they cannot ignore these trends. By addressing these external forces, firms may be able to keep the best and brightest, motivate their teams to perform at their best, and eventually win the war for talent and clients.

No one answer will tell you what to do because there are many answers. The following chapters will address what can be done to ensure your firm creates an environment that will keep high performers and reward them accordingly.