Less than one-third of global companies believe their companies are prepared to meet the human capital challenges they face

• Quantity of skilled workers in developing markets doesn’t meet demand
• Only 46% of critical positions can be filled with internal candidates
• The millennial generation poised brings challenges of its own

LONDON, KYIV, 7 April 2016. The numbers are alarming: only 27% of senior corporate leaders believe their companies are prepared to meet the human capital challenges they face, according to a recent global survey by the Conference Board and Development Dimensions International (DDI) — a leadership consultancy. Talent – even more than capital or technology – may be the key factor organizations confront in enabling and sustaining growth.

To some, the findings are no surprise. David Collings, Professor of Human Resource Management at Dublin City University explains that, “in a lot of organizations, there is a broad recognition that they are behind the curve of where they need to be in talent management. They are struggling with a lot of the issues.” This is in some ways even truer for large, multinational companies — which are the focus of this issue of Tax Insights — than for smaller ones. Collings notes, for example, that after a certain point of growth, companies can struggle to keep track of key talent on a global basis.

Talent-related weakness, however, is something these businesses can ill afford. Facing ever intensifying global competition and shrinking business cycles, agility is essential not just for corporate success but, often, for survival.

Sayed Sadjady, EY’s Americas PAS Talent Leader in New York says: “Today you need a more agile and flexible workforce so that, if the business and operating models shift, the workforce can adjust quickly. This is a major reason why talent is becoming more of an issue on CEO agendas.”

A shifting talent landscape

Ongoing economic globalization, radical demographic changes and cultural shifts arising in the wake of generational succession are reshaping demand and supply of talent at companies.

Sadjady says the deepening economic integration caused by globalization has intensified competition for talent, especially in emerging markets. “In the past, when you thought about Asia, it was how to distribute,” he says. “Now it is about how you set up operations. Are there skills out there at the point of use?”

Generally, there aren’t enough skilled workers in developing markets to meet demand. In such an environment, not only is hiring difficult, retention and engagement are also substantial ongoing issues. EY surveys show that in each of the BRICs, labor-cost inflation is a significant cost pressure for firms — a clear sign of the difficulty of holding on to good people. Ukraine is not much different – says Olga Gorbanovskaya, EY Ukraine PAS Leader, as, according to the most recent EY CEO Survey, conducted in Ukraine (as of December 2015), retention and motivation of personnel is one of the top 5 challenges businesses in the country face at the moment.

According to the United Nations Population Division projections, the proportion of the population in the world’s more developed countries aged 65 or over will rise from 17.6% in 2015 to 23.0% in 2030. In some major markets, the shift is already more advanced. In Germany, for example, the equivalent figures are 21.2% and 28.0%, respectively.

Meanwhile, the millennial generation poised to replace those reaching 65 brings challenges of its own. “A consumerist, self-serve generation has grown up with its members expecting to be treated as individuals, almost as a workforce of one”, says EY’s South Africa-based Global Talent Leader for PAS David Storey.

Substantial debate exists over just how distinct the attitudes and aspirations of the millennials are from earlier generations. David Collings notes that “the research is mixed,” but in terms of engagement, for example, millennials place a higher emphasis on how well an organization aligns with their own personal goals and expectations than did previous generations. They also focus less purely on remuneration.

“These employees are sufficiently distinct that we have to change how we lead,” says Lisa Wadlin, Chief Tax Officer of Wal-Mart Stores Inc. based in Bentonville, Arkansas.

The aspirations and expectations of the young also differ by country — sometimes substantially. A recent survey conducted by the French business school INSEAD, for example, found that millennials in North America, Western Europe and Africa want managers who are a source of empowerment for their employees.

Millennials in Central and Eastern Europe placed more value on technical expertise in their managers, and in Latin America, a manager’s ability to act as a role model was the most prized.

As per EY Best Employer Survey-2015, Millenials in Ukraine want to see a clear career path from the very first days at work, says Olga Gorbanovskaya.

The lack of women in leadership roles also remains an area of concern. A recent International Labour Organization (ILO) analysis of 49 countries found women make up more than 40% of senior or middle managers in just six — all small, usually developing economies. These figures were for the economy as a whole. Given the use of gender quotas by many governments, the ILO warns that the figures in private enterprise were probably lower.

The changing composition of the tax function

Today’s tax functions are experiencing an era of nearly unprecedented change. The pressures and opportunities of global competition are leading companies to do more in terms of genuine global optimization. A good example is the shift toward managing human resources (HR) on a globally optimized basis. Relative tax rates, including incentives for hiring, training and development, can play a key role in determining the optimum placement for a global workforce. Add the complexities associated with global expatriate programs, and it is no wonder that the tax department needs closer ties to HR.

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