In
recruitment terms, the financial services industry is well known for taking two
steps forward, only to take more steps back. The pattern is evident: frenzied
hiring during economic prosperity followed by redundancies or hiring freezes
when the market gets tough. This cycle not only incurs unnecessary cost, but
can also hamper long-term growth and stability.
2023
provides a sharp illustration of this trend. Many financial organisations have
imposed hiring freezes - some lasting throughout the year - to curtail
costs, while the uncertain global economy and slowing revenue growth have
brought many companies to the cost-cutting crossroads.
More
than 50% of
fintech firms, for example, paused hiring,
and open roles have been down by 86% in
London. That’s in addition to the hefty job cuts we’ve
seen across the banking sector.
At
the start of 2023, some organisations opted to manage their costs through
attrition, naturally losing employees without rehiring all vacated positions.
While this might seem a more palatable solution than large-scale redundancies,
the results can be just as detrimental.
5 negative effects of hiring freezes
Hiring
freezes, though often seen as an immediate remedy, can have far-reaching
implications:
1. Stagnation through low attrition
Ideally,
businesses hope natural attrition will help manage headcount. However, in a
job-scarce market, people cling to their roles, leading to a lower attrition
rate. This means businesses are forced into a corner and must resort to
redundancies.
2. Missed talent cycle
A
year-long freeze translates to a missed cycle of fresh talent. Finance firms
are missing out on innovative ideas, diverse skill sets and the energy that new
recruits bring.
3. Poor workforce morale
Conversations
I’ve had recently with HR directors and Chief People Officers have reiterated
the latent damage of hiring freezes within their organisations. Unable to meet
revenue targets due to talent shortages, leaders are in the hard spot of not
being able to manage the quality of talent in their teams.
Added
to that existing, potentially demotivated employees who feel trapped with no
other jobs available to go to, and this drastically affects productivity and
innovation. Leaders in this position are forced to manage ambiguity and support their team through uncertain times.
4. Brand perception
Extended
hiring freezes can damage your brand reputation. Potential hires might perceive
your company as unstable or not growth-oriented - and this perception
lasts.
No
matter how good your company’s reputation is, a cycle of mass hiring followed
by a freeze or redundancies
makes future talent wary. What if they join your firm during a hiring period,
only to be either let go in the next downturn, or unable to leave?
5. Inefficiency and loss
The
cyclical nature of hiring and freezing/firing, dictated by market whims, is
expensive and time-consuming. It creates a ripple effect of inefficiencies,
from talent management to financial planning, ultimately eroding shareholder
value.
These
issues highlight the need for a measured and strategic approach to recruitment.
So, how do you go about putting this kind of strategy in place?
Advice for finance firms experiencing a hiring
freeze
Before
reaching the point where financial prudence means making redundancies, finance
firms should think about strengthening their recruitment
process. This means critically
evaluating the old ways. Was your hiring spree before the freeze strategic, or
was it more reactive to immediate needs? We cannot influence stock markets or
slow revenue growth, but we can influence internal processes. By adopting a
more visionary approach, you’ll get a long-term hiring strategy that fits your
needs no matter the market
In
addition to rethinking strategy, it’s important to think about how technology
can shape and support the business. Automation and technology investment can
enhance efficiencies, enabling you to achieve more. While global events and
market volatilities remain unpredictable, if you focus on the aspects you can
control, such as internal processes including hiring, you’ll have a more
streamlined and resilient way to deal with downturns.
One
sector with a more robust and controlled process around recruitment is hedge
funds. Whilst there is a war for talent in certain areas, hedge funds tend to
stick to their processes and do not compromise on quality. Their recruitment
procedure, whilst at times influenced by market forces, is ultimately driven by
performance, and this ensures a stable, talented workforce.
How can Hanover support your recruitment processes?
With
the hiring freeze showing signs of a thaw, it’s time to look at how you're
hiring and create a stronger, longer-lasting recruitment strategy that will
level out the peaks and troughs that come with market cycles.
Contact us
to help you map out a better hiring strategy, discuss your processes and
requirements and put in place an overarching recruitment strategy that goes
across your entire business.
