Survey Of Energy Execs Shows High Turnover Trend

January 2014, Vol. 241 No. 1

Michael Reed, Managing Editor

A national survey of executives in the oil and gas industry revealed more than 93% of companies asked have transitioned senior officers in the past two years with an “unexpectedly large number” retiring.

Not surprisingly, the results of the “2013 Survey of Executive Hiring in the Oil and Gas Industry” by executive search firm The Alexander Group, showed CEOs departing at the highest rate of 28.9%, followed by COOs and divisional regional heads.

“The energy industry is facing an imminent shortage of executive talent as well as a lack of employees with the required competencies that these companies need to compete in the global marketplace,” said John Lamar, the group’s managing director.

The survey listed the reasons cited for the transitions were:

• Resignation 36.5%
• Retirement 24.3%
• Termination 17.4%
• Promotion 13.9%
• Lateral moves within the company 4.3%
• Demotion 3.5%

Because of this turnover and the overall economic health, the oil and gas industry has seen a 41% growth in available positions from July 2012 to July 2013, according to talent intelligence platform WANTED Analytics.

Companies responding to the survey pointed to increased economic stability in the marketplace, and the number of executives who deferred retirement because of personal finances or obligation to see the company through the downturn as the reason for many of the departures. Respondents stated they anticipate similar turnover during the next two years, with particular hiring needs in the finance and operations areas.

“What we are seeing is a lack of succession planning that’s really starting to take place. This is really a result of the recession because everybody was trying to hang on for dear life and sort of lost sight of their employee base,” Lamar said. “What’s happened is that now that we’ve come out of this, they’ve lost some key people.”

He added that while “the ExxonMobils of the world have done a fantastic job,” medium-sized companies are struggling with the idea of succession planning, more because of the time and resources required than due to a lack of money.

Additionally, the survey showed 64% of officers terminated were recruited laterally, emphasizing the importance of culture in hiring externally. Lamar said while it is his experience that “homegrown candidates” from within the company have met with more success than external hires in senior management positions, sometimes that is not an option as developing company leaders tends to take five to seven years.

“Obviously, internal candidates aren’t the best choice if the company wants to take a dramatically different direction, or if the current leaders leave before the next generation is ready,” he added.

In its research, the Alexander Group has found many employees in the oil and gas industry have left managerial positions sooner than they initially planned because they felt opportunities and promotions were being given to “outsiders.” Among companies’ already available tools, Lamar said, exit interviews are often overlooked as “a sort of checklist,” rather than a crucial source of information concerning what might be fueling a higher-than-desired turnover rate.

Typically, if no apparent successor is available to replace an exiting executive, oil and gas companies turn to an executive search firm which basically canvasses the market in order to identify three to five candidates for the company to consider. Even if there is an obvious person internally, many companies still use a search firm to vet that person in comparison to who might be available elsewhere in the industry.

Companies, however, are beginning to place more emphasis on identifying “high performers” already on the payroll, according to Lamar, who has seen a trend toward energy companies employing executive search firms to do talent assessments of their staffs.

“Companies are beginning to see a need to identify their own diamonds in the rough and not lose them,” Lamar said. “They are not always that easy to identify.”

For further information, visit www.thealexandergroup.com.

Analytics, Talent Management: New Role For HR In Oil & Gas

Chief executives, a whopping 83% of them, believe their companies need to change current talent management strategies in order to remain competitive, according to a PricewaterhouseCoopers (PwC) survey. Unfortunately, only a minority feel they have the human resource (HR) information they need.

A recent PwC report, “Analytics-Fortified Talent Management: The New Strategic Role For HR In Oil And Gas,” showed the three key areas for HR departments in oil and gas to address:

• Strength in numbers: Innovative analytics can provide insights into why organizations are not able to retain talent long enough and can help control turnover.

• Talent management for performance: Access to data and insights is critical to understanding the cause and effect relationships that drive organizational performance.

• The training dimension: By being out in front of the challenge, companies can also leverage economies of scale such as regular regional training sessions, or even social media and informal video “how to” segments to reduce travel costs and address training needs on a near real time or just in time basis.

PwC said oil and gas companies face shrinking talent pools due to competition for talent, the growing complexity of workforce needs and the growing number of baby boomers who are retiring. In this environment, HR is increasingly called on to use analytics can help surmount the industry’s talent management challenges.

Analytics could offer empirical evidence on which HR strategies are driving business results and which are holding them back. Reducing employee turnover for in-demand positions is an example. Turnover is a costly issue in the oil and gas business.

According to the data, the average cost of recruiting and training a new engineer can be between as much as two times greater than his or her annual salary, on cost of finding them. If organizations are not able to retain this talent long enough to make the investment worthwhile – two years minimum – the financial impact can be significant.

Often, discovering the root cause of turnover relies on qualitative inputs, such as exit interviews, the report said. Internal and external data can be combined and subsequently analyzed to reveal trends that pinpoint where challenges may lurk.

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