Insight

The Great Resignation: War for talent

The Great Resignation will affect not only the hiring strategy of PE firms—but how they assess HR during deals.

Misha Edel

Misha Edel

Managing Director, Deal Advisory & Strategy, KPMG US

+1 510-282-9758

Pandemic-triggered trends are still roiling the labor market. In the “Great Resignation” of 2021, a record number of people quit their jobs—4.5 million people did so in November alone in the U.S.4 This is forcing many employers, including PE firms, to scramble for new employees.

The war for talent touches on three areas of PE firms’ HR strategy: executive recruitment; staff retention; and automation.

Executive recruitment:
More than a quarter (27 percent) of venture-capital, corporate venture-capital, and PE firms lost a partner or key recruit to competitors or self-owned enterprises last year, a survey of more than 760 respondents found.5 Executives with a track record of success are finding that there’s no shortage of opportunities and are fielding multiple offers. Efforts to replace them are taking up more of leadership’s attention than ever before. Many firms are offering higher compensation as well as a variety of incentives, including equity and signing bonuses.

Staff retention:
Remote work has altered employee expectations, and many PE professionals are permanently relocating from traditional hubs, especially to lower tax areas.6 To retain employees who are at principal, vice-president, and senior-associate levels, firms are adapting corporate culture by loosening traditional organizational structures and geographic restrictions. Higher compensation won’t always persuade those employees who place greater value on working in a caring organization that is diverse, inclusive, and environmentally committed.

Automation:
Portfolio companies of PE funds, like many others, are turning to automation to reduce labor costs. Difficulties in hiring new workers are accelerating the move to digitize low-skilled functions—a trend
that was well underway before COVID-19 hit. Firms are increasing investment in equipment and deploying new technologies, especially in machine learning and artificial intelligence, for EBIDTA improvements.

HR strategy in M&A:
In the coming months, the Great Resignation will also compel PE firms to adjust their strategy when assessing companies to acquire. A PE transaction can accelerate an exodus—especially of more successful and talented employees, who are more likely to leave. It may be necessary to perform heavier up-front due diligence on the target’s human-capital problems and potential and enhance retention strategies to keep key personnel. Depending on the quality and quantity of skilled human capital available, a PE firm may choose to pursue one company over another.

At the same time, PE firms in old industries cannot take for granted that more pay alone will persuade unskilled labor to stay in jobs they don’t find meaningful. Such firms would be advised to continue investing in automation to control costs and consider scaling down growth plans.

Footnotes

  1. Source: Roy Maurer, “Record 4.5 Million Workers Quit in November,” SHRM, January 4, 2022.
  2. Source: Priyamvada Mathur, “VC, PE firms resort to salary hikes amid historic quitting spree,” J.Thelander/PitchBook, September 23, 2021
  3. Source: Jonathan Goldstein and John Rubinetti, “2021 North American Private Equity Investment Professional Compensation Survey,” Heidrick & Struggles, 2021