Across virtually all industries, business leaders consistently point to the talent of their workers as a key business resource. Human capital, the sum of competencies, knowledge, and personal attributes that create economic value for a company, is often considered a company’s most valued asset. In this fast-moving global economy where companies are driven by talent and knowledge, it has never been more important to carefully manage this asset for performance and cost-effectiveness.
New research from Automatic Data Processing, Inc (ADP) reveals some cross-industry data about retirement and age distribution that its author, Ahu Yildirmaz, ADP’s head of research, says may help with human capital planning. ADP is a large provider of business process outsourcing and cloud-based services, including support for payroll, talent management, human resource management, benefits administration, and time and attendance.
“For this research, we tapped into our payroll database system, which has real-world data from approximately 52,000 U.S. companies with 16 million active workers,” says Yildirmaz. The research focused on two topics; age and retirement. “We wanted to provide a snapshot of the U.S. workforce’s age and generational composition based on data from 2012. Our goal was to provide benchmarks to employers so they could compare their workforce composition to that within their industry to make decisions about talent management, benefits, compensation, and training,” Yildirmaz says.
For example, U.S. companies face a retirement wave of 18 percent over the next five years, according to Yildirmaz.
The promise of big data
Big data lives up to its name. It is a collection of information that can ultimately be used to tell a richer, more nuanced story than is possible with traditional reporting capabilities. In the early days of human resources benchmarking, comparisons of key performance indicators (KPIs) were made to a few dozen or, at best, a few hundred similar organizations. Businesses used whatever data they had to react to the latest trends and shifts taking place in the workforce.
Now, technology makes it possible to gather real-time HR data from tens of thousands of organizations to create benchmark comparisons. Big data allows organizations to look at more than what happened in the past. It enables organizations to analyze why things are happening and, most importantly, look forward to examine what is likely to happen, as well as how long those changes will take to occur. Using big data, companies not only can react to changes but also help change outcomes.
“The data gathered by this study included anything related to workforce management such as talent management, training, benefits management, and compensation. The companies from which we gathered data were balanced between large and mid-size companies with 50 employees or more from six industries including; manufacturing, hospitality, education, health services, retail, and public administration,” says Yildirmaz.
“The insight we provided is statistically representative of actual payroll data. Because the data comes from payroll, we were able to look at different industries, regions, and age groups to get a detailed picture. For example, this kind of information can help employers find out if their workforce is skewed toward older workers. If the study shows that a large number of people in a company are going to start retiring, the company might need to start bringing in younger workers to balance the workforce.”
The study looked at workforce age by industry. In the U.S. the average age of the workforce is 41, but it varies by industry. For example, the average age in the public administration industry is 47. However, in hospitality (34) and retail (36), the average age is much lower than the national average. Education, health care services, and manufacturing are more in line with the national average.
How many, how soon?
In order to determine what percentage of the U.S. workforce would be retiring in the next five years, the study analyzed the potential retiree pool for the next five years (assuming the retirement age to be 61 years). Retiring workers often take with them valuable knowledge, skills, and experience that are not easily replaced. “There could be a significant loss of corporate knowledge and culture, especially if the retirements are by key staff members such as department heads, sales people with vital accounts, and executives. These positions are likely to be the most difficult to fill. In some industries, replacing these knowledgeable, high-level workers may require considerable effort and investment of resources to attract candidates and retain them,” says Yildirmaz.
Another variable showed the retirement percentage to vary widely across industries. The percentage for 2014 represents the total workforce percentage from 2012 that would reach age 61 in 2014. For the rest of the years (2015–2018), the percentages show incremental numbers of people reaching retirement age. In public administration, for example, 19 percent of workforce will be 61 in 2014, with an additional 2 percent approximately every year after that until 2018, for a total of 28 percent of employees retiring between 2013 and 2018.
Yildirmaz also looked at which industries employed the most people in various age groups. “The analysis revealed that 24 percent of this workforce consists of Millennials (under age 30), 45 percent are Generation X (ages 30-50), and 31 percent are Baby Boomers (age 50+). As expected, the youngest and oldest workers comprised the smallest proportion of the total.”
Atypical numbers in some sectors
The study also showed that companies didn’t necessarily follow the age distribution patterns of their industries as a whole. For example, in the hospitality sector, although the industry average age is 34, about 54 percent of the companies in that sample had a workforce with an average age lower than the industry average. These companies employed 60 percent of the workforce in their sector. On the other hand, in healthcare and education, a large number of companies had age distributions that closely aligned with the averages for their industries.
“There may be a valid reason for a company’s average age to differ from that of the industry average. For example, it may be a retail company that caters to young shoppers, so its average age is lower than the norm. However, it could also indicate the company needs to adjust policies and practices to attract and retain employees to better compete in the marketplace,” Yildirmaz notes.
“The differences in generational distribution are important to understand, because there may be differences in gearing up to train an older versus a younger workforce. Companies may need a different methodology when training Gen X and Millennials. Millennials work differently than Gen Xers. Our social media director is a Gen Xer, and we both learn a lot from each other,” she adds.
“Age groups tend to reflect certain values, behaviors, and worldviews. There are well-documented generational differences in employee motivation, attitudes about work, and opinions about which work benefits are most valuable. An awareness of these differences can help improve employee retention and recruitment efforts,” says Yildirmaz. A Baby Boomer manager may find it helpful to understand where pockets of Millennials exist and the challenges they might present. A Generation X founder may benefit from understanding the Baby Boomers working in key areas.
Age often correlates with corporate knowledge, skills, and experience, and it may be an indicator of whether a company has the capability and talent to execute its strategy. An older worker may have valuable experience, but needs to update technical skills. A younger worker may have technical skills, but might be lacking in experience.
The report also noted, “As industries tend to cluster in certain regions, the generational distribution did not vary significantly from region to region. Consistent with the BLS published data; the South was home to the largest number of employed people. The region with the largest percentage of Baby Boomers was the Northeast. The District of Columbia had a younger average age (37.7) than any state. The states with the youngest average age were Utah and North Dakota. The states with the oldest average age were Connecticut, Maine, and New Hampshire.”
“Companies gain strategic insight when they collect human capital management data and then compare themselves to organizations of analogous size in the same or similar industries. These measurements help companies learn to solve real-world problems and understand their own evolving story in order to meet the demands of today’s business world. If a company doesn’t measure and benchmark, its leaders won’t know how they’re doing, which workforce issues they need to address, and how effective solutions might work down the road,” notes Yildirmaz.
“The good news is newer technologies and access to benchmarks are allowing organizations to compare HR performance among companies. Big data and benchmarks give HCM professionals a new power to tap into the full talent pool and manage the organization’s valuable human capital, contributing significantly to the ultimate success of their organizations,” Yildirmaz says.