Millennials surpassed Generation X to become the largest contingent of the American workforce earlier this year. Pew Research indicates they now constitute more than a third of American workers, so it’s no surprise they are filling an increasing number of seats at private equity and other investment firms. The industry is still primarily led by baby boomers and Gen Xers, who often scratch their heads trying to understand this younger generation—they seem so different from us. But are they really?
The more we know about millennials, the better we can motivate and retain them. Increased engagement will drive greater firm productivity. Employee retention is a must for successful leadership transition. What we do know: Each generation is strongly influenced by the economic environment, geopolitical climate, social trends and household dynamics of their youth. To better understand your millennial workforce, it is useful to first provide some context:
Researchers have undertaken numerous studies to help corporate leaders worldwide demystify this generational cohort. Survey findings help us drill down on not only what members of this generation think, but what drives and motivates them:
- A 2014 global study of more than 16,000 millennials conducted by INSEAD’s Emerging Markets Institute, Universum and the HEAD Foundation found that more than 40 percent of North American respondents said the most important trait in managers are those who “empower their employees.”
- A 2014 SuccessFactors/Oxford Economics survey of 1,400 millennials found roughly 65 percent want feedback at least monthly—non-millennials were comfortable with much less. The study also found that while millennials consider their manager the primary source of development, more than half felt that they are not provided enough feedback.
- A 2012 Adecco survey identified “opportunities for growth and development” as a top professional priority for 68 percent of recent graduates. When asked to prioritize their life, the INSEAD et al. survey found that “grow and learn new things” was second only to “spend more time with my family” for North American millennials.
- In their third annual study on the state of Gen Y, Gen X and baby boomer workers, Payscale.com and Millennial Branding found that most millennials aren’t much into long-term employment with one employer—only 13 percent think workers should stay with an employer at least five years before looking for a new job, compared with 41 percent of boomers.
- The INSEAD et al. study confirmed that this generation wants work/life balance and clarified what that means for North American millennials. Having “enough leisure time for my private life” and “flexible working hours (e.g., not limited to office hours)” were the top two most cited priorities, with both factors notably more desired in North America than elsewhere.
So Are the Millennials Really That Different From Us? Yes and No.
Yes: They are different, but isn’t each generation? Interestingly, there is little talk today of how overwhelmed and frustrated “the silents” (born between 1925 and 1945) must have been when the massive boomer generation—known for rejecting or redefining traditional values and society—arrived at the workplace in droves.
No: While they may be quite vocal, it turns out we’re all human: A 2014 HBR global study of more than 19,000 employees across all industries and ages found that when even one of four basic human needs (renewal – physical; value – emotional; focus – mental; purpose – spiritual) was met by employers, employee engagement and likelihood of retention increased dramatically.
What Does This All Mean for PE Industry Leaders?
Millennials coming up the ranks in private equity firms are getting phenomenal work experience, a significant career opportunity and extremely good pay. Many of their peers are struggling to make ends meet with low paying or dead-end jobs and are burdened by student loans. But that may be where the differences end.
Given their numbers, millennials are now instrumental to your firm’s success. Soon enough you’ll be looking to pass the reins to this generation, but first you need to retain them. This is no small feat when dealing with those apparently more prone to leaving than staying. According to the think tank Center for American Progress, the median cost of turnover for most jobs is roughly 21 percent of an employee’s annual salary. Turnover costs for firms in the PE industry are undoubtedly significantly more—not just in recruiting fees, which can run up to one-third of first year cash compensation, but the opportunity cost of time spent on recruitment, training and integration. Even more costly, turnover throws your succession planning off track.
“Given their numbers, millennials are now instrumental to your firm’s success. Soon enough you’ll be looking to pass the reins to this generation, but first you need to retain them.”
The starting point in leading millennials is keeping the human basics in mind and then addressing their feedback. Consider the following leadership principles to motivate and retain not just your millennials, but all of your employees:
Give them a vision, a plan and a role in it. For a generation that admires strategic thinking and yearns for purpose, leaders should establish a clear firm vision (“North Star”) and make employees feel as though they are an integral part of realizing that vision. It’s important to give them the “why,” not just the “what” of their performance goals and responsibilities.
Walk the talk. A firm’s culture should reflect the core values of its leadership and become the heart and soul of the organization. Firm values should not just be words on a poster in the kitchen or copy room but demonstrated daily by leadership—it’s not just what deals get done but how leadership leads, manages and interacts externally. The message to millennial employees: “Do as I do, not just as I say.”
Provide consistent and balanced feedback. Millennials grew up with intense parental coaching, lots of encouragement and real-time feedback, so it is not surprising they have strong interest in hearing how they are doing and a desire to get feedback much more often than the rest of us need and/or want it. Leaders should not wait for the annual review process at year-end to provide them performance feedback. “Consistent” does not mean constant—the goal is to find a practical middle ground that responds to their needs and works for you. Providing “balanced” feedback does not mean the demise of constructive criticism, but it does include more emphasis on employee strengths. This may be hard or disagreeable for those that grew up in a tough love corporate environment but will likely yield more positive results.
Be open to their ideas. On topics ranging from firm strategy and execution to marketing materials and employee benefits, your millennial employees have ideas and opinions they may be looking to share. Recall that they were taught to voice their opinions and forget any age bias: “They’re young and inexperienced—what do they know?” Employees of this caliber likely have innovative and creative ideas about how your firm could function better or compete more effectively—if they don’t offer, ask them!
Think outside the box re: compensation. Millennials love to make money like the rest of us, but for them it’s most likely not only about the cash compensation, benefits package and carry— though carry is still a powerful retention tool that can foster an ownership mentality. The definition of compensation should be expanded to include other factors that are also important to them:
- Training and Development: Surveys indicate “training and development” is a hot button for millennials and many aren’t happy with the level they receive. They must understand that they are in charge of their own development, but it is a shared responsibility. You may find opportunities to provide formal training programs, but nothing beats on-the-job training and senior managers are best equipped to provide it. Establish a development plan process outside of the performance review process with a collaborative approach and clear indication of how both sides will work to help the employee achieve his/her development goals.
- Work/Life Balance: The PE industry’s workload demands well more than the average 47-hour U.S. full time work week determined by Gallup. Millennials have always been, and still are, more “wired” than we are—they want and can work anywhere. Making sure we put in “face time” was something that was important when we were their age. In this technological environment, it shouldn’t be an issue as long as your expectations are clear and they get the job done.
Generation Z will arrive soon enough, but we have time and certainly enough to focus on with the millennials. //
Elise Chowdhry is the founder and managing principal of Optimum Advisors LLC, a management and strategic consulting firm focused on partnering with senior leadership of middle-market private equity and finance firms to achieve organizational alignment and create high performance cultures. This article is an excerpt of “Understanding and Leading Private Equity’s Millennial Generation,” available at www.optimumadvisors.com.