German Companies Scramble to Retain Essential Talent

 

Germany’s fragile economic recovery is stalling. Following a 0.3% decline in GDP in 2023,¹ industrial output in all sectors of the German economy contracted in January 2024 compared with the previous quarter.² Companies in Germany are facing a mix of geopolitical, economic and sociopolitical challenges while repercussions of the COVID-19 pandemic continue to disrupt their workforces and operations.

 

Despite stagnating economic growth, the German labor market remains robust. As a result, companies must add employee retention to an already extensive list of challenges as they scramble to jumpstart growth. Gallup’s most recent measure shows that nearly half of the country’s workforce (45%) is either actively seeking a new job or open to opportunities elsewhere -- the highest figure ever recorded and considerably higher than the 34% of European employees in 2022 who said they were looking for a new job.

 

These findings are from Gallup’s Engagement Index Germany 2023 report, published in English and German.

 

Talent Retention and Recruitment: Organizations Must Do Better

The German labor market is highly competitive, and many employees are open to considering new opportunities. More than seven in 10 German employees (71%) have a positive view of the job market, and one in four (25%) report being approached by a headhunter or recruiter in the past 12 months.

Not surprisingly, the strong job market is affecting retention. Just over half of employees (53%) plan to be with their current employer in a year’s time, continuing a five-year downward trend: In 2018, 78% of employees strongly agreed that they planned to be with their current employer in a year. The medium-term trend is equally worrying -- in 2018, 65% of employees said they planned to be working for their current employer in three years. This figure has declined consistently to just 40% according to Gallup’s latest measure.

Germany’s competitive job market and ongoing skills shortage are making recruitment efforts more expensive, complex and time-consuming. About two in five employees (38%) strongly agree that their company has great difficulty meeting the demand for suitable skilled workers -- nearly twice as many as in 2013 (18%). Further, only 16% of German employees say they are convinced their company can attract the best talent. On average, employers now require a whopping 160 days to fill a vacancy with a qualified candidate, according to the Bundesagentur für Arbeit (German Federal Employment Agency) -- up from 145 days in 2022 and more than double the 77 days needed 10 years ago.³

Even after the considerable effort required to hire new talent, German companies are challenged with retaining that talent. Among employees hired less than 12 months ago, four in 10 are already open to new opportunities. Among these new hires, fewer than half (48%) say they fully intend to be with their current employer in a year's time, and only 29% strongly agree they would recommend their new employer to friends or family.

Engage Your Employees or Lose Them Forever

As turnover risk is ascending, employee engagement is moving in the opposite direction. Active disengagement is at its highest level in Germany since 2012. Nearly a fifth of Germany’s workforce (19%) is actively disengaged -- employees who are disgruntled and disloyal because their workplace needs are mostly unmet. Gallup estimates that active disengagement costs the German economy between 132.6 billion and 167.2 billion euros per year in lost productivity.

 

Only 14% of German employees are engaged, thriving at work and experiencing a management culture that fosters their engagement. This is the second-lowest level since 2011, although one point higher than in 2022. Two-thirds of German employees (67%) are not engaged; these workers do not feel emotionally connected to their workplace and perform the minimum amount of work possible.

 

Employee engagement is a foundational component in achieving desired organizational outcomes such as productivity, profitability, manufacturing quality, workplace safety, customer loyalty, reduced absenteeism and employee retention. Gallup defines employee engagement as employees’ involvement in and enthusiasm for their work and workplace. It is not about employees being obsessed with work. Rather, strong engagement results from the fulfillment of central employee needs such as knowing what's expected at work, receiving adequate manager support, having opportunities for career growth and development, experiencing meaningful relationships at work, and feeling connected to the purpose of the organization.

Engagement is a bulwark against employee attrition. Among Germany’s engaged employees, 79% say they plan to be with their current employer in a year's time, compared with 53% of not engaged workers and a mere 31% of actively disengaged employees. Engaged employees are also more likely than their not engaged and actively disengaged counterparts to say they plan to be working for their current employer in three years -- and more likely to say they are not looking for a new job.

For companies doing their utmost to attract talent, engaged employees are valuable employer brand ambassadors. Employee advocacy is crucial in a competitive job market because people tend to trust recommendations from friends and family more than traditional channels or job postings. Among engaged employees, 63% strongly agree they would recommend their employer to friends and family. A mere 14% of actively disengaged employees strongly agree they would recommend their employer.

 

At a time when companies in Germany are grappling with a shortage of skilled workers, good people management is a competitive advantage. Engaged employees alone cannot resolve the labor shortage, but they can cushion its effects: They are more likely to remain loyal, recommend their employer to others, produce better-quality work and achieve higher productivity -- thereby decreasing costs and boosting profitability. The 86% of employees in Germany who are either not engaged or actively disengaged represent a vast untapped potential.

 

 

High Engagement Is Achievable

 

Germany’s culture is sometimes used to explain the country’s chronically low employee engagement. But this reasoning is flawed. If low workplace engagement were unavoidable, very few German organizations would succeed in creating thriving workplace cultures. But many companies buck the trend. Organizations in Germany that take a focused, strategic approach to improving the quality of their management and workplace environment engage, on average, 40% of their workforces compared with 14% of the general population. Best-in-class companies in Germany attain an average of 63% engagement -- more than four times the national average. Low engagement in Germany is not a foregone conclusion.