The concept of a ‘retirement age’ is tragic in a sense, because it causes so many people to conceive of retirement as something that can be achieved passively like a milestone similar to a birthday, with little input required to get there beyond waiting out the passage of time.

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‘Retirement age’ as a term also somewhat implies that the age of retirement is expected to be the same for everyone, while age is one of the least relevant of several factors that will ultimately determine if and when any given person is capable of retiring from the workforce and maintaining their expected standard of living. 

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Too often these misconceptions can lead employees to put off or minimize retirement savings in the near term, without realizing the impact those delays and under investments will have in the long run, which can have severely negative consequences for employees later in their careers as they try to make up for lost ground. 

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Last week, we discussed 401ks largely from an employer perspective and provided some benchmarking data that can help organizations better understand how their retirement benefit offerings compare to the market, here we will take a closer look at retirement savings from the perspective of individual workers, account holders, and would-be retirees.

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For employers who want to optimize the value of the benefits they offer, it is necessary but not sufficient that employees internalize the value of those benefits in line with market expectations, but employees must also believe on a personal level that their individual retirement position is secure and on track relative to both their peers and their own subjective situational goals. 

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How Much Should Employees Be Saving For Retirement?

It’s natural for employees to have many varied questions about their retirement options and considerations, of course, but almost no matter what kind of retirement a given employee may be envisioning, the best answer to the question of how to attain that vision involves a recommendation to start saving more money sooner.

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In order to maximize the benefits of earnings compounding over a longer period, the best time to start saving for retirement was any time between day one on the job and yesterday, but the second best time to start saving is now. 

And while there are a number of factors of varying complexity that can affect both retirement goals and the steps necessary to achieve them (e.g. geography, expenses, age, etc.), this recent piece from CNN highlights a basic retirement savings outline crafted by Fidelity Investments that is a good starting point to help employees to get their bearings at the very least:

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• Aim to have saved an amount approximately equivalent to one year’s  salary by the age of 30;
• Aim to have saved 3 times annual salary by the age of 40;
• Aim to have saved 6 times annual salary by the age of 50;
• Aim to have saved 8 times annual salary by the age of 60; and
• Aim to have saved 10 times annual salary by the age of 67.

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Of course, while the simplicity of this framework is certainly a strength in terms of its memorability and general applicability, that same simplicity is also a weakness when it comes to more specific, precise, or actionable advice. 

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For example, although relative standard of living considerations are largely accounted for by using annual salary as a base unit (assuming one’s annual salary affords a comparable standard of living to what they hope to maintain in retirement), and retirement age is fixed at 67 in line with when full social security benefit payouts currently become available, the verbs ‘to have saved’ are doing a lot of heavy lifting without providing any detail about monthly savings breakdowns or how interest rates, raises, and contribution timing fit into the equation.

How Much Are Employees Actually Saving For Retirement?

Perhaps the greater weakness in Fidelity’s simplified retirement savings framework, however, is less about the lack of detail or actionability and more about the aspirational nature of the framework, which can be disconnected from the reality of what a given employee can potentially reproduce in light of their age, location, job, pay rate, and other circumstances.

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In order to learn more about the reality on the ground for how employees are engaging with their 401k savings, real world data is likely going to be a better source of information than general guidelines. 

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As the following graphics illustrates, two variables that have a significant impact on both contribution rates and total retirement account savings value are the account holder’s age and their tenure with their current company.

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Clearly, older workers have had more time both to contribute to their 401k accounts and for those contributions to compound and grow, with workers over 65 years of age having a median of a little over 70 thousand dollars in those accounts while workers at the age of about 45 years old only had a median of about 38 thousand.

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Note across the age ranges, the average savings figures are often about 3 times larger than the median savings figures, indicating that the majority of value contained within 401k accounts is skewed toward the accounts with above average levels of savings. 

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While length of time on the job is certainly correlated to age and both increase alongside 401k savings over time, what may be most noteworthy about the age and tenure comparison is just how much more impactful tenure can be in terms of overall savings.

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As the following graphic indicates, staying with a company for 10 plus years can reap major rewards in terms of retirement savings - of course how much of that outcome is dependent on rising through the ranks over an extended tenure isn’t clear from the available data.

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Still, it is hard not to look at these graphs and see some indication of how valuable internal talent development and two-way loyalty can be for both employers and employees both during the tenure of the work and after leaving the workforce.

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It is also worth pointing out that average 401k savings relative to tenure is about twice as large as median 401k savings relative to tenure, which is a less sizable wealth gap than average 401k savings relative to age, which was about 3 times larger than median 401k savings relative to age. 

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These figures seem to show that longer tenure is more positively correlated with earning above average pay than getting older is positively correlated with earning above average pay. 

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How Much Are Employees Contributing To Their 401ks? 

Combined employer plus employee contribution increases with age, as one would expect, but it is not as significant as one would expect - or hope.

The average combined employer and employee contribution rate is approximately 5%. Contributions begin at around 4% for individuals aged 20-29 and exhibit a gradual increase, reaching a peak of about 5.2% among the 50-59 and 60-69 age brackets.

A deeper analysis suggests that the primary driver behind this progressive increase is enhanced job tenure. As employees remain longer with their employers, they not only become more inclined to save for retirement but also benefit from mechanisms like auto-escalation features within 401(k) plans. This trend underscores the significant role that sustained employment plays in bolstering retirement savings efforts.

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Recommendations For Your Employees

• Maximize employer contribution matching whenever feasible 
• Increase contribution 1% a year until on track to meet goals
• Promote using and abiding to auto-enrollment and auto-escalation to help employees not fall behind
• Promote catch-up contributions for employees age 50 and older who can add up to an additional $7,500 per year into their 401ks in 2024.

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As the Baby Boomer generation continues to depart from the workforce and begins to test the capacity of our infrastructure and our country’s ability to care for its aging citizenry, the stark truths that successful retirement can almost only ever be attained through diligent proactive effort and is in no way guaranteed will become increasingly obvious for employees at all stages in their careers. 

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Forward-looking companies should do more now to ensure their employees are well-positioned to manage the challenges they will meet when their careers have come to an end, which in turn will build loyalty, improve the expected outcomes, and enable employees to better focus on the challenges they encounter in their careers along the way  to the mutual benefit of everyone involved.

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‍Editor's Note: This report is based on survey data from February 2024 that was published in March 2024. This is the most recent data available. (Source: Bureau of Labor Statistics)

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Despite an overall increase of two-tenths of a point in the national unemployment rate over the same time period, the vast majority of the country (44 states plus Washington DC) saw their state unemployment rate essentially hold steady over the month, while the states that saw a meaningful increase or decrease in unemployment rate were evenly split at 3 apiece.

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As for new job additions, the country as a whole had an increase of 275 thousand new jobs, but similar to unemployment rates, 46 states plus Washington DC saw no significant change in their net payroll figures while only 4 states recorded net job gains.

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Currently there are 6 states plus Washington DC that have unemployment rates above the US national average of 3.9%, while there are 23 states with unemployment rates below the national average.

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Below is the breakdown of the Bureau of Labor Statistics’ (BLS) market employment summary for March 2024.

States With the Highest Unemployment Rates

California, at 5.3% unemployment, ended Nevada's (5.2% unemployment) long reign as the state with the highest unemployment rate.

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Washington DC, at 5.1% unemployment, was the only other ‘state’ at or above 5%, although there were 4 states between 4% and 5% - Idaho and New Jersey at 4.8% each, and Washington and New York at 4.7% and 4.4%, respectively.

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Over the month, only 3 states recorded an increase in unemployment rate - Idaho at plus 0.3%, followed by Connecticut and Washington at plus 0.1% each.

States With The Lowest Unemployment Rates

The Dakotas collectively topped the list of states with the lowest unemployment rates for the second month in a row, although they switched positions to put North Dakota on top this time at 2.0% while South Dakota was close behind at 2.1%.

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The states with the next lowest unemployment rates recorded last month were Maryland, Nebraska, New Jersey, and Minnesota at 2.4%, 2.5%, 2.6%, 2.7%, and 2.8%, respectively.

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3 states saw meaningful reductions in unemployment rate over the month - Tennessee and Wisconsin, which each saw their unemployment rates drop by 0.2%, whereas Massachusetts managed a 0.1% decrease in unemployment.

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Over the prior 12 months, only 3 states recorded net reductions in unemployment, led by Massachusetts at minus 0.7%, followed by Pennsylvania and Wyoming at minus 0.3% each.

States With New Job Losses

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No states saw statistically significant job losses last month/year.

States With New Job Gains

Of the 4 states that recorded net job additions last month, Iowa saw the largest percentage gain at plus 0.7%, followed by Illinois and Texas at plus 0.4% and Michigan at plus 0.3%.

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Texas was the state that had the largest gain in terms of total net payroll entries, adding nearly 50 thousand new jobs over the month. Illinois was next on the list at about plus 23 thousand. Michigan and Iowa added about 15 thousand and 11 thousand net jobs, respectively.

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Over the last 12 months, Nevada has the largest percentage gain in net jobs at plus 3.4%, followed by Alaska at 3.1% and South Carolina at 3.0%. The largest number of total new jobs over the year went to Texas, Florida, California, and New York.

Mployer Advisor’s Take: 

The Federal Reserve chose to hold off on lowering key interest rates when it convened earlier this week, citing increased inflationary forecasts, but Fed officials nonetheless reinforced their expectation that they will reduce those rates by 0.75% by the end of the year.

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Markets responded favorably to the news, but any reaffirmation of rate-lowering plans remains contingent on inflation returning to 2023 levels after an unexpected upward creep in the first couple of months of 2024.

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The Fed will meet again in May to reassess the situation and will be keeping a close eye on those inflation numbers in the meantime.

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What remains to be seen is whether or not the economy and job market can hold steady alongside the Fed while interest rates continue in their holding pattern perhaps a little longer than expected before the Fed attempts to execute the final stages of their aimed-for soft landing. 

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For over 30 years now, 401ks have been the retirement savings option of choice for most employers and employees alike, which is an impressive feat for an investment vehicle that was initially created by accident and which many experts believe is not particularly well-suited to play the role of pension replacement in which it has been cast.

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Despite those and some other inherent shortcomings, however, 401ks dominate the retirement savings landscape and show little sign of slowing down. 

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Perhaps in part as a result of the impromptu nature of their genesis followed by meteoric rise to becoming a familiar term around most American kitchen tables, however, the way they are actually constructed -from percentage match to auto-enrollment and auto-escalation, vesting schedules and fees - varies wildly from one company to the next. These features have a dramatic effect on what it costs a company to fund and offer a 401k to the value an employee actually derives (or doesn't).

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Over a five year period, for an $80K salary, the difference between a 1% match and a 6% match is the difference between an employer contribution of $4,500 for 1% and $27,000 for 6%, assuming modest investment returns. The difference is $20K+ for an $80K year employee. That is just five years, imagine if that were compounded over 20-30 years.

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Given their prominent position that 401ks hold in the context of modern workforce management, a closer look at some of these issues can not only help ensure that your organization’s offerings remain viable relative to the other employers with which you are competing for talent, but can also help you restructure your 401k offering in a way to maximize employee appreciation and the value generated through these benefits.

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The following information is primarily drawn from data collected through Mployer Advisor’s annual Insights survey combined with government and other publicly available data sources.

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401k Background and Context

The Revenue Act of 1978 included a provision that was intended to enable employees to defer some of their compensation from bonuses or stock options tax free, but a benefits manager at the Johnson Companies recognized the new law - specifically, section 401(k) of the revenue bill - made it possible for the company to offer its employees savings accounts with a major tax advantage attached. 

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By 1981, the IRS had issued rules that made it possible for employees to make contributions to those 401k accounts via deductions from their salaries, and just 2 years later nearly half of all of the largest US firms offered (or were considering offering) 401ks.

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Even though participation in retirement account savings surpassed defined benefit plans and pensions by about 1991 (around 10 years after they were introduced in earnest) it took another 20 years for total wealth and savings contained in those defined contribution retirement accounts to exceed the value of pension assets likely on a permanent basis.

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Currently only, about 15% of private employees in the US have access to defined benefit plans like pensions, and only 11% US workers opt in to those plans, whereas about 66% of private employees in the US have access to defined contribution plans like 401ks and nearly half (48%) choose to participate, which further underscores just how dominant 401ks are currently in the retirement saving space.

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Does Company Size Affect Likelihood of Offering 401ks?

As the following graphic clearly demonstrates, there is a direct correlation between the number of workers that a given company employs and the prevalence of 401k offerings among similarly situated companies of approximately the same size. 

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As companies grow larger in size, they become increasingly expected to provide a retirement benefit. 85%+ of companies that have 500 or more employees offer a 401ks. That number holds relatively constant, drifting a little south, until you reach smaller employers. Even among smaller employers, offering 401ks has become the norm, with more than 6 out of 10 organizations (61%) that employ between 25 and 49 employees offering 401ks, while almost half of organizations (48%) with between 2 and 24 employees offering 401ks, as well. It costs money to even offer a 401k, even without a match. It is voluntary for a company to

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The trend line is clear, and it is intuitive that larger organizations with more employees will also be more incentivized to offer a wider range of incentives in addition to being better equipped to handle the additional administrative workload involved, but the more important takeaway may be just how widespread the adoption is at the lower end of the employee count spectrum.

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401ks are nearly everywhere, which is a reality that shouldn’t be ignored in an era during which many employees can work from nearly everywhere, employers are competing with other employers from nearly everywhere, and benefits offerings have become a more prominent point of differentiation perhaps than ever before. 

Not All 401ks Are Created Equal - The Match Is The Biggest Driver

The 401k match is the biggest factor for a 401k. This component is what costs the employers the most money and also benefits the employee. This sets the bar.

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As the following graphic illustrates, the average 401k contribution match is about 3.8%, meaning about half of all companies offer matching of 3.8% or more while about half of companies offer less than 3.8%. 

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Further, 8 out of 10 companies offer 401k contribution matching between 2% and 6% of employee income, so that is the range in which the vast majority of companies operate, with only 10% of companies falling below that range (down to 0% for those companies offering no 401k matching) and 10% of companies falling above that range (up to about 10% contribution matching on the more generous edge of the spectrum). 

Where does your employer fall on this chart? Do you communicate the value of your 401k offering?

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401k Auto-Enrollment and Auto-Escalation

While offering 401ks and matching contributions are obviously necessary steps for employers to take in order for employees to benefit from these opportunities in the first place, these steps alone may not be sufficient to fully realize the talent attraction and retention advantages that can accompany 401k and matching contribution offerings. To those ends, two features that have been shown to have a material effect on employee saving are auto-enrollment and auto-escalation.

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While the cost difference for an employer for using these auto features or not may be negligible in the short term, the additional savings that employees can accumulate in the long term can be substantial, which in turn can have a substantial effect on how favorably an employee views their employer and benefits offerings generally.

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Auto-enrollment in employer 401(k) offerings serves as a crucial mechanism for ensuring that a larger segment of the workforce participates in retirement savings plans. Without such measures, a significant portion of employees, particularly those who might benefit the most, such as younger or lower-income workers, may not enroll due to lack of awareness, procrastination, or perceived complexity in the enrollment process. This is a concerning scenario, as it leaves vulnerable groups without the means to save adequately for retirement. While implementing auto-enrollment does indeed incur additional costs for employers due to higher participation rates, the long-term benefits to employees' financial security are substantial.

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Similarly, auto-escalation provisions in 401(k) plans are designed to gradually increase employees' savings rates over time, often in tandem with annual salary increments. This feature not only boosts employees' retirement savings but, in cases where employers match contributions up to a certain percentage, also increases the amount employers contribute. Though this represents an additional financial commitment for employers, it plays a vital role in encouraging employees to save more towards retirement without actively having to adjust their savings rate annually.

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As the following graphic indicates, only about 42% of US employers offer auto-enrollment, while only 25% offer auto-escalation, which represents a real opportunity for employers to differentiate from the much of the competition on this front.

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Both auto-enrollment and auto-escalation embody forward-thinking components of retirement savings plans that, while optional and costly for employers, significantly enhance employee benefits. Employers who adopt these features are making a commendable investment in their workforce's financial wellbeing. It's imperative for businesses offering these benefits to communicate their value effectively, highlighting that not all employers provide such advantageous provisions. This communication not only showcases the employer's commitment to employee welfare but also helps in attracting and retaining talent who value financial security and employer support in achieving it.

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By taking some of the uncertainty and user error out of the process, employers can virtually guarantee enhanced saving opportunities for their employees by automatically enrolling them as soon as applicable and by increasing contribution amounts on a set schedule in line with employee goals.

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401k Vesting and Distribution

Similar to the advantages that 401k auto-enrollment and auto-escalation can provide, features that improve the accessibility and distribution of 401k funds can serve as a point of differentiation, as well, which can also increase applicant attraction and employee satisfaction in a way beneficial to employers.

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For example, when and how the matching 401k contributions vest can have a material effect on both the perceived and real value of the benefit as well as on the timeframe in which workers may choose to leave their jobs for employment elsewhere.

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Currently, a plurality of employers offer immediate vesting for matching contributions, which is the most advantageous option from a worker perspective, but at just 36% there is still more than enough room on this bandwagon for employers wishing to capitalize on the opportunity to shape their benefits in a way that will be even more appealing to employees.

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Somewhat less-favorable to employees is graded vesting, which vests the matching contributions little by little over an extended period of time, which about 32% of employers utilize, while about 27% of employers arrange their matching contributions to vest all at once at a specified date in the future, which is known as cliff vesting and is probably the least appealing option to employees because it requires them to wait longer to obtain legal ownership of those contributions provided by their employer.

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As for 401k distribution, there is much less parity among companies in terms of the adoption rates of the various options, with distribution via annuity offered by nearly 9 out of 10 employers (89%). Nearly half (42%) offer distribution via installment payments while only about 12% offer lump sum distribution.

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Given that employers can offer more than one possible method for distribution, of course, the operative questions become which option or options will best service the needs of the employees and how to best go about providing those options. 

Communicating Your Plan's Value

The facts -

- Employers do not have to offer a retirement plan

- Retirement plans are expensive, especially when considering the match percent

- Plan features can have an extreme impact on the 401k, both in terms of employer cost and employee long term benefit

- If you offer a rich 401k - 1. make sure you know that and 2. communicate it because it can be a great driver for retention and attraction

‍Editor's Note: This report is based on survey data from January 2023 that was published in March 2024. This is the most recent data available. (Source: Bureau of Labor Statistics)

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Because February is a short month, the Bureau of Labor Statistics often doesn’t get around to compiling, analyzing, and releasing January’s economic data until March - as is the case here, with this information finally going public earlier this week.

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The corresponding national unemployment data covering the same time frame put the US unemployment rate average at 3.7%, though it has since increased by two–tenths of a point, whereas the initially reported job additions for January were estimated at about 330 thousand, although that figure has subsequently been revised to about 290 thousand. 

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Given the unemployment stability in the US average in January, it is no surprise that the vast majority of states showed no meaningful change in unemployment, with 44 states in total essentially holding steady over the month. 

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While only a small percentage of states seeing any significant change in unemployment, it is worth noting that twice as many of those states saw an unemployment increase (4) compared to states that saw a net reduction in unemployment (2), which was perhaps a nod to the two-tenths of a point increase in national unemployment we now know was reported in February’s data.

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Despite the significant (albeit later downwardly-revised) number of job additions, those gains were only split between 8 states, while the remaining 42 states and Washington DC all saw no meaningful change in their payroll figures.

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Below is the breakdown of the Bureau of Labor Statistics’ (BLS) market employment summary for February 2024.

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States With the Highest Unemployment Rates

As with last month (and most of last year), Nevada remains the state with the highest unemployment rate. That said, Nevada's rate is down one-tenth of a point month-to-month, decreasing from 5.4% to 5.3%, so it is moving in a positive direction.

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California, which is up a tenth of a point from last month, was not far behind Nevada at 5.2%, and Washington DC was the only other ‘state’ at 5% unemployment or higher, with DC recording a net decrease in unemployment of a tenth of a point over the month.

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Besides California, the only other states that saw meaningful increases in their unemployment rates were Connecticut, Rhode Island, and Washington, which each saw their unemployment rates go up by 0.2%

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Notably, as of this latest report, half of all states recorded a net increase in their unemployment rates over the last 12 months, which is up from the 18 states who claimed the same as of the previous month’s reporting. New Jersey and Maine are at the top of that list at plus 0.9%, followed by Connecticut and Montana at plus 0.8%.

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States With The Lowest Unemployment Rates

North and South Dakota stand together as the two states with the lowest unemployment rates during January at 1.9% and 2.1% unemployment, respectively.

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Following the Dakotas, Maryland and Vermont each recorded an unemployment rate of 2.3% while Nebraska wasn’t far behind that mark at 2.5%.

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Massachusetts and Wisconsin were the only states that saw a decrease in unemployment during the data collection period - each dropping about two-tenths of a percentage point.

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Over the 12 months prior to the latest reporting period, 6 states recorded a net decrease in their unemployment rate, led by Massachusetts and Wyoming at minus 0.5%, followed by Pennsylvania and Mississippi at minus 0.4% and 0.3%, respectively, and lastly Kansas and Texas at minus 0.2% unemployment on the year.

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States With New Job Losses

No states saw statistically significant job losses last month/year.

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States With New Job Gains

8 states saw a net increase in jobs over the course of January. The largest percentage increases went to New York and Vermont at plus 0.6%, followed by Massachusetts and New Jersey at plus 0.5%, and Connecticut, Florida, and South Carolina at plus 0.4% each.

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In terms of the raw number of payroll additions, New York edged out California at plus 59 thousand to plus 58 thousand, followed by Florida which added 38 thousand new jobs.

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Over the 12 months prior to January 2024, 27 states saw statistically significant increases to their jobs numbers while the remainder were essentially unchanged.

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The states with the largest percentage increase in jobs over the year were Nevada at plus 3.8%, followed by Alaska and South Carolina each at 3%, while the states with the largest number of job additions in terms of raw numbers were Texas, Florida, and California, which added about a quarter of a million jobs apiece.

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Mployer Advisor’s Take: 

It’s always interesting to take a look back at these delayed economic releases in light of the additional data that has been made available in the time since the data supporting this current report was collected.

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Are there some indicators in this data set that might’ve supported a hypothesis that the following month was going to see a small jump in national unemployment? Perhaps. 

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That said, since it remains to be seen whether or not the employment data in the report released earlier this month will be a brief deviation from the mean or the beginning of a new trend, there is little to be gained at this point from determining just how predictive the data from the start of the year will ultimately prove to be.

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In a few weeks when March’s data is released, the overall picture of the labor market and the economy in general will be that much clearer, and in the meantime at the end of next week we’ll have the opportunity to look at the market data collected in February, so the wait to get a better understanding of how the latest unemployment uptick is being absorbed among states won’t be long either.

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A look at the state of finance departments across US companies over the last few years reveals an interesting mix of stability and change.

On the one hand, looking across other key positions and departments, the finance department has proven to be consistent from a staffing and churn perspective. Having a full finance department is a requirement of doing business. Even throughout the pandemic and other macro economic shifts the past several years, the finance department has not faced any materially more or less churn in their roles or pattern changes in hiring. Looking at the trends below, you almost would not even notice a pandemic occurred. HR, sales, technology and nearly all other departments had booms and busts over the past 36-48 months but finance? There was barely a shuffle.

At the same time however, the nature of finance departments and their scope of duties has been shifting and growing in many cases as CFOs absorb strategy responsibilities previously owned by other company leaders like digital, staffing, HR and others. Even in the light of these changes, the finance department expenditures on the whole are moving in the opposite direction and decreasing year over year. For a department that preaches fiscal conservation, they have taken their own advice.

While there may appear to be some degree of contradiction in describing the situation as both steady and in flux, the reality is that the work that financial professionals do and the accompanying expertise they provide have become increasingly recognized and valued, meanwhile technology is enabling those same professionals to do their jobs even faster, better, and often more cheaply than ever before.

These conditions have made it possible for finance departments across the country to continue in their work largely undisturbed by wild market disruptions while taking on more and greater challenges that go well beyond the purview of traditional financial operations and are reshaping in real time what it means to be or work in support of a Chief Financial Officer.

CFOs By The Numbers

First, lets ground ourselves.

• There are more than 130 thousand Chief Financial Officers in the United States;
• Average CFO tenure was about 3 and a half years, which was the shortest tenure of among C-level executives;
• In the 10 years between 2012 and 2022, the percentage of Fortune 500 and S&P 500 CFOs that ascended to CEO increased by almost 45%;
• In the 5 years between 2016 and 2021, more than half of the largest 2,500 companies in the US experienced 1 turnover in their CFO role, and 16% of those companies saw 2 CFO departures during that window;
• Approximately 72% of US CFOs are men; and
• Average age for CFOs in the US is 51 years old.
  
  

As positions change, January is the bellwether of job change graphs like the one below because it includes not only the portion of job leavers that would naturally seek new employment in any given month, but also represents the pent up quit/retirement demand from the year before as a result of employees waiting for their full-year incentives and bonuses to vest in the new year before leaving their position.

The pandemic had not yet begun meaningfully begun to affect the US economy through January of 2020, and while the remainder of that year saw a meaningful decrease in job movement among financial professionals as lockdowns, supply chain collapse, and general uncertainty all peaked, January of 2021 roared back in a major way, representing a groundswell of confidence in financial job security that has remained largely stable since that recovery spike normalized.

External Hires Favored Over Internal Promotions

For financial executives and controllers alike, the last 4 years have thoroughly solidified the practice of leaning into external hiring over internal promotions to fill vacancies and skill gaps.

Over the last 4 years, for both financial executives and controllers, the percentage of candidates that have moved up from within the company has been very steady - wavering less than 1% plus or minus from each average over the period. Further, the average internal hire rate was more than 25% and less than 33.3% for both financial executives and controllers as well. In other words, so far this decade, only between 1 of 3 and 1 of 4 new hires for financial professionals were internal promotions, and there is no indication that trend is shifting soon.

On the flipside, of course, about 70% of financial executive hires went to outside candidates over the past four years, while about 74% of controllers were brought in as external hires, so the majority of career advancement opportunities for financial professionals currently involves looking beyond their current employer.

Finance Department Expenses Dropping

In the 10 years during which the data represented in the following graph was collected, finance department expenses dropped by 25%, and that percentage was slightly greater among the top quartile of companies that had the largest finance costs over the course of the decade.

The significance of those overhead reductions cannot be overstated, both in terms of securing job stability for professionals within the industry as well as in making it possible for financial professionals as individuals and department teams to broaden their domain and influence within their respective organizations.

What is less clear, however, is where the credit for those expense reductions should land. While a significant portion of the improved efficiency is certainly the result of technological innovation, the onboarding of new responsibilities and the offloading of previously held responsibilities makes it more difficult to ascertain what portion of the decreased finance department expenses were simply transferred onto other departments.

CFOs Are Absorbing Additional Responsibilities

The following graph illuminates a few interesting points about how the nature of the CFO role has been evolving in recent years.

CFOs are generally shifting their focus toward strategy and away from auditing and compliance, but it’s also important to note that the CFOs are onboarding more responsibilities than they are offloading, so the net effect is an overall increase in influence for the CFO position within organizations.

Perhaps relatedly, CFOs have been expanding their scope of influence into aspects of business operations that have been increasingly relevant to the overall viability of an organization, like investor relations and technology-centric issues including cybersecurity, IT, and enterprise transformation. As a result of this forward-looking shift in focus, the position of CFO is well-positioned to continue growing in importance in the years ahead.

Where does people strategy fit in for a CFO?

People and benefits represent one of the largest expenses for companies, prompting CFOs to engage more deeply and frequently in human resource management. As companies strive to optimize their financial performance, the management of personnel costs—salaries, benefits, training, and development—becomes crucial.

This direct involvement of CFOs highlights a strategic shift towards a more integrated approach where financial management and human capital strategies are closely aligned. Given that employees are also considered a company's greatest asset, contributing significantly to innovation, productivity, and competitive advantage, the role of the CFO has expanded to ensure that investments in human capital are aligned with overall business objectives and financial goals.

Despite HR budgets typically representing less than 2% of a company's total budgeted expenditures, the impact of effective human resource management on an organization's success is disproportionately large.

While less than 20% of HR teams report in to the CFO, the alignment has gone up considerably the past decade.

Going Forward: Top Concerns For CFOs To Keep An Eye On

1. Talent Shortages: More than 3 out of 4 US CFOs that were surveyed had experienced difficulties recruiting staff with sufficient financial talent or experience.
2. Cash & Liquidity Planning: Properly preparing for potential economic downturn is all the more challenging after 2 years of calls for relatively imminent recession failed to come fruition and yet a relatively near-term recession certainly remains possible.
3. Cost of Capital: Although the Fed is likely to begin bringing down interest rates sometime this summer, capital costs will probably remain a top concern for financial executives for the foreseeable future.

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Editor's Note: This report is based on survey data from February 2024 that was published in March 2024. This is the most recent data available. (Source: Bureau of Labor Statistics)

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US employers added 275 thousand jobs last month, and while the unemployment rate rose only slightly from 3.7% to 3.9%, it is nonetheless the highest it has been since February of 2022.

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The 275 thousand new jobs that were added last month surpassed the approximately 200 thousand new jobs economists were predicting, and also represents an increase of 20% over the month before which posted about 229 thousand new jobs. 

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That said, those 229 thousand new jobs reported in February were a downward reduction of about 35% from the 353 thousand jobs that had initially been reported. January’s figures were also revised downward this month by about 13% from 333 thousand to 290 thousand.

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The number of permanent job losers increased by about 10% over the month to about 1.7 million, which is up about 23% in total over the last year, while the labor force participation rate held steady at 62.5% for the third consecutive month.

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As for job growth, the healthcare industry led the field last month with the addition of 66 thousand new jobs, which is just above pace for the 58 thousand new jobs the healthcare industry has added on average over each of the last 12 months.

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The government sector added about 52 thousand new jobs, followed by 42 thousand new jobs in food services and drinking establishments, which saw their first substantial increase in months after making massive recovery gains for much of the last 2 years.

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The transportation and warehousing, social assistance, construction, and retail industries each added in the neighborhood of 20 thousand jobs, while there was little noteworthy change in payroll figures for the mining, oil, natural gas, wholesale, manufacturing, financial activities, personal services, business services, and information industries.

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The average workweek increased by an adjusted tenth of an hour to 34.3 hours per week, which is down slightly from 12 months ago when the average was 34.5 hours weekly and represents a rare upward break from the general downward trend in average private hours worked per week.

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Average hourly earnings rose by an adjusted 5 cents to $34.57, which is a noteworthy slowdown from the previously established pace of increasing wages, which are up 4.3% over the past 12 months.

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Mployer Advisor’s Take

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The latest jobs report brought some mixed messages, with unemployment ticking up but job additions once again exceeding expectations.

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While some headlines will certainly highlight the two-tenths of a point increase in the unemployment rate, the more significant story for the time being remains the 2 plus years during which unemployment has held steady below 4%. 

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On the spectrum between inflation and recession is a sweet spot in the middle that is akin to the ‘soft landing’ that the Federal Reserve has been steering the economy toward for the last couple of years. 

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While this most recent economic report is probably a small step away from inflation, that also means it’s a small step toward recession, but that’s not necessarily a bad thing. 

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A step away from inflation and toward recession doesn’t mean that recession is imminent or even inevitable - boom and bust cycle notwithstanding. That same step could also be re-centering the economy in the middle of that sweet spot.

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The operative questions become how long can the economy hover in the middle of that spectrum in between additional steps toward recession, and how small or large will those next steps toward recession be. If the economy and job market can come anywhere close to matching the stability and consistency they’ve shown over the past couple of years, then it may be quite a while yet before major economic downturn becomes an imminent concern.

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