Real-Time Data-Driven: A New Paradigm for Contingent Worker Compensation
The pandemic has led to sharp labor market divergence, and companies face a trade-off between cost and speed when hiring contingent workers. Through AI and real-time compensation data, companies can price skills more accurately and improve market efficiency.
Editor's note:This article is a contributed piece by Jesse Levin, CEO of Brightfield. The views expressed are solely those of the author.
Just weeks ago, employers were in the tightest labor market in 50 years. Reports show that the COVID-19 pandemic erased 20.5 million jobs in April. However, the pandemic's impact on the labor market has been uneven. Essential businesses like Walmart and CVS areurgently hiring workersto meet surging demand, while other organizations—from Walt Disney World to Tesla—have announced layoffs or mandatory furloughs.
Once the economy recovers, many business leaders will face the challenge of hiring in an extremely uncertain environment. Many have already begun looking to an extended workforce of contractors or gig economy workers to fill critical roles.
The urgency of balancing risk and opportunity is creating a dynamic that often pits procurement executives against business leaders. Uncertainty means companies may be reluctant to make long-term investments. But in an era where contractor costs can be 30% to 100% higher than full-time employees, procurement executives have reason to question whether more economical solutions exist.
Meanwhile, CFOs and CIOs are caught in a dilemma: on one hand, hiring managers pursue quick output with insufficient attention to cost; on the other, procurement executives focus tightly on cost but may lack a full understanding of the technical and skill sets required for specific roles.
Take tech industry employers, for example, who must choose between overpaying for needed skills or hiring cheaper but less qualified workers. The need to move quickly only exacerbates the problem, pushing companies to lean toward overpaying in the trade-off.
Artificial intelligence (AI) can help break this cost-quality compromise. Individual process owners often lack the data to weigh all variables—relative value and scarcity of skills, required speed, prevailing rates for similar contracts—while AI can provide a more dimensional view of the skills market. This insight can guide employers in deciding how to hire and pay.
But AI's utility depends on the data it relies on. Five years ago, our labor market analytics firm formed a consortium allowing companies to share their contractor pay rates. Having access to hard data provides CFOs with an alternative to relying on anecdotal information to determine fair contractor compensation.
One financial services company spent $120 million annually on temporary IT staff without clear insight into market rates or internal strategy. By using AI to assess its IT capabilities and determine market rates for different types of temporary workers, the company identified adjustments projected to save $8.5 million per year.
Once unimaginable, AI now enables employers to circumvent the trade-offs that historically hindered determining market-clearing prices for skilled talent—and made it nearly impossible to find workers with the right skills at the right time and price. As a result, more companies now allocate funds to high-skill or strategically important roles and better understand market rates for these skills.
As pricing transparency for contractors increases, the labor market becomes more efficient. Companies understand what specific skills are worth in the open market, workers receive compensation matching their skills, and talent suppliers can more easily place workers in suitable roles.
This real-time data is crucial, especially in an environment characterized by rapidly changing variables—from company demand to labor market prices. It also helps build dynamic systems to analyze data and share it with relevant parties.
As AI evolves, we have never been more capable of building and improving these data systems, thereby providing the inputs these systems need to generate value. In this way, AI is breaking new ground, enabling businesses to make deliberate talent decisions in times of crisis and leverage the growing contractor workforce—obtaining needed skills at the right time and price.