In a context in which the demographical outlook in Europe and France is known (aging of the workforce, sector labour shortages, increased tensions on the job market and increase in the number of retirements), taking the age pyramid into account is becoming indispensable in the management of human capital at companies.

The age pyramid is a skills management tool that allows the steering of human resources. This indicator, which was developed in the 1980s, provides information concerning the structure of the population of a company and the strengths that it represents. The age pyramid is a graphical representation of the breakdown of the workforce by age and sex.

Interpretation of age pyramids

The age pyramid can take several shapes depending on the structure of companies. This has implications in terms of the management of the human capital:

Source : Boost.rs*

Mushroom

The average age is high due to massive hiring over a short period. This shape is synonymous with solid skills in the hands of experienced employees and implies a substantial overall payroll and in certain cases lower capacity for adaptation. Additionally, simultaneous retirements can lead to a risk of a brutal loss in expertise for the company.

Spinning top

This is the sign of a company that engaged in massive hiring for one-off reasons (tax windfall, market growth). Over the long term, even if the massive departure of the most populous age groups allows the hiring of young workers, it also results in a loss of skills and expertise. The company can find itself with a surplus of employees and draw up a career policy.

Cylinder

This shape shows a steady hiring strategy favouring a balance between age groups. It makes it possible to define a career path for each employee and to regulate the flow of arrivals and departures.

Squashed pear

This shape corresponds to a company that stopped recruiting for several years. The risk of losing skills is high. For example, the young workforce can lead to difficulties in renewing R&D expertise in high-tech industries. Training is necessary in a context of lower payrolls.

Hourglass

This shapes reflects a strategy of counterbalancing an imbalance through massive recruitment. Even if the average age within the company is rebalanced, the arrival of many young employees nevertheless leads to a risk of a shortfall in middle management and can lead ultimately to intergenerational conflicts.
There are no statistics as of now concerning the most common shapes of age pyramids on the level of the listed companies. Even if the shape of age pyramids is an analytical tool, from an ESG point of view it cannot serve as the only justification for a restructuring plan specifically targeting a specific age group.

Age pyramid and remuneration

The age pyramid can also be a tool for steering remuneration policies. Considering that the aging of the workforce is accompanied by increased remunerations due to seniority, a policy of encouraging the departure of the oldest employees will lead to a reduction in the overall payroll.

The challenge for companies is to anticipate the consequences of age pyramids over the long term. Control over the different cost structures, including the overall payroll, effectively has direct consequences in terms of the financial value of companies.

As investors, we continue to monitor key human relations indicators covering the age pyramid such as seniority, absenteeism and employee turnover.

These indicators must be monitored by services, business lines and job categories and allow the identification of strategic skills. According to an Insee (French statistics institute) study, the sectors making the greatest use of forward-looking management are manufacturing, construction and real estate and financial services.

The challenges facing companies essentially involve the attraction of new talent, the prevention of obsolescence of existing employees and the transfer and transmission of skills. In this regard, the management of the age structure is a genuine human resources task that should be analysed closely by responsible investors. Compared to climate challenges, digitalisation and remuneration, the management of the age pyramid remains a subject that mistakenly is still raised far too infrequently in ESG meetings with companies.

*Source: https://boost.rs/blog/la-pyramide-des-ages-outil-de-pilotage-pour-les-rh/

Management of the age pyramid at companies: a human capital management tool too often ignored but nevertheless indispensable.

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