Employee retention trends and challenges in the oil and gas industry

In our conversations with oil and gas executives, discussions around talent are converging on a theme: companies are finding it increasingly difficult to attract and retain employees, especially since skill requirements are changing dramatically in the decarbonization era.1Renewable-energy development in a net-zero world: Overcoming talent gaps,” McKinsey, November 4, 2022. Building a distinctive employee value proposition (EVP)—which is a set of benefits that an employee gets for what they give, including aspects like compensation and benefits, career opportunities, work–life balance, company culture, and management—could prove pivotal to attracting and retaining the best talent as competition for workers heats up.

Analyzing more than 70 major organizations across different parts of the oil and gas value chain, we found a direct correlation between a company’s EVP score and tenure rates: when a higher EVP score is observed, employees generally remain at the company for longer. While our research suggests that retention dynamics vary strongly across industry sub-sectors, leadership style, more than compensation, is generally key to driving a distinctive EVP.

EVP scores vary widely across the industry

With the support of the McKinsey People Analytics experts, who collected publicly available information from LinkedIn and Glassdoor, we analyzed the EVP ratings of more than 70 organizations and their corresponding attrition rates and found a clear link between low EVP scores and higher levels of attrition. We broke down the findings to understand how these trends are playing out across the different types of major oil and gas companies (Exhibit 1).

The data shows that EVP and retention dynamics are specific to the different subindustry segments, and therefore require different “calls to action.”

Majors—large global oil and gas companies operating in different parts of the value chain—are closely aligned in a “midrange” position with a limited degree of differentiation in terms of EVP and attrition rate. Most big corporations have an EVP score of between 3.3 and 4.1 (out of a 5-point scale) and corresponding attrition rates of 9 to 11 percent. Majors could create a more distinctive EVP to better differentiate themselves from peers and attract the best talent in the sector.

National oil companies (NOCs) have the strongest position across oil and gas, both in terms of EVP and low attrition, as they are often the leading employers in their country’s energy sector and face less national competition for talent. It is important for NOCs to build a well-rounded EVP, leveraging distinctive compensation, benefits, and broader organizational health to attract unique capabilities and young talent, not only within national boundaries but also from abroad.

Upstream companies are seeing the highest levels of attrition in the industry, despite their EVP scores tending to be in line with the sector average. This might be related to the high demand for specific technical skills, which are difficult to develop internally and are instead acquired through the job market via competitive offers or outsourced. Other factors may include workers leaving the traditional oil and gas industry for new energy companies, or market volatility as the energy transition accelerates.

Since the high attrition rate is partially structural in this sub-industry, upstream companies could focus on reliable and fast recruitment processes to ensure continued insourcing of required talent.

Midstream companies are closely aligned with low attrition overall and an average EVP. Like majors, midstream companies could create a more distinctive EVP to differentiate themselves as an employer of choice.

Downstream companies are closely aligned with a low attrition rate overall and above-average EVP. There are, however, a few outliers that are challenged by high attrition. The outliers in the downstream subsector may need to quickly align themselves with the standards set by their market peers.

Services and equipment companies tend to have below-average EVPs and high levels of attrition. Talent in services and equipment companies are generally in demand outside of the oil and gas industry, and companies may need to act quickly on their EVP to address high attrition rates. As a first step, service and equipment organizations can investigate the root causes of their high attrition and develop context-specific strategies for better talent retention.

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Leadership style is key to driving EVP

We also analyzed the different drivers of EVP across five categories: work–life balance, culture, career opportunities, compensation and benefits, and leadership style (Exhibit 2). While differences are not high, on average, we found that companies in oil and gas across subsectors score the lowest in leadership style and the highest in compensation and benefits.

The major gap for Employee Value Proposition is not compensation but management.

These findings have practical implications for how oil and gas companies across different parts of the value chain can strengthen their EVP. Regarding leadership style, it is important for the CEO and other leaders to be recognizable and charismatic role models, not only within the company but also toward the external stakeholders. We have observed that a new leadership style is emerging in the industry around five shifts that change how leaders—and companies’ EVPs—are perceived:2Powering up new leadership for a changing energy environment,” McKinsey, February 3, 2023.

  • Setting focus and direction: from executive to visionary. When defining the direction of their company, it is important for executives to not only ensure that profits are predictably delivered to shareholders but also that they take a visionary stance—engaging employees with a compelling purpose to deliver impact and value to all external stakeholders and society.
  • Designing how value is created: from planner to architect. Rather than taking a traditional, planner-oriented view focused on capturing a greater share of the existing value from their competitors, leaders can adopt an architect mindset by working with customers and other external stakeholders to reimagine and disrupt industry norms to generate new value.
  • Organizing how people work together: from director to catalyst. Traditionally, leaders took a director’s approach to developing defined organizational structures, with clear roles, responsibilities, and authorities. A catalyst approach, by contrast, allows leaders to encourage transparency, collaboration, and inclusiveness across the organization and externally, guiding empowered teams and cross-unit networks with external stakeholders.
  • Getting work done: from controller to coach. Leaders can combine the traditional, controller leadership style with the coach style. In this way, they could operate through detailed analysis and precise planning to deliver outcomes and minimize variances, while also focusing on a more innovative coaching view, operating through short cycles of rapid decision making and experimentation while learning to respond to new challenges and opportunities in the external environment.
  • Showing up as a leader: from expectation-setter to authentic leader. Blending the traditional expectation-setter approach of setting clear professional expectations for subordinates with the emerging style of “authentic leader” can encourage openness, personal well-being, creativity, and autonomy.

By embracing emerging leadership qualities, industry leaders could tailor a unique and powerful leadership style to improve their EVP, attract the right talent, and reduce attrition.

A step-by-step approach to strengthening EVP: A case study

The European subsidiary of an oil and gas giant found itself facing a shortage of the right talent to address its strategic goals of decarbonization and digitalization. While the company was highly regarded by tenured oil and gas professionals, it was falling short in attracting the new engineering and digital talents required, especially women.

The CEO understood the gravity of the challenge and closely partnered with the chief human resources offices (CHRO) and the rest of the leadership team to attract and retain the right talent through a phased approach.

Aspire. The leadership team worked together to translate the business strategy into a compelling vision for the future, centered on decarbonization and digitalization, to ignite purpose and passion in current employees and future candidates.

Assess. A rigorous approach was followed to listen to the “voice of employees” through employee surveys (such as our Organizational Health Index), interviews, and focus groups. This was complemented with an external diagnostic (using publicly available data from LinkedIn and Glassdoor) to identify the current EVP perception and key opportunities for improvement. The results highlighted that employees were looking for more emphasis on inclusion and diversity, flexible working hours to cater to family needs, and a compelling purpose focused on decarbonization.

Architect. Leveraging the insights from the diagnostics, the CHRO, with guidance from other leaders, shaped a cultural and organizational action plan to address the identified areas for improvement. The company created a compelling EVP with career paths for the specific talent pools required, a new diversity and inclusion strategy, and gender quota objectives, and collaborated with leading universities in Europe to improve their employer brand among students.

Act. The defined plan was actioned collaboratively at all levels of the organization. The company mobilized employees to identify change ambassadors to drive change in the different units and geographies. For this activity, data-driven insights from social network analyses helped the company identify key actors to catalyze change within the organization. At the same time, top executives embraced the new leadership style in line with the five shifts, shaping a different culture and ways of working.

After almost two years since the launch of the project, the company achieved a leading position for EVP—within the top-quartile of industry peers—and a CEO rating of over 80 percent. The company is now considered a best-in-class workplace for women to build a career in the oil and gas industry.

Oil and gas companies may need to think beyond compensation and create a positive working environment if they want to attract and retain talent—especially as they face increasing competition from new energy industries requiring competencies that are easily transferable from the oil and gas industry.

By improving leadership styles and company dynamics—and therefore EVP scores—employees may want to stay with their company longer, allowing institutional knowledge to grow within the workforce, and ensuring fewer resources are spent on hiring and onboarding.

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