2026 Mid-Year Human Resources Leadership Review: The Bench Became the Strategy

Market Observations

Resignation levels have held near their lowest point since 2020, as employers hold steady on hiring and layoffs alike and workers grow cautious about leaving stable situations. Much of that restraint on the employer side reflects labor hoarding.¹⸴² Many companies absorbed steep costs rehiring and retraining after the cuts of 2020 through 2022 and have been reluctant to shed staff they may need to rebuild later at a premium. Persistent uncertainty over tariffs and interest rates has reinforced the pattern, leaving many businesses unwilling to commit to growth or reduction until conditions clarify. The pattern was not universal. Technology firms continued cutting jobs through mid-year, driven largely by AI related restructuring rather than caution. By June, the share of adults working or looking for work (labor force participation rate) had fallen to 61.5%, the lowest reading since 1976 outside the pandemic period.^³

The available workforce was also getting smaller. This reflected two compounding forces. First, a routine update to the government’s population estimates counted more Americans as older, which lowered the participation rate on its own, without real change in who was working. Second, an accelerating wave of Baby Boomer retirements combined with reduced immigration meant fewer new workers entering the labor force.^⁴ These were long-term shifts rather than a passing dip. Even companies with open roles and candidates available struggled to align skills and locations.

With hiring and layoffs both slowed, HR leaders turned to strengthening the depth of their current workforce.

Leadership Trends

By mid-year, most spending on artificial intelligence (AI) had already happened and organizations moved to assess whether it was paying off. For many, the answer was not yet. In Gallup’s 2026 State of the Global Workplace report, only 12% of employees globally at companies that had adopted AI said it had changed how their work gets done.

The tools generally worked; adoption was the harder part. Changing how people work required new processes and structured support to make them last, and that support was often missing. The bigger obstacle sat one level up. Manager engagement took a steep fall, from 31% in 2022 to 22% in 2025, and a manager’s own use became the biggest factor in AI success.⁵

Companies have spent years cutting middle management, the layer that turned strategy into action and trained the next generation of leaders. That narrow, hourglass-shaped structure now looks permanent rather than a cycle that will correct itself. As a result, fewer people were being prepared to move up. In one leadership forecast, only 20% of HR leaders said they had people ready to step into their most critical roles.⁶ The bottom of the pipeline thinned at the same time. AI absorbed much of the entry-level work where people learned the business. As hiring for those roles dropped, new graduates faced one of the hardest markets in years. The effect compounds: fewer early-career hires today produce fewer capable successors tomorrow, and the roles that once seasoned them no longer exist in numbers.

As this pressure concentrated on HR, the role has grown more valuable. At many large companies, pay for the top HR seat has risen faster over the past year than pay for other senior executives,⁷ a sign of how dependent boards have become on HR.

The Way Forward

Companies are unlikely to rebuild these middle management roles in sufficient numbers, so organizations will need to find alternative ways to develop talent and build leadership capacity. Successful organizations have already begun to reimagine how to build key skills and competencies through other innovative, yet practical, methods. People need real exposure to decisions before they are promoted, not after. Moving people across functions broadens them, and pairing senior leaders with their successors transfers experience before it leaves the building. Planning succession early turns a departure into a transition rather than a crisis. IBM said it would triple its US entry-level hiring in 2026, and rewrote those job descriptions around judgment and oversight of AI rather than the routine work AI now absorbs. The argument was economic: companies that stop developing early-career talent end up buying mid-level talent from competitors at a premium.

Holding onto strong performers matters just as much. Even in a slow market, they have options and will leave when they cannot see a path forward. Pay is part of keeping them, and with budgets tight and salary transparency laws now active in most states, pay decisions must be consistent and easy to explain. A pay gap between similar roles that once went unnoticed can now surface directly in a posted range, so equity has become a compliance issue as much as a retention one.

Finally, companies cannot simply refill old versions of roles. Position specifications must be amended to define what the role needs now, and this must happen before the search begins. Most senior hires fail because the mandate was never clear from the start. Defining expectations and competencies now avoids this costly mistake and turns an external search into a deliberate choice, rather than a scramble after a seat opens.

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SOURCES

⁽¹⁾Federal Reserve Bank of San Francisco, “From Hiring Difficulties to Labor Hoarding?,” Economic Letter.

⁽²⁾Federal Reserve Bank of Cleveland, “The ‘Low-Hire, Low-Fire’ Labor Market,” Economic Commentary 2026-17.

⁽³⁾U.S. Bureau of Labor Statistics; Employment Situation, June 2026.

⁽⁴⁾Federal Reserve Bank of St. Louis, “What’s Behind the Sharp Drop in Labor Force Participation?,” On the Economy, 2026.

⁽⁵⁾Gallup, State of the Global Workplace: 2026 Report.

⁽⁶⁾DDI, Global Leadership Forecast 2025.

⁽⁷⁾The Conference Board, CEO and Executive Compensation Practices, 2025.