Talent now matters more than incentives, says Amazon's founding economic development chief

Source: From the Nashville Business Journal: https://www.bizjournals.com/nashville/news/2020/12/10/mike-grella-ecd-incentives-amazon.html

Adam Sichko

Senior Reporter

Nashville Business Journal

When it comes to winning the most coveted prize in economic development, incentives don't matter nearly as much as they used to.

That's the perspective of Mike Grella, who in 2012 started the global economic development team at Amazon.com Inc. (Nasdaq: AMZN) as the company began proliferating its national network of distribution hubs. He later hired Holly Sullivan — who grew up in Nashville and began her career here; she would lead Amazon's 2018 "HQ2" search that resulted in the

announcement of 5,000 jobs at a downtown office campus whose creation she is overseeing. Grella left Amazon in early 2019 (at the time, he was leading economic development for Amazon Web Services, its data center and cloud-computing business) to start Grella Partnership Strategies, a consulting firm that now has 19 employees in 12 cities.

Grella's analysis about incentives — and what he thinks is really driving corporate decision-making today — is notable in light of a pattern that quietly started under former Mayor David Briley and has continued much more prominently under Mayor John Cooper — that, in Cooper's words, "the strategy of paying people to be here is probably antiquated."

Grella isn't saying incentives are irrelevant. He contends that they aren't driving executives to relocate their corporate headquarters or open a major office. That's the kind of economic development deal cities battle to win because it brings a company's highest paying jobs and decision-makers, which affect schools, real estate, nonprofits and the arts, among other aspects of a local community.

"Workforce and talent are the primary driver now, particularly for corporate office projects," Grella said.

The interview below is edited for clarity and length.

What's driving economic development deals right now? For the longest time, incentives were really a very big draw for companies and site consultants were steering companies toward jurisdictions that had the largest incentives package. That paradigm has shifted toward focusing on education, quality of life, sustainability, issues of social and economic justice, and resiliency. Incentives are still an important tool to have in the toolbox. But you have all of these other issues and factors that are driving site selection. I believe it’s appropriate to focus on factors that are going to be more impactful and create a durable advantage for employers. A tax abatement is temporary. A cash grant is temporary. Successful metros are focusing on the talent pipeline first, and knowing that the employers will follow.

The idea of 'no incentives' has many in our business community uncomfortable. What would you say to them? It's not the most popular stance to say 'we’re not writing a blank check to potential employers.' It can be a scary proposition to business leaders who have seen incentives as being a critical factor in site selection over the past 20 years. It really requires a level of stakeholder engagement and education among policymakers and business leaders to understand that there is a shift in the thinking and decision-making process of companies that are looking at their long-term growth plans. More so than ever, real estate site selection decisions — particularly when it comes to corporate office jobs, regional headquarters, research and development centers — are being driven by HR executives and the folks

responsible for human-capital decisions, rather than the real estate department or the accounting department.

Let me add skepticism here: Are incentives really slipping that far down the list of priorities? Incentives will continue to play a large role in decisions for manufacturing and processing, and for some logistics facilities. But when it comes to corporate office facilities and R&D, just look at Austin. Austin is not well-known for offering aggressive incentive packages, and they’ve experienced incredible growth over the last decade. Seattle offers very little in the way of

economic assistance or expanded benefits — and Google, Facebook, Amazon and Apple all have campuses they've established or expanded in Seattle over the last 10 years. If you drill

down, particularly in the tech industry and industries where competition for top talent is fierce and unrelenting, there is a pattern that companies are going to where the talent pipeline is

located, not where the subsidies are.

Could incentives become less of a factor given how Covid-19 has battered so many cities and states financially? Corporate decision-makers are playing a long game in terms of where they

want to locate and grow. It's critically important to look at the fiscal health of the communities and the anchor institutions. … If you build your economic growth by abating the taxes of every

company that is expanding as your population is growing, you start to strain the resources that are funding these critical anchor institutions. If you have a tax base that hasn’t been mortgaged to attract a new corporate headquarters, then you set yourself up for

long-term success.

Were companies not focused on the long game before? Or is it just that who's making the decisions is different now? There's definitely consensus … that HR is taking an oversized role in corporate real estate decision-making. I'd also posit that the focus on what millennial talent is looking for and what’s important to attracting them to locate and stay and work in a community has also evolved over the last 10 years.

What do you mean by that? The race for top talent is not just about who can pay the most money. It’s also about having an attractive corporate culture. The top software developers and engineers — the ones that are going to be generating IP and patents that will drive multibillion-dollar innovations and inventions — they care about racism, clean air and water, carbon emissions, social justice, quality education. Generally speaking, there’s a higher level of social consciousness … that is requiring companies to adjust their behavior and adjust their priorities. … Take Stand Up Nashville.

Look at their work: It’s in the mainstream of economic development policy-thinking nationwide. They’re focused on community benefits agreements to accompany incentives. The idea of having companies that are seeking taxpayer subsidies formalize a

commitment to do good and give back to the community in measurable ways is much more common now.