Many Canadian employers that weathered the economic downturn have surfaced with a more cautious attitude. They are often more cost-conscious and risk-averse. When it comes to their HR programs, these organizations are focused on the return on investment (ROI) of both benefits and retirement savings plans, and they consider any proposed changes from both a cost and an employee engagement perspective.
This new mindset comes at a time when HR specialists who oversee their companies’ plans are also dealing with considerable legislative change, as well as demographic shifts and only semi-settled markets. For these reasons, many are turning to advisors more frequently. In a recent Benefits Canada online survey of 240 Canadian C-suite and senior executives, 47% stated that their plan advisor has greater involvement/influence in plan decision-making now than in the past; 43% said it was about the same. Only 9% indicated that the current level of involvement was less than before.
If the vast majority of HR professionals are relying on consultants at least as much as, if not more than, they have in the past, how is this affecting the client/consultant relationship? What are organizations asking their advisors to help with, and how are consultants responding?
Meeting client expectations
Susan O’Dowd, vice-president, HR, with Toronto’s Hospital for Sick Children, describes what her team expects from its consultants: “We’re not looking for just another pair of hands or someone to do the heavy lifting. We want strategic advice, deep subject-matter expertise and interpretative skills to assist us in managing in a complex and changing business environment.”
These requirements may not signal an overt change in what clients are demanding of their advisors yet a subtle shift has occurred. “The bar has been raised in terms of the level of expertise we need and expect our consultants to have,” states O’Dowd.
Denise Hayes, senior vice-president, people, with Saint Elizabeth Health Care, agrees. “We’re running faster, working harder and facing more complex issues. We turn to our consultants to provide best practices, industry trends and innovative approaches that are appropriate for our organization. When we get that, it’s money well spent.”
Employers are quick to emphasize that they are not looking to outsource decision-making to consultants. Brien Perry, vice-president, HR, with Enerplus, explains the advisor relationship as one in which “the consultant brings advice, knowledge and market intelligence,” which is married with the “understanding of our business that internal HR business partners have.”
Working together
Employers don’t necessarily expect to find all the knowledge they’re looking for in one firm and often work with several advisors at a time. “We tend to turn to more traditional HR consulting firms for help with broader topics, such as plan design, but may consult with boutique firms for specialized advice, for example, with respect to leadership development trends,” says Perry. Likewise, Hayes states that her organization will generally seek out a “name brand, a firm with longevity” for ongoing work, such as help with the benefits plan, but may turn to smaller firms for assistance with specific projects “if they’re credible and experienced.” O’Dowd relies on a “full request for proposal process” to find the best help at the right price.
Jeff Norton, president and CEO of Manitoba’s Teachers’ Retirement Allowances Fund (TRAF), describes the external team that advises on TRAF’s DB pension plan. “We have an actuarial consultant, of course. However, to manage particular projects, we also use a variety of investment consultants with specific skill sets.” Norton expects each advisor to “develop a rapport with the decision-makers.”
Zaheed Jiwani, senior vice-president, client strategy, with Greystone Managed Investments, says that rapport is also important among service providers. “Clients are looking for expertise from all their advisors,” he states. “There are now often multiple parties around the table—the client, consultant, recordkeeper, investment manager and perhaps others. There is an opportunity for advisors to work together in different ways in the best interests of the client.”
Bang for the buck
With the ever-increasing complexity of HR issues, some organizations are boosting funding for consulting assistance. “External advisors can bring buying power but also a certain objectivity,” says Hayes. “You could fall into the trap of becoming very insular about how you’ve always done things. Not using consultants could wind up costing you more in the long run.” Nevertheless, employers are concerned about spending their dollars wisely. “Our budget doesn’t provide a bottomless pit for consultants,” says O’Dowd. “We need to be judicious and careful in how we spend public dollars.” She cites an example of a good use of funds: “It doesn’t make sense to take a year to develop an internal solution from scratch when consultants have great programs that only need tweaking.”
Norton also believes that it is often a good use of resources to engage an external advisor to educate internal decision-makers: “We look for someone with the knowledge and expertise but also the ability to communicate effectively—someone who can take complex topics and make them understandable and relevant to our particular situation.”
In the wake of the recession, many of the projects for which employers are seeking consultants’ help now have a specified ROI target tied to them. In some cases, ROI is readily evident—benefits plan cost savings or improvement in the funded status of a pension plan, for example. In other cases, ROI is hard to quantify—for example, money spent on leadership development. In such cases, Hayes taps into internal sources for evaluation purposes. “Listen to what participants tell you, and gather feedback from their direct reports on whether there has been behaviour change.”
New issues, new solutions
Organizations are also tapping into advisors for help with certain key HR issues. And both large and smaller HR consulting firms are weighing in on some of the challenges their clients are facing.
Drug plan cost management: Cubic Health president Mike Sullivan notes there is growing demand for help in understanding differences seen in drug pricing as employers seek to become more educated consumers now that “the black box around drug pricing has been opened.” Wendy Poirier, division leader, health and group benefits, with Towers Watson, reports that, while many organizations have been looking at how to manage drug plan spending over the last few years, they’re more aware of risk exposure in their plans and are taking a strategic approach to cost management, with one caveat: “Drug coverage is really appreciated by employees, so the focus is on what organizations can do to manage costs without impacting engagement.”
Wellness and disability management: “There’s an increasing focus on due diligence in disability management,” says Rochelle Morandini, a partner with Morneau Shepell. “Employers also want to ensure they’re getting good ROI from their vendors and internal resources.” Morandini also points to a growing demand in implementing short-term disability vendors for the first time—“organizations can’t do it themselves anymore”—as well as developing mental health strategies, using technology to encourage wellness and initiating efforts to better align wellness measures with business objectives.
Pension risk management: Manuel Monteiro, partner, financial strategies group, with Mercer, explains the growing demand for help in managing DB pension plan risk. “After a decade of declining interest rates and huge equity market volatility, many plan sponsors feel too exposed to pension risk,” he says.
“Unfortunately, to reduce risk rapidly means making large contributions to the plan.” Consultants can help to develop and implement longer-term strategies to reduce risk on an opportunistic basis. Such strategies could include changes to plan design, funding policy and/or investment policy. “The game plan is to monitor opportunities to de-risk, to have a play ready…and to capitalize on a timely, targeted basis.”
Delegated investment: One particular pension risk management strategy that is attracting greater interest is delegated investment. “Clients ask us to implement their risk management strategies, including manager selection, monitoring and replacement,” explains Chris Kautzky, an associate partner with Aon Hewitt and the firm’s Canadian delegated investment solution leader. Kautzky says this reflects “a paradigm shift in plan sponsor thinking from an asset-only total return approach to one where combined asset and liability performance is paramount.”
DC plan administration: Consultant-provided DC plan administration services accommodate clients that “are not satisfied with off-the-shelf DC offerings in the marketplace,” according to Idan Shlesinger, managing partner, DC pensions, with Morneau Shepell. These sponsors want “a less biased DC program that integrates better with their other programs and culture.”
Jim Reid, senior vice-president, implementation and product development, HR outsourcing and solutions, with Xerox, also works with plan sponsors that want “a more personalized model. Advances in technology have put customization within reach.” While Reid believes there will be only “a small shift in plan sponsors that will move away from traditional providers for DC administration, choice is important.”
Leadership assessment and development: “Even those organizations that fill key roles through a search firm are interested in objective leadership assessments,” states Tiffany Goodlet, a partner with Verity International. “The cost of getting it wrong is just too high.” Use of CEO performance assessments is also increasing, “particularly in non-profit organizations, where sponsors want to ensure their funds go to more than a severance package.” And employers turn to consultants where evaluation reveals room for improvement. “Effective leadership is all about having the right leaders in the right roles doing the right things consistently,” says Daphne Woolf, managing partner with The Collin Baer Group. “What we’re asking of leaders is now much broader. They need to bring the organization’s culture to life and engage employees.”
Employee research: “More organizations are asking consultants to help define their employment experience or value proposition,” says Neil Crawford, a partner with Aon Hewitt. “Armed with a crisp, clear statement about why people should work at their organization and what employees need to do to be successful, employers can select the people who fit and gather employee feedback to see if their leaders, programs and practices are actually delivering the right experience,” he explains.
Employee communication: Susan Deller, a principal with Eckler Ltd., believes increasing demand for external help with communication is due to a number of factors, including changing demographics, the need for better retirement savings outcomes for DC plan members, a desire to integrate social media and mobile technology into an effective communication strategy, and a generally “more holistic view of workplace rewards.” More and more organizations are looking for a complete overhaul of their internal communications practices. This involves evaluating their current communications programs, obtaining input from management and employees, building the brand, developing an appropriate media strategy and delivering on that strategy.
While employers may be demanding more of HR consultants, advisors are stepping up to the challenge. Expect organizations to continue to rely heavily on them. Of course, some companies see a fringe benefit to working with consultants. In Calgary, where attraction and retention of talent continues to be an issue, consulting assignments are a good way to “test out” potential employees, says Perry, tongue-in-cheek. “Some of our best hires have come from consulting firms.”
Marcia McDougall is a freelance writer and president of InteGreat Marketing PR Events. mmcdougall@integreatmarketing.com
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