Risk Awareness
A natural reaction during difficult economic times such as these is to reduce staff and compensation. However, organizations that do not anticipate and manage these actions may be more vulnerable to HR risk. Releasing the wrong people with the right competencies or failing to retain top performers may jeopardize the organization’s ability to emerge as a strong entity when the economy recovers.
It is also critical to recognize your organization’s changing demographics. According to The New Retirement by Sherry Cooper, the Canadian baby boomer population is proportionately larger than any other in the world. Baby boomers in Canada represent 32% of the population compared to 26% in the U.S. This means that, in the future, Canadian employers will experience heavier competency and skill shortages than their U.S. counterparts.
Talent management programs, including training and career development, are critical to long-term business improvement efforts but can still fall prey to cost-cutting initiatives. Too many companies consider reducing staff in areas that have a large number of workers. But without assessing the longer-term situation, companies may wind up short of key experiences and skills while facing increased training costs, litigation, losses in productivity and even declining profitability. Organizations will have to explore new ways to find a balance between compensating employees and rewarding, retaining and motivating staff to support growth and profitability. Engaging employees in career development, learning opportunities and non-compensation recognition programs will be critical.
Operational Opportunities
Operational efficiency is easily overlooked as a means of business improvement. HR is responsible for managing a multitude of external vendors—from recruiting and training to payroll and pension plans. However, the potential exists for cost and contract inefficiencies, performance breaches and service delivery issues. These activities must be kept under close watch to capture any business improvement opportunities.
And one cannot forget the area of global mobility compliance. In Canada, there has been an explosion of companies expanding their global operations at a time when foreign tax authorities have been aggressively auditing and looking for additional revenue sources. The increased complexity of global rules and regulations from both a tax and an immigration perspective has put more pressure on this important HR risk. But when managed correctly, this area offers great opportunity for business improvement.
Doing it Right
In Ernst & Young LLP’s 2008 Global HR Risk survey (conducted among global financial, HR and risk executives from Fortune 1000 companies), respondents viewed areas of HR risk as having a significant impact on risk management and business improvement platforms. The results found similarities across the board, such as the importance of talent management and pay-for-performance. However, those outside of the U.S. ranked HR risk issues such as global mobility compliance and cost management higher than those in the U.S.
HR risk management must be viewed as a shared responsibility across HR, financial, operations and risk executives. But finding the patience and discipline to plan for the long term can be a challenge. HR risk must be carefully reviewed and integrated into the overall enterprise risk management framework.
Managing HR risk can be a differentiator for companies looking to drive business improvement. Those that properly anticipate and manage this important type of business risk will ultimately emerge as high-performing organizations.
Bill Leisy is a member of Ernst & Young LLP’s performance & reward practice. Ronny Aoun is an executive director of human capital and leads the practice in Canada.
william.leisy@ey.com; ronny.aoun@ca.ey.com
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