Issue 07 / October 2015
When we discuss managing human capital risks, we usually refer to the ongoing task of managing and refreshing total rewards programmes, efforts that may include updating benefit offerings, updating employee communication and engagement strategies, restructuring salary bands and revising health management programmes.
Companies that build a culture of health yield greater value for their investors.
But effective management of human capital risks requires a long-term strategy, which calls for collaboration among the constituencies that make up the company, particularly between risk managers and human resource (HR) practitioners.
HR initiatives are not simply compliance items or employee benefit perks to be checked off a list, but real risk management issues that require bringing HR leadership to the table and acting on their contributions.
Risk managers need to involve HR leaders — who with their talent-centred expertise already have their arms around the entire organisation — to develop a sustainable human capital strategy that carries the entire organisation into 2020 and beyond.
HR professionals’ advice and insight should be front and centre in discussions about all aspects that involve organisational performance including workforce demographics, performance management, succession planning, health and wellness programmes, people risk mitigation, strategic planning and the application of analytics.
Cover stories in major news magazines explaining how and why medical bills are killing us; headlines in trade publications outlining brutal talent wars; how-to guides on implementing successful wellness programmes; analysis linking productivity with bottom line business results: each of these topics touches on human capital management and the key role it plays in furthering the corporate agenda.
Efficiently managing human capital, which makes up as much as 40–60% of a company’s operating costs, is the global challenge for every organisation, according to the 2013 CEO Challenge survey – more important even than innovation, political and economic risk, reputational risk and trust.
How to ensure incentive systems are compatible with corporate culturehttp://www.resilience.willis.com/articles/2015/09/29/human-error-and-deterring-unethical-behaviour/
Managing human capital risk effectively can enable companies to capitalise on an unprecedented opportunity to improve every aspect of their operations. In every case, risk managers can be in a position to make big contributions.
The ways in which human capital risks touched every part of an organisation would be too numerous to explore in depth in this article. Instead, we delve into three aspects to offer a glimpse of how mission-critical a sound human capital strategy is for every organisation, and how risk managers can contribute to this.
Many human capital practitioners and risk managers aren’t just dealing with one or two generations in the workforce, but as many as four or even five. At the top of the pyramid, older workers born between 1928 and 1954 – what we might call, ‘traditionalists’ – stay on the job for longer.
Traditionalists were influenced by a generation that values sacrifice and duty before fun, according to the white paper, Managing the Multigenerational Workplace, published by the Kenan–Flagler Business School, University of North Carolina.
Boomers, born between 1946 and 1964, often prefer personal fulfilment and crave workplace quality, notes the same white paper.
Gen Xers, born between 1965 and 1980, are often sceptical and exhibit a preponderance for self-reliance. Goal-oriented and tenacious multitaskers, Millennials gravitate towards entrepreneurship and ‘what’s next’.
And now even the ‘cuspers’, people born around the turn of the 21st century, are knocking on HR’s door in search of internships.
For long-time HR managers, developing recruitment, retention and engagement strategies for such a diverse workforce has never been quite so challenging and will, in many cases, require a change in mindset.
For example, a PWC survey in 2011 found that Millennials value opportunities for career advancement and development programmes higher than they do a good benefits package.
Yet organisations spend, on average, 16 times more on healthcare than they do on learning and development. In numerical terms, organisations spend, on average, $9,328 per employee for healthcare benefits compared to $605 per employee for development, the survey found.
As traditionalists and boomers exit the workforce, the outflow of talent and knowledge represents an even greater challenge than readjusting corporate culture to welcome the inflows of new Millennials.
Nearly 70% of all workforce knowledge is tacit and unwritten, and older workers who maintain little or no rapport with younger colleagues aren’t likely to pass down the ‘tricks of the trade’.
Baby boomers are packing up their expertise and retiring in droves. Forward-thinking human capital risk managers need to anticipate those shifts now to retain and engage waves of new employees — or risk paying dearly for the oversight later.
The five generations populating the workplace are all demanding more employment flexibility.
Work-life balance is one of the top three reasons highly skilled workers cite in choosing an employer and 83% of the companies on the Fortune 100 Best Places to Work list offer virtual work options. The upside for employers is that flexibility is truly a talent magnet and, in many cases, it does not cost anything. In fact, it may save organisations money through lower real estate and relocation costs.
From Traditionals to baby boomers, from Generation Xers to Millennials, surveys show that flexibility in work arrangements lead to higher employee satisfaction, which leads to higher productivity.
The reasons employees desire flexibility is as varied as their demographics, but include:
The retention benefits of offering work-life balance mean less turnover, higher productivity and more satisfied employees.
According to a 2014 Society for Human Resources Management survey, 57% of human resources professionals think recruiting for diversity is important and design their efforts around that goal.
A diverse and inclusive company — in which employees as their ‘authentic selves’ can contribute to the success of the organisation — makes for a more resilient company better positioned to respond to customers, suppliers and markets.
Greater workplace diversity can also help to overcome talent shortages and stimulate innovation, motivate staff and build loyalty among clients, and studies indicate that firms with diverse representation attain better financial results.
A study by Catalyst, The Bottom Line: Corporate Performance and Women’s Representation on Boards (2004–2008), used three measures of financial performance: i) return on sales (ROS), ii) return on invested capital (ROIC), and iii) return on equity (ROE). Companies with women on the board outshine others on all three measures.
How targeted health-related employee initiatives can reduce medical costshttp://www.resilience.willis.com/articles/2015/09/29/how-data-analytics-can-identify-health-care-soluti/
Another recent study, Gender Diversity and Corporate Performance, produced by Credit Suisse, which reviewed the performance of 2,360 companies globally over the last six years, found that, on average, it would have been better to have invested in corporations with women on management boards than in those without.
Specifically, the study found that companies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price-to- book value multiples over the course of the last six years.
Health insurance is typically one of an organisation’s top-ten spends, and one of the most efficient ways to control costs is to reduce claim frequency by encouraging healthier habits and promoting wellness. Trends indicate that a substantial percentage of employee claim costs are related to lifestyle-related claims largely attributable to poor diet and lack of exercise and therefore preventable.
Provide HR managers with transparent and actionable analytics, grounded in big data, and it won’t be long before top executives rely heavily on HR and risk managers to support recommendations for short and long-term strategic planning.
The Integrated Benefits Institute shows that health and productivity can be viewed in these proportions:
Poor employee health costs employers $576 billion a year and there are many ways for employers to mitigate increasing healthcare costs.
A substantial percentage of employee claim costs are largely attributable to poor diet and lack of exercise and therefore preventable.
Integrating health management practices such as value-based benefit design, health and safety policies and population-specific programmes promotes illness prevention and risk avoidance.
Health and productivity go hand-in-hand and more companies realise that increasing employee morale, engagement and productivity will improve their culture and their bottom line.
Many employers are moving away from looking solely at their medical cost trend and are more interested in boosting productivity through a holistic approach grounded in a broader wellness model. The latest Working Well survey found that as many as 30% of companies are measuring wellness outcomes in areas such as safety, productivity and reduced absences.
As a person’s body-mass index (BMI) increases, so does the number of sick days, medical claims and healthcare costs associated with that person.
Obesity, often associated with lower productivity while at work (presenteeism), costs employers $1,850 per employee per year more than it does healthy-weight employees. Obesity-related job absenteeism costs companies a staggering $4.3 billion annually so it’s not surprising that a portfolio of companies recognised as award-winning for their approach to the health and safety of their workforce outperformed the market.
Evidence seems to support that building cultures of health and safety provides a competitive advantage in the marketplace. This research may have also identified an association between companies that focus on health and safety and companies that manage other aspects of their business equally well.
Fast forward 15 years and the workforce will look young, mobile and diverse — but not exclusively. Parts of the workforce, living longer, will remain full of ideas and most, of all, skills.
Human capital risk managers will have their work cut out for them as chief human resource officers (CHRO) continue to forge a broader identity for themselves and mature into bona fide strategic business leaders and keepers of human capital expertise.
And why not? They understand and deal with people — individuals and groups — and how the success of one is connected to the success of all, the bottom line included.
More than anyone else, CHROs know how decisions regarding recruitment, reward retention and processes support specific outcomes that affect the bottom line. No wonder CHROs, who once reported to the COO or CFO, are now reporting directly to the CEO.
As the stakes involved in managing human capital rise, HR departments and CHROs are expected to move from executive partners to ‘anticipators’, which means HR managers are going to lean on all the outside expertise they can find, particularly risk managers.
Firms with deep technical and financial bench strength will help implement forward-thinking long-term strategies around human capital. HR leaders backed by the right resources will find themselves with a trusted ally, and reap the ultimate reward for a lucid and cogent human capital strategy: an invitation to join the C-suite sanctum.
James Blaney is CEO of the Human Capital practice at Willis Global Solutions. He is responsible for overall human capital business unit growth specifically focused on new sales, client retention, training, talent recruiting and mergers & acquisitions.
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-leading products and professional services in risk management and transfer. Our experts rank among the world’s leading authorities on analytics, modelling and mitigation strategies at the intersection of global commerce and extreme events.Find more information at our website, www.willis.com
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