SLID and Towers Watson address HR risk for sustainable growth

Tuesday, 24 February 2015 00:21 -     - {{hitsCtrl.values.hits}}

Nearly one-fourth of employees worldwide are disengaged! What’s worse, 36% of the remaining 26 aren’t giving their company their discretionary effort either. Given that net profit margins in companies with high levels of both engagement and enablement are significantly higher, this is a serious issue. If it weren’t bad enough that most of those employed are not giving it their all, a Towers Watson survey found that nearly two out of three respondents experience problems with hiring and retaining top performers and high-potential employees. The right talent can set you apart from the competition, and so, companies the world over are waging a war to secure those with the skill they need. The rewards are high, but so are the risks. In a high-level forum conducted by the Sri Lanka Institute of Directors (SLID) in partnership with Towers Watson, Shatrunjay Krishna, Director Talent Management and Organisational Alignment Practice in India for Towers Watson, revealed some of the global challenges in dealing with HR risk and how they could be averted or mitigated in order to ensure sustainable growth.   Assess the risks and plan for them Outlining a risk assessment framework, he suggested that areas needing to be addressed were strategy, process, compliance, investment and program. Issuing a timely reminder of the need to actively assess not only general business risk but also those specifically applicable to HR, Shatrunjay pointed out that analysis takes a company from a general perception of ‘I have some risk’ to an acute perception of what the risks are so as to be able to create a plan to deal with them. If controls are in place, he noted, you just need to ensure that they are working. However, most organisations don’t know if their career management programs are working. A very low 27% say their organisations monitor the effectiveness of their career management programs. (Towers Watson, 2014) With low controls and high risk, controls need to be developed urgently – the first year in a three year framework, for example, should be used to institutionalise the controls.     Choose your risks Among the insights into planning for risk that were shared at the forum was the fact that while benchmarks are useful, and could be good, they may still not be fit for purpose in your organisation; as there is no one size fits all solution. This means that it is crucial to tailor your plan to match your organisation’s risk appetite, rather than following the lead of other companies that may have a higher or lower tolerance for risk. The investment involved may not always be commensurate with your program, depending on where in the lifecycle your company finds itself at the moment. To assess these risks and their impact on your business, Shatrunjay recommended that one examines both consequence and likelihood, and creates a risk heat map that will accurately lay out potential problem areas as well as opportunities. Many companies miss out on potential opportunities by dismissing them as risks, when they may in fact be opportunities that others would be unable to exploit because of a lower risk appetite than yours. So how you deal with risk needs to depend on your business’ risk appetite.     Communicate to align with talent’s needs Globally, HR risks appear to be based around the proper allocation of finance to critical areas. Interestingly, according to Towers Watson, employer and employee perception of what’s important in retaining and attracting high performers are surprisingly misaligned in some instances. For example, job security ranks second on the employees’ list of priorities, while only 26% of employers believe that that is a key reason to join an organisation. Paid vacation time also made an appearance on the employees’ lists, but not on that of employers, showing that work-life balance is still very much on prospective employees’ minds. Curiously, the ‘Staying at Work’ survey (Towers Watson 2013/2014) shows that while employers acknowledge that stress is a leading risk, only 15% identify alleviating it as a top priority of their health and productivity programs In addition, the changing business environment creates risk in HR too as there are 20 to 25 roles at the cutting edge of change. These roles are often the pillars of an enterprise as drivers of competitive advantage, exacerbating the risk of organisations not recognising the forthcoming changes in time. The lack of effective training that is related to critical talent areas is also a potential source of risk. In addition, compensation is a global issue, with employees citing pay as their main priority in selecting an organisation to join. From the employers’ perspective, however, it is necessary to ensure ROI by spending on compensation and benefits that are most valued by high performers. This was underscored during the Q&A session when Preeti Chandrashekhar of Towers Watson reminded the audience of the need for communication, pointing out that it is easy to get stuck at your drawing board and forget to check what the real employee requirements. Cash is easier than selecting benefits that actually engage employees, but those may be more effective. To do this effectively, it is crucial that the segment of the talent that is really creating value is identified.     Find a mix that works for you In response to audience questions, Shatrunjay noted that employees have become more demanding as they see global perks and that companies are moving away from a defined benefits approach such as the traditional pension. It is possible, and even important, he said, to mix and match benefits depending on the requirement creating a tiered approach. For instance, as grade increases, the variable performance-based component of compensation could be larger, with company performance having a 30-40% weightage for senior executives when deciding on compensation. This is supported by research which states that companies with a highly evolved employment deal are three times as likely to report that their employees are highly engaged. Profit sharing could also be used as an incentive, depending on the business’ position in the lifecycle, as talent must still be attracted even though the organisation may just be starting off and not be cash-rich. However, he also pointed out that this could be demotivating in bad times and there is no one panacea.     Planning for succession Succession planning was addressed too, with an emphasis on retaining high performing talent who may not have been selected for the top slot but whose skills would still be valuable to ensure sustainable growth. Communication was underscored as being critical, as it would minimise surprises later in the process. While making succession plans operational is a key factor in their success, research shows that this is more difficult to accomplish with internal, rather than external, succession. The involvement of the board is another essential driver of success, but time is a risk from an execution perspective – how long do strategy decisions take to go from board to implementation?     Transparency as an attractor Shatrunjay averred that transparency in compensation is still a global issue, perhaps more so in the Asia Pacific territories. Since it has been established as the main priority for prospective employees, this is perhaps an area that needs to be address. There is no fixed requirement for disclosure, but as he observed, different levels of transparency can be used. For instance, it can be mentioned that a particular percentage of profit will be allocated to compensation. Participant feedback included that as there is a dearth of specific research in this area in Sri Lanka, the forum was a worthwhile addition to the knowledge resources available. The ‘Strategic HR Risk Management for Sustainable Growth’ breakfast meeting, held at the Cedar room of the Cinnamon Grand on 13 February was made possible due to the valuable support of Towers Watson, the Institute of Personnel Management and ZILLIONe.