A tighter partnership between corporate finance and HR executives might be on the horizon as large companies begin to address the implications of health care reform for their rewards programs and talent management strategies, according to a survey report by consultancy Towers Watson and Forbes Insights, a provider of business data.
The survey, Joining Forces: Forging an HR/Finance Partnership to Shape Rewards for the Future, was conducted in September 2011 and includes responses from 104 HR executives and 201 finance executives at U.S and global organizations ranging in size from 1,000 to 25,000 employees and representing a broad range of industries.
Setting Rewards Strategy—and Budgets
Among the key findings, HR and finance executives share an expectation of further increases to their health care and other rewards budgets in the next few years, although surprisingly, neither sees any change in the mix or cost allocation for their overall rewards programs. Survey results revealed that:
• The majority of HR executives (81 percent) and finance executives (55 percent) agreed that setting rewards program strategy is largely driven by HR.
• In terms of budgeting for rewards, a greater number of finance respondents (53 percent) indicated that they are more involved, compared with 47 percent of HR executives who see themselves in the lead.
Looking ahead a few years, the picture changes:
• More than one-third (38 percent) of finance executives believe that strategy development will be much more of a shared role. That compares with just 24 percent of HR respondents, who mostly believe they will continue to drive the process with minimal involvement from finance executives.
• In the area of budgeting, more than half (53 percent) of finance executives expect to have primary responsibility, while 40 percent of HR respondents say budget setting will remain more of a shared role.
“Companies are just beginning to grapple with the complex set of decisions triggered by the health care reform law—decisions that will have a direct impact on their broader set of employee rewards,” said Randall Abbott, senior health and group benefits consultant at Towers Watson. “The fact that both finance and HR leaders each see a role for the other in developing reward strategy and budgets in the future suggests a powerful framework for joining forces at a time when the stakes for close collaboration have never been greater.”
The survey found numerous areas of confluence to serve as the foundation for closer collaboration. Cost was by far the most important factor for both groups in making decisions about health care reform. In fact, more HR executives (82 percent) emphasized cost than did finance leaders (69 percent).
Two-thirds (67 percent) of both HR and finance leaders expect to maintain health care benefits for their active employees despite their common belief that costs will continue to rise. Yet while both groups expect their per-employee investment in rewards to increase—regardless of their decision to continue providing health care benefits—neither group expects health care costs to consume a significantly larger share of the total rewards pie.
“Health care reform is a significant business issue that has the potential to test the relationship between HR and finance executives. And, with so much change quickly approaching, it highlights the need for both groups to start working more closely now to leverage their respective expertise and knowledge,” Abbott said. "A strong HR/finance partnership can be mutually beneficial in facing the demands—or taking advantage of the opportunities—of reform while at the same time balancing an organization’s cost objectives and talent and employee engagement needs.”
Career Management and Workplace Flexibility
About one-third of HR but just one-fifth of finance executives indicated that their costs for training, career management and flexible work arrangements fell below competitive norms.
A substantial number of finance executives think that their organization overinvests in some of the so-called “environmental” rewards. Specifically, finance respondents were more than three times as likely as their HR peers to believe their organization outspends competitors in the areas of career management (29 percent vs. 9 percent) and flexible work arrangements (31 percent vs. 9 percent).
Benefits Costs Seen as Top Factor Impacting Compensation Decisions
Sixty-five percent of executives at mid-size U.S. firms say benefits costs are the leading factor impacting compensation decisions, according to the Verisight and McGladrey 2011/2012 Compensation, Retirement and Benefits Trends Survey.
Conducted in September and October 2011, the survey polled more than 850 organizations drawn from a national sample. The majority of participants were mid-size, private and nonprofit companies.
"Business leaders are challenged by rising health care and benefits costs, heightened government oversight and new regulation," said Greg Tschider, CEO of benefits consultancy Verisight Inc. "Success throughout the recession has meant focusing on efficiency, savings and the bottom line," he continued. "The middle market has taken difficult measures to reduce costs, and today the sector is strong and poised for growth. Now is the time for middle-market executives to revisit their strategic plans for compensation and benefits to ensure they are still feasible."
In 2012, cost control strategies will stay top of mind for middle-market executives, and measures will focus on increasing employees' share of health and welfare plan costs, according to 37 percent of survey respondents.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Nearly One-Third of US CFOs Plan Health Care Cost-Cutting, SHRM Online Benefits Discipline, September 2011
CFOs Take on HR, SHRM Online Business Leadership Discipline, September 2011
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page