The Risky Business of HCM Part 3 – Cost and Compliance

This third installment in my series on talent risk focuses on two Cs – cost and compliance. Brandon Hall Group’s list of the top five global talent risks, based on data from over 1200 global organizations, defines these risks as:

  • Cost Risk: Understanding the compensation models and managing the cost of recruiting and retaining the workforce required.
  • Compliance Risk: The very real financial and legal risks associated with noncompliance with union rules, federal, state and local laws, and other regulations.

Cost is a word that is always likely to get the attention of the CFO and the CEO. And for most organizations, the cost of their labor is one of the most significant business costs they have. Organizations need to better understand the return they are getting on their labor cost – in terms of productivity and revenue. They also need to understand the cost implications of their business strategy.

As organizations look to grow and expand, they will require new talent. HR leaders are challenged to use internal and external data to understand the marketplace and be able to advise on compensation strategies within their current geography, alternatives for the locations that may offer differentiated labor costs, or some combination of these two options and more. HR leaders play a significant role in organizations’ control over its single largest cost by providing the right information on what it will cost to get the talent needed to expand.

And even if your organization is not experiencing expansion growth, good talent is always on the lookout, so managers need help retaining their key staff. Lots of factors go into retention, but compensation can be part of the puzzle. It’s always amazing to see that managers will resist offering a raise to a super-high performer who is also a super-high flight risk, and yet when that employee does depart the business, they can suddenly find budget for a much more expensive replacement. HR leaders need to help business leaders understand the costs and return of keeping current high-potential and top performers versus recruiting in their current marketplace.

Compliance risk can seem like one of the more boring aspects of human capital management. But it’s a significant factor for organizations, particularly U.S. organizations facing new legislation such as the Affordable Care Act. Workforce management tools help organizations maintain compliance in many ways. Time and attendance systems track when people worked to see if they qualify for various levels of benefits or other government mandated programs. Scheduling systems help ensure that compliance rules and laws are not violated. Leave and absence management solutions can help organizations determine appropriate leave types and track proper documentation.

Organizations focused on compliance risk should look for solutions that help them not only manage the process, but also easily store and access the required documentation. This will allow organizations to not only maintain compliance on an ongoing basis, but should they be challenged in the future, easily and efficiently access the required information to respond to any complaint.

Cost and compliance may seem like fairly basic risks, but they are an area where HR can help the business make far better decisions that can have a direct impact on the bottom line. In order to do so, HR leaders need to get comfortable with data, analytics and reporting. As illustrated in our recently published KnowledgeGraphic on workforce management automation, improving workforce analytics is the number one priority for organizations in the coming year, but just 50% of organizations can report on historical data from that time and attendance and salary or labor cost data. To truly manage cost to compliance risk, organizations will need to improve their data analytics capabilities, and be able to provide this information to the business in order to guide better decision-making.

Mollie Lombardi, VP and Principal Analyst,
Workforce Management Practice, Brandon Hall Group

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