A tighter partnership between corporate finance and human resource executives may be on the horizon as U.S. companies begin to address the implications of health care reform for their reward programs and talent management strategy, according to a new survey by Towers Watson and Forbes Insights. The survey finds that both groups of executives share an expectation of further increases to their health care and other reward budgets in the next few years although, surprisingly, neither sees any change in the mix or cost allocation for their overall reward programs.
The survey of more than 300 HR and finance executives at U.S. companies found that both groups of respondents see changes ahead in their own roles when it comes to reward programs. Currently, the majority of HR executives (81%) and finance executives (55%) agree that setting reward program strategy is largely driven by HR. However, in terms of budgeting for rewards, a greater number of finance respondents (53%) indicate they are more involved, compared with 47% of HR executives who see themselves in the lead.
Looking ahead a few years, the picture does change. More than one-third (38%) of finance executives believe strategy development will be much more of a shared role. That compares with just 24% 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%) of finance executives expect to have primary responsibility, while 40% 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 new health care reform law, decisions that will have a direct impact on their broader set of employee rewards,” says Randall Abbott, senior health and group benefits consultant at Towers Watson. “The fact that both finance and HR leaders see a role for the other in developing reward strategy and budgets in the future suggests a powerful joining of forces at a time when collaboration is becoming more critical.”
Indeed, 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%) emphasized cost than did finance leaders (69%). Moreover, two-thirds (67%) 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 rise ¾ regardless of their decision to continue providing health care benefits ¾ 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 ahead, it highlights the need for both groups to start working more closely to leverage their respective expertise and knowledge,” says Abbott. “A strong HR-finance partnership can be mutually beneficial in facing the demands ¾ or taking advantage of the opportunities ¾ of reform while at the same time balancing an organization’s cost objectives and talent and employee engagement needs.”
Among other survey findings:
- Both groups of respondents believe their organization is lagging competitors in investing in some elements of their reward programs. About one-third of HR and one-fifth of finance executives indicated that their costs for training, career management and flexible work arrangements fell below competitive norms.
- At the same time, a substantial number of finance executives also think their organization over-invests 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% versus 9%) and flexible work arrangements (31% versus 9%).
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