Third party benefit for remuneration

by 26 Jun 2007

CO-SOURCING OF the remuneration role of HR has become a recommended method of ensuring an efficient remuneration and benefits function, according to consultants.

Unlike outsourcing, which would simply move a task or process out of the organisation, co-sourcing brings in additional resources that can then be applied in a flexible manner across the full responsibilities of the remuneration function.

“It is a way of structuring and managing the remuneration function to take advantage of both internal expertise and external resources,” said Amanda Doyle, a principal from Mercer in the US.

“Designed to create a more robust and efficient remuneration function, co-sourcing allows the organisation the ability to scale services as needed within an agreed timeframe.”

During her current visit to Australia, Doyle has noted the issues faced by Australian organisations are very similar to those in the US only a few years ago.

“In the US, pressures were being faced from the business to reduce costs and increase the level of effectiveness within the HR function, specifically remuneration and benefits. We saw the emergence of outsourcing for various activities within HR to save time, costs and improve the level of service. While this was happening, organisations were not very comfortable with outsourcing functions like remuneration, as it was considered as an activity of high relevance,” she said.

In order to enhance business outcomes, HR will need to address these issues in the future or risk continuing to be perceived as reactive and only operational, warned Doyle and colleague Rob Knox, head of human capital product solutions at Mercer.

Three key challenges were identified in the most recent Human Resource Effectiveness Monitor survey by Mercer which highlighted the need for HR to build and acquire key talent, drive cultural change and manage HR costs.

At the same time, the remuneration function is also seeing similar change, said Knox. “There is a strong focus on reducing the turnover within the function and the associated loss of ‘corporate memory’.”

In effect, many organisations within Australia are seeking ways to attract key talent and control costs at the same time.

“Australia is now seeing some degree of emergence in partnerships. Partnerships are key within the HR function in developed countries and other parts of the world. Constraints associated with economies of scale in Australian companies often means that there is a need to find creative solutions when it comes to freeing up HR resources if new projects and programs are to be implemented,” said Knox.

A market readiness to adopt more sophisticated HR programs and undertake partnerships is evident.

As Doyle explained, partnerships provide the HR function with resource support to manage the more administrative tasks of remuneration, survey participation and management. Responsibility for the annual remuneration review cycle can be taken on by the third party, while they assist in-house strategic remuneration champions to develop presentations and reports for the board of directors. Support for any day-to-day remuneration issues also proves to be a bonus.

Both Doyle and Knox indicated they had seen their Australian clients operating in ‘fire fighting’ mode. While expressing concern that this trend might continue, they hoped that additional investment in HR in the short-term will assist the function to become a core service provider, rather than a long-term ‘cost centre.’

HR challenges

Issues identified that impacted upon the effectiveness of HR included:

Direction from the business, and pressure to reduce costs.

Capability or skill mismatch, and in some cases skill shortage.

Capacity overload – with high involvement of the function on administrative tasks.

High costs, to replace and re-hire.

Ad hoc or reactive support for key projects within remuneration and benefits

Lack of processes or the use of archaic processes, which causing further delay in implementation and significant time spent on reinventing the wheel year to year.

Developing a greater intimacy with the market to ensure a good knowledge of potential pay pressures within their organisation.

Being able to have a meaningful dialogue with line managers about pay decisions.’.

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