Is HR caught in a vicious circle?

After another year of cost cutting, it could be argued that waiting for the economy to improve is not enough. Organizations in Europe will only be able to break out of the current no-growth environment by investing pro-actively in their people, their skills and their processes. However, the results of the 8th European HR Barometer paint a different picture. HR leaders are seemingly stuck in a vicious circle, unable to push the longer-term agenda hard enough with their fellow business leaders.

During a period when labor cost reduction rose up the priority list by 18 per cent, HR performed well in this and other narrow-focus areas such as the response to executive pay legislation and improving governance. Yet the study yielded less encouraging results in other areas. This begs the question why, rather than just doing well on the regulatory and downsizing agenda, HR leaders are not improving their performance in broader, longer-term issues such as diversity, growing talent and employee engagement.

Employee engagement as KPI

Despite the continued high prioritization of employee engagement and its growing use as a key metric for HR, companies struggle to harness the power of employee engagement and use it effectively.

■ Improved delivery by HR in focused areas such as cost cutting, response to executive pay legislation and governance

■ Performance shortfall of HR in longer-term areas such as diversity, growing talent and employee engagement

■ Despite expressing the need for more performance indicators and better IT systems, HR seems to struggle with the metrics it needs to deliver on more strategic tasks

■ In the longer-term, building a pipeline of leaders for the future and succession planning top the priority list

■ Second tier priorities are workforce management and improvement of service delivery

■ 64% of all surveyed companies measure employee engagement, a 24% increase since 2012, but only 36% focus on action planning

■ Continued decrease in linking performance and rewards, with compensation and benefits not seen as a big priority

■ 57% of respondents consider diversity to be a strategic issue but mainly as a way to build reputation externally

■ External factors and brand attractiveness are the most prominent drivers for CSR activities

8th HR Barometer: Executive Summary

Key findings

64 per cent of the companies surveyed measure employee engagement, an encouraging increase of 24 per cent since 2012. 61 per cent also say that they try to educate and empower managers and leaders to drive engagement. However only 36 per cent really focus on action planning and only 34 per cent plan to measure this KPI on a continuous basis.

There are a number of possible reasons why companies are not leveraging their results appropriately. It is likely that the necessary time and resources are not allocated once the results are on the table. While it is relatively easy to communicate the results, it is not so easy to mobilize a whole organization, managers and employees to execute accordingly. If companies are addressing employee engagement in order to drive business performance, then simply measuring employee engagement is not enough. HR needs to be equipped with the right tools and resources to implement effective communication and action planning at all levels of the organization.

Three new topics

This year’s survey into HR trends in Europe brought a focus on three new and heavily discussed topics:

■ Employee benefits management ■ Diversity and inclusion and ■ Corporate social responsibility (CSR)

Employee benefits management: lack of focus

Another surprising finding is that compensation and benefits are not seen as a strong priority by HR. This is worrying in a period when living standards are declining across much of Europe and managing personal and family budgets is becoming an issue for an increasing number of workers. Furthermore, recent research1 indicates that pay is an increasingly important driver for employees. Historically, the design of sophisticated pay schemes has only been a hot topic at senior leadership levels. But demographic changes are bringing in a generation of younger, highly demanding employees who expect higher and more individualized financial as well as non-financial rewards for their input. If the offer is not attractive they will not hesitate to take their skills to a different employer.

Research also indicates that most companies do not really try to understand the needs and preferences of their employees when it comes to total rewards as they simply do not ask them2. The consequence is that companies design expensive benefits and rewards schemes which do not meet their employees’ needs.

So, while compared to last year, more companies say they want to establish and improve the links between employee performance and business results, the reverse seems to be happening. The introduction and improvement of non-financial and individualized employee recognition schemes, as well as the implementation of performance-related bonuses appear to be on the decline. Add to this the lack of focus on total rewards strategies and it is easy to conclude that interest in rewarding creative ideas and exceptional performance is also dwindling.

Diversity and inclusion: superficial commitment?

Although they are new to the list of HR priorities in this study, diversity and inclusion are ranked quite highly. 57 per cent of respondents consider diversity to be a strategic issue and it is stated as a key priority for around 43 per cent. However, 48 per cent of all responding companies have no specific program for diversity in place and creating such a program is seen as a key priority for around 43 per cent. It seems that many view this as an issue for external brand and reputation building rather than an opportunity for talent management. Low scores for the range of diversity and inclusion-related activities in companies raise the question whether companies really believe in the impact of diversity and inclusion on business performance.

CSR with branding focus

The results show a similar trend for CSR. Instead of being driven by altruism or values, it is external factors that make companies engage in CSR activities. CSR seems to be used primarily as an external branding tool beneficial for talent attraction, brand recognition and building reputation with colleagues, clients and regulatory bodies.

A lack of tangible and integrated activities is noticeable. As with diversity and inclusion, it is relatively rare for companies to have consistent CSR programs and processes in place that are clearly linked to the business strategy.

What does HR think it needs?

When asked to identify longer-term HR priorities, study participants put talent management and leadership development at the top of the list. Second-tier priorities include both workforce planning and improving HR delivery. It is particularly interesting to see the list of requested items to help HR work more effectively or singled out for urgent improvement: meaningful HR metrics and performance indicators, integrated HR-related IT systems and increased credibility with lines of business are all featured.

The good news is that after years of striving towards a more strategic role for HR, this finally seems to be becoming a reality in many companies. Survey participants rate themselves well in HR strategy design and delivery. Yet the ratings for overall HR execution are lower than in the past. This may be down to resourcing issues, a shift in perception of the role or the importance of other topics. Whatever the reason, HR execution seems to have been pushed into the background for many corporate HR departments.

This is where the vicious circle comes into play. If missing systems lead to missing KPIs, these combined with operational weaknesses will in turn lead to missing credibility in the business. As a result, HR’s ability to drive the longer-term issues will be undermined and HR will appear to be incapable of managing both the strategic and operational aspects of the role at the same time.

©Aon plc 2013

1 Source: Aon Hewitt 2013 Trends in Global Engagement 2 Source: Aon Hewitt 2012 Total Rewards Survey

The 8th European HR Barometer study was carried out by Aon Hewitt in co-operation with the European Club for HR between November 2012 and February 2013. 44 organizations, with a total of 2.3 million employees and combined revenue of 480 billion Euros, completed this year’s survey. 70 per cent are listed companies and 52 per cent have more than 10,000 employees. HR leaders sharing their views come from 12 European countries and 70 per cent are executives and directors with exclusive responsibility for HR at European or global level.

For more information, visit: www.aonhewitt.com www.europeanclub-hr.eu

About the Research

About Aon Hewitt Aon Hewitt is the global leader in human resource solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.