Managing HR Cost in this Economy
December 09, 2009
DISCUSSION: No More Health Benefits?
The internal accounting and spread of risk across the organization would still allow for each business unit to feel secure that large claims will not have an adverse impact on its specific financial statement and the cost to the organization as a whole. We have, in the past, seen this approach net approximately $2 million in annual savings for an organization of 10,000 employees spread over six separate business units. And best of all, the employees were unaffected.
Organizations undergoing a downsizing operation would also need to assess their new levels of risk and might need to increase the levels of insurance purchased. This does not necessarily create cost savings but would reduce the potential for harmful catastrophic claims that could have a significant impact on the bottom line.
Companies should also assess their ability to leverage market size to gain efficiencies in the purchase of products and services. In the global economy, organizations may find that they have multiple insurance arrangements operating in various countries around the world. The use of global pooling agencies has the potential to create significant cost savings and improve the reporting and management of the various insurance products through centralization.
A review of the recruitment and retention function may also find that dollars are not being spent wisely to achieve desired results. Employers should assess the results received against the dollars spent. In one instance, we found an employer placing ads in local newspapers for open positions where, unfortunately, the type of skill sets required for the positions were unlikely to be found in the readership of the papers based on their geographical market.
Retention bonuses can often be overused, creating “black holes” that go undetected. The recruitment and retention function should be evaluated especially in a declining market, as the organization’s focus may have changed, and this function should be adapted quickly to reflect the new direction.
Another area worthy of assessment is in the company’s pension plan. Actuarial assumptions used to determine defined benefit pension plan contributions should be reexamined under current economic conditions. Pension plan assets may not be performing as well as they did even a year ago, creating a funding position that may lead to pension plan contributions for the first time in years or an increase over the amounts contributed over the past few years.
Employers should assess other economic and demographic assumptions used in determining pension plan contributions. As an example, employee turnover (voluntary and involuntary) may have increased or be expected to increase more than the current assumption, and expectation for future increases in wages and salaries may be less than was estimated. Updating assumptions may lead to a more realistic determination of an employer’s contribution expenses.