In the classic corporate paradigm, human-resources heads are the “people” people who want to make employees happy, CFOs are the “numbers” folks who just want to cut costs, and the twain never meet. Under the pressure of higher compensation and benefits costs, however, the twain are increasingly coming together in order to figure out how to spend smarter when it comes to employees. And more often than not, it’s human resources imitating finance rather than the other way around.
“The human resources profession is evolving both to better understand finance and to better understand the analytic and quantitative aspect of human resources,” says Jim Kochanski, senior vice president at Sibson Consulting in New York.
Take Jim Kissinger. The senior vice president of human resources for Sprint Nextel Corp. has been in HR his entire career, but has made it his mission to be as collaborative as possible with finance in the belief that “if you’re not working together, you’re suboptimizing your resources.” He considered former Sprint CFO Robert Dellinger “one of my best friends” and expects a similar closeness with Paul Saleh, CFO of the newly merged entity.
“It’s pretty clear that in most companies, people-related costs are one of the largest costs the company has to shoulder, and they need the same amount of rigor you’d apply to any capital investment,” says Kissinger. The problem for many companies these days is how to regard HR — as a cost center, a strategic asset, or both. “A lot of CFOs are not really clear on what HR’s role is, nor are CEOs,” says Beth Carvin, CEO of Nobscot Corp., a maker of exit-interview software.
Certainly, the return on people-related investments has become more important as benefits that used to be taken for granted are hitting profits harder. Pensions are a prime example. When the markets were going strong, companies made money on their defined benefit plans. Now, with American employers pouring some $175 billion into the plans over the past five years, companies are thinking long and hard before extending the benefit to more employees. (More than half of large U.S. multinationals with a defined benefit plan have recently changed it, or are currently considering a change, according to PricewaterhouseCoopers.) The same type of scrutiny is also being applied to stock options, now that they will carry a cost, thanks to FAS 123R.
Meanwhile, health-care costs have gone up about 10 percent for each of the last five years, pushing more companies to consider ways to offload some of the burden. A recent report from Watson Wyatt Worldwide and the National Business Group on Health found that about 30 percent of employers now use hard-dollar ROI calculations in making decisions on health care, compared with 9 percent in 2003. And those analyses often feed into further study, such as how to shift or diminish the burden. Mercer Human Resource Consulting and Marsh Benefits report that more than 60 percent of large employers were planning to shift more health-benefit costs to employees, while virtually all were evaluating some type of change to the program.