Reducing the risk surrounding the ever-evolving HR function
HR professionals have a lot on their plates - the likes of which they have probably never seen before. Internal Auditors should ensure that their policies and key controls are updated to reduce risk surrounding the HR function.
Our world is becoming increasingly volatile, uncertain, complex, and ambiguous. As businesses continue to evolve to embrace the challenges of the current climate, we see four significant factors that are coming together:
- Digital convergence
- Skill convergence
- Social convergence
- Macro-economic and stakeholder convergence.
Link these up with concepts like the Great Resignation and the Great Negotiation, and HR professionals have a lot on their plates, the likes of which they’ve probably never seen before. Internal Auditors should ensure that their policies and key controls are updated in accordance with these events in order to reduce risk surrounding the ever-evolving HR function.
As more industries find themselves moving from using technology to enable them to do business to recognizing that technology is integral to their business model, the fast-paced and monumental decisions and changes that come with this transformation often leave gaps in controls in the HR function and beyond.
- Lack of automation between self-reporting location and travel in an increasingly virtual realm impacts taxation, rewards, location-based pay, health coverage, insurance coverage, etc.; HR should have some manner in which they are verifying location particularly when travel is typical for a job function.
- The need for in-person technology support for hardware could impact productivity and performance; HR should be aware of technology issues (i.e. flag when an employee has not logged onto the system in a certain number of days not corresponding to a leave) and have a way of verifying when they are remedied and that performance issues are not occurring.
When hiring for specific skills, basing compensation schemes on skills developed or acquired throughout a career, and seeing tech-specific skills converge across industries as the aforementioned digital convergence continues on, having robust ways in which to assess skills without bias becomes very important in order to reward for desired outcomes.
- When performing internal assessment of skill levels, HR must ensure that consistent training has been performed and that an unbiased approach is taken regardless of the person being assessed or the skillset being considered; HR should be mindful of any situation in which an employee can claim bias against them by an assessor.
- Conversely, the assessor must be able to evidence their review and not include positive bias whereby they are assigning skills and rewarding employees that do not possess the skill level necessary. Bias can occur in either direction.
Coming out of a global pandemic has pushed social matters to the forefront, ranging from physical health, to mental health, to social justice and beyond, employees expect employers to respond appropriately. The rise of various metrics in legislation including pay transparency, gender pay gap reporting, demographic reporting, etc. places a lot of pressure on HR professionals to ensure records are up to date and accurate.
- Ensure that, if multiple HRIS or payroll systems are used across the company, efforts are coordinated to retrieve reports in a consistent manner and are complete with the information needed based on local requirements.
- When leveraging self-reported information, know that verification of demographic group participation should occur to avoid skewing of data, intentionally or unintentionally.
Tying this type of reporting to metrics in Short-Term or Long-Term Incentive Schemes that have Diversity, Equity, & Inclusion (DE&I) goals or specific demographic goals means that this is an area of scrutiny when it comes to compensation and the company needs to be certain that there is a lack of bias or intentional misconduct when it comes to measuring and reporting the metrics.
Additionally, administrating leaves tied to illness (whether pandemic-related or not), familial illness, caretaker designation, etc. brings up more risk in terms of verification and legal rights and privileges throughout administration.
- HR needs to be aware of laws and policies in different areas of the world and know how to accurately evidence those leave practices in order to stay compliant.
- Due to the legal implications of an improperly administered leave, ensure that the company has appropriate counsel when it comes to work rights issues and coordinate with all local regulations.
- Appropriate management training (beyond HR) must be required and refreshed in order to ensure that a non-HR manager is not crossing boundaries that are illegal or unethical.
Macro-economic and Stakeholder Convergence
With the recent shift in the economy comes a downward pressure on many company’s share prices, inflation consistently causing demand for cost of living adjustments and demand for other benefits, and shifts in the role of HR throughout it all. There are a lot of components to manage purely based off the economy. Add to that the shift of the narrative from companies focusing on shareholders to companies focusing on stakeholders, and suddenly the list of constituents that a company, and thereby HR, is held responsible by is ever-expanding.
- Depressed share prices will cause higher burn of share-based compensation programs; HR should track these prospectively and know when share plan limits are nearing in order to combat overextension of the plan.
- Inflation impacts different jurisdictions to varying degrees; HR should be aware of these variations and be able to have a policy and procedure to verifying pay adjustments to ensure equity and governance of the plan.
- HR complaints may not just impact the company anymore; downstream impacts of employee sentiments can extend to suppliers, customers, communities, etc. and create risk to the organization, and should be taken seriously by HR professionals.
Regardless of whether some of these gaps are intentionally caused by fraud or caused by unintentional negligence, HR professionals and Internal Auditors can preemptively create controls around their procedures in an attempt to combat potential risk and exposure. The convergence that is happening market-wide may very well create a set of best practices that apply to all firms, but being best in class preemptive of that standard will put any company in the best position possible for success.