People are a risk
May 2010 supplement
People might be an organisation’s most important asset but they can also expose an organisation to significant risks. Terry Edney explains
While organisations are excellent at considering some of the risks that face them, they often underestimate the risks and potential costs that can arise from employing staff. More interestingly, financial managers ensure their organisations take action to minimise the potential cost of other risks through implementing policies, audits, insurance etc. but totally neglect the essentials when it comes to the significant risk presented by being an employer.
This neglect is puzzling, as these risks can both be very costly and, for smaller employers, even put the organisation’s future at risk. Some key areas of risk associated with employing staff are:
- recruitment risk;
- employment and discrimination law; and
- managers.
Recruitment risk
Recruiting staff is an investment. For example; if you are hiring a manager or professional on £35,000 per annum salary, then the total cost over only three years, including add-on costs, will be over £125,000.
Recruiting staff is an investment. For example; if you are hiring a manager or professional on £35,000 per annum salary, then the total cost over only three years, including add-on costs, will be over £125,000.
In most organisations an investment of this size would have the finance function crawling all over it. Yet we often allow untrained managers to first decide they need the job and then to go ahead and recruit the person with very little process or skill. We are then surprised if the appointment does not work out and we have to start all over again.
Making the wrong appointment or appointing someone who does not perform at the required level has a serious financial impact on the organisation’s performance. The direct impact is that the contribution expected of that role, whether it is fundraising, service delivery or even administration, does not get done to the required level.
The second cost is in terms of other staff since their workload will often increase to cover the situation.
Figure 1 illustrates the loss that happens if there is a failed recruitment. It may be argued that this is not a real loss but if there is no loss then why is the role required?
Reducing the risk
There is no way that all the risk inherent in recruitment can be removed but some simple steps can reduce it:
There is no way that all the risk inherent in recruitment can be removed but some simple steps can reduce it:
- Assess recruitment performance. Evaluate the quality of the employees you have hired in the last year.
- Monitor attrition rate. Especially employees leaving within one year.
- Robust recruitment process. Make sure that you have covered properly:
- Job descriptions. These shouldn’t be too long or complex.
- Person specifications. These should comprise a clear definition of the re- quired skills, expertise and experience.
- Sourcing of candidates. Candidates should be sourced from as wide a range of sources as possible.
- Good assessment process. This should be based on facts and not feelings.
- Train managers in how to recruit. Failure to do this is not fair on either the manager or the candidate and puts the appointment at unnecessary risk.
- Hold managers accountable for the quality of their recruitment. They need to understand that it is down to them and not some other department to ensure a good process has been held that maximises the likelihood of a successful appointment.
This approach will not only reduce risk but will also improve the quality of your staff and improve the organisation’s performance.
Employment and discrimination law
Scope of the legislation
The problem for all employers is that the scope of these laws is for ever widening. The latest change is the new Equality Act which was passed just before Parliament was dissolved. Whilst this act aimed to bring together all the relevant legislation and so provide one consistent law, it has also spawned two new codes of practice for employers to follow. The drafts of these codes entitled: ‘Employment Statutory Code of Practice’ and the ‘Equal Pay Statutory Code of Practice’ are 366 and 63 pages long respectively!
Scope of the legislation
The problem for all employers is that the scope of these laws is for ever widening. The latest change is the new Equality Act which was passed just before Parliament was dissolved. Whilst this act aimed to bring together all the relevant legislation and so provide one consistent law, it has also spawned two new codes of practice for employers to follow. The drafts of these codes entitled: ‘Employment Statutory Code of Practice’ and the ‘Equal Pay Statutory Code of Practice’ are 366 and 63 pages long respectively!
So the question for all employers, but especially those without large HR functions, is how do we reduce this risk?
Managing the risk
The legal risks of employing staff can be significantly reduced by ensuring the following three steps are taken:
- HR documentation. You must have in place the legal minimum in terms of HR documentation and ensure that it is kept up to date. Figure 2 outlines a summary.
- Following procedure. It is vital that when problems do occur that procedures are actually followed. An employer’s case can be seriously weakened if they do not follow their own procedure and will almost certainly be lost if they do not follow procedures such as that laid down in the ACAS code of conduct [1] for handling disciplinary action.
- Acting correctly. There is one more critical aspect to taking action and that is to both act correctly and to act in a timely manner. For example, this means that if you are conducting an investigation into an employee’s actions, that this is done fairly and all the relevant information is gathered. The second element is that any action must not be taken too quickly, so that it appears to be a ‘knee-jerk’ reaction without due consideration or delayed too long due to the prevarication of the manager who does not want to face up to the situation. Not taking such simple steps can be costly as the examples summarised in figure 3 indicate.
.jpg)
Ensuring that you follow these three steps will significantly reduce the risk of you facing expensive employee litigation.
Managers
It may come a surprise to see managers listed as a risk but even if you put in place the policies, procedures, etc, everything can be undone by how a manager acts. The risks can be summarised as follows:
- The ostrich. One danger is the manager who ignores problems and just hopes they will go away. They seldom go away and often get worse. These managers can then tranform into bulls!
- The bull. This type of manager just charges in and seldom follows procedure and, even if they do, they try and short circuit it. The result can be expensive, even
- when the organisations otherwise would have had a good case!
The key to avoiding your managers becoming a risk is to train them thoroughly, retrain them regularly and make them accountable for
their actions.
their actions.
Reducing your HR risks
Many employers only get help, normally from a solicitor, when things have gone wrong. However, cost effective support can range from access to specialist websites, such as that available to CFDG and Chartered Institute of Personnel Management (CIPD) members, or more comprehensive support which is available from specialist consultancies. Such services can also include insurance against the costs of employment and discrimination claims.
Many employers only get help, normally from a solicitor, when things have gone wrong. However, cost effective support can range from access to specialist websites, such as that available to CFDG and Chartered Institute of Personnel Management (CIPD) members, or more comprehensive support which is available from specialist consultancies. Such services can also include insurance against the costs of employment and discrimination claims.
Many managers have commented that they do not have the time to follow all the steps set out in a procedure, such as conducting consultations. However, perhaps the real questions are:
- Do they have the time that would be required to prepare and attend an Employment Tribunal?
- Do they have the funds to pay tribunal awards where they could have been avoided?
- Do they have the right to put the organisation at risk and its financial resources?
Perhaps it is also time that those responsible for the organisation’s financial management realised that people are both an asset and a risk. Maximising the benefit of those assets and implementing the right processes and manager training to reduce the risk, may provide a
considerable positive return.
[1] See: www.acas.org.uk/index.aspx?articleid=2179
Author: Terry Edney
Terry Edney is chief operating officer of HR support specialists, BusinessHR and has a wide range of HR experience which has included building a new HR function from scratch and handling organisational restructures. He holds a BA in finance, an LLM in employment law and is a fellow of the CIPD.
There are no comments on this article. Be the first to comment.