Finance and HR Executives' Roles to Change Due to Healthcare Reform

According to aTowers Watson survey, “Joining Forces: Forging an HR/Finance Partnership to Shape Rewards for the Future,” both groups of executives share an expectation of further increases to their healthcare and other reward budgets in the next few years, although surprisingly, neither sees any change in the mix or cost allocation for their overall reward programs.

The survey found that both groups of respondents see changes ahead in their own roles when it comes to reward programs. Currently, the majority of HR executives (81%) and finance executives (55%) agree that setting a reward program strategy is largely driven by HR. However, in terms of budgeting for rewards, a greater number of finance respondents (53%) indicate they are more involved, compared with 47% of HR executives who see themselves in the lead.

Looking ahead a few years, the picture does change. More than one-third (38%) of finance executives believe strategy development will be much more of a shared role. In the area of budgeting, more than half (53%) of finance executives expect to have primary responsibility, while 40% of HR respondents say budget setting will remain more of a shared role.

“Companies are just beginning to grapple with the complex set of decisions triggered by the new healthcare reform law – decisions that will have a direct impact on their broader set of employee rewards,” said Randall Abbott, senior Health and Group Benefits consultant at Towers Watson. “The fact that both finance and HR leaders each see a role for the other in developing reward strategy and budgets in the future suggests a powerful framework for joining forces at a time when the stakes for close collaboration have never been greater.”

The survey found numerous areas of confluence to serve as the foundation for closer collaboration. Cost was by far the most important factor for both groups in making decisions about healthcare reform. More HR executives (82%) emphasized cost than did finance leaders (69%). Moreover, two-thirds (67%) of both HR and finance leaders expect to maintain healthcare benefits for their active employees despite their common belief that costs will continue to rise. Yet while both groups expect their per-employee investment in rewards to rise – regardless of their decision to continue providing health care benefits – neither group expects healthcare costs to consume a significantly larger share of the total rewards pie.

“Healthcare reform is a significant business issue that has the potential to test the relationship between HR and finance executives. And, with so much change quickly approaching, it highlights the need for both groups to start working more closely now to leverage their respective expertise and knowledge,” said Abbott. “A strong HR-finance partnership can be mutually beneficial in facing the demands - or taking advantage of the opportunities -of reform while at the same time balancing an organization’s cost objectives and talent and employee engagement needs.”

Other key findings from the survey include:

•  More than half (56%) of finance executives expect their reward programs to provide more flexibility in the future, compared with more than one-third (37%) of HR executives.

•  Both groups of respondents believe their organization is lagging competitors in investing in some elements of their reward programs. About one-third of HR and one-fifth of finance executives indicated their costs for training, career management and flexible work arrangements fell below competitive norms.

•  A substantial number of finance executives also think their organization overinvests in some of the so-called “environmental” rewards. Specifically, finance respondents were more than three times as likely as their HR peers to believe their organization outspends competitors in the areas of career management (29% versus 9%) and flexible work arrangements (31% versus 9%).

The Towers Watson/Forbes Insights Survey was conducted in September 2011, and includes responses from 104 human resource executives and 201 finance executives at U.S and global organizations. Survey respondents ranged in size from 1,000 to 25,000 employees and represented a broad range of industries.

The full report is available at http://towerswatson.com/research/6033.