HR Risk Not Properly Monitored in Organizations

October 14, 2008 ( - Global executives are not monitoring Human Resources (HR) risk with the same scrutiny as other traditional risk issues, leaving themselves open to severe consequences.

That was a key conclusion of a new report from Ernst & Young LLP, which asserted that HR risk can extend to insufficient training and development programs, pay and performance alignment issues, as well as weaknesses in managing vendor relations.

The report, “2008 Global HR risk: From the danger zone to the value zone-accelerating business improvement by navigating HR risk,” is based on the results of a survey conducted among global finance, HR, and risk executives from Fortune 1000 companies, according to a news release.

“HR risks are the challenges that stem from managing your people, programs and processes, both inside and outside the walls of your business,” said Bill Leisy, Americas Markets and Services Leader, Performance and Reward, in the news release. “By proactively addressing these areas, the C-suite, as well as those in HR and finance, can drive sustainable, positive business results. But if not managed properly, these issues may cause significant damage.”

Findings show global organizations do not have a full understanding about the extent of HR risks, which may be because they are not easily identified. However, results also show executives do have the desire to look outside the designated responsibilities of HR and build an understanding of how these risks, when managed well, can help them meet their business goals, Ernst & Young said.

“We are now seeing organizations shift their focus to managing areas of risk that come with an opportunity to make the business better,” said Leisy. “Improved reporting and disclosure structures, cost reduction of operations and compliance, talent management, pay and performance alignment and tone at the top are among those areas that are starting to get the attention they deserve.”

Forty-three percentof respondents say the area of strategic HR risk, where organizations have the ability to improve business performance, will gain the most exposure over the next three years.

Forty-one percentof respondents say their Board of Directors either never formally reviews the companies' HR risk profiles or only reviews them on an ad hoc basis (with only 39% communicating results from the HR risk management team into the corporate risk management process).

However 34% say traditional corporate risk matters are formally reviewed on a quarterly basis (or even more frequently), and 14% say they are never (or only) reviewed on an ad hoc basis, the announcement said.

Other results demonstrate HR risks are not properly communicated or reviewed on an enterprisewide level, Ernst & Young said:

  • Less than half (42%) validate and prioritize their HR risk profile
  • Only 43% analyze HR risk coverage by business unit and develop, monitor, and enhance their plans
  • Nearly half ( 46%) validate their HR risk profile with executive management and the audit committee
  • Slightly more than half (56%) of the respondents say they identify and document the likelihood and impact of HR risks to the organization

The survey of more than 150 global executives was conducted from August 2007 to January 2008 both online and via telephone interviews.