5 Ways HR Can Partner with Finance to Drive Growth

5 Ways HR Can Partner with Finance to Drive Growth
Workforce

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This insight is part 02 of 12 in this Collection.

September 12, 2024 20 mins

5 Ways HR Can Partner with Finance to Drive Growth

5 Ways HR Can Partner with Finance to Drive Growth

The role of HR professionals is becoming more strategic, which requires collaboration with other areas of an organization to help drive growth. Given that people and benefit costs are a large portion of business expenses, partnering with finance is a natural step forward.

Key Takeaways
  1. Bringing creative solutions to finance can help lower costs — whether in the form of parametric insurance to care for people in a catastrophe or alternative health financing.
  2. Communication and sharing data between departments are key, especially when it comes to workers compensation and M&A deals.
  3. Planning the workforce of the future is an important investment HR can make now with the aid of finance partners.

The human resources (HR) function is evolving to become more strategic and integrated with other business functions. With that evolution comes a set of opportunities to not only react to employee needs, but also take an active role in the direction of the business overall. From responsible adoption of new technologies to implementing pay transparency, there are several priorities on HR leaders’ plates.

With people issues becoming C-suite issues, there is enormous opportunity for collaboration between HR and the finance function. For many years, these functions have worked together on people-related costs, which are often the most significant costs an employer incurs. Today, HR and finance can partner to lower costs and improve outcomes while promoting the company’s values and identity to its employees and prospective talent.

Quote icon

There are no separate swim lanes for HR and finance. We swim faster when we swim together. And what better reason to swim together than for our people?

Lisa Stevens
Chief Administrative Officer, Aon

Here are five areas where we see the greatest opportunity to collaborate and drive growth.

Jump to sections:
  1. Health Captives and Alternative Financing of Health Benefits
  2. Taking Care of Employees in a Catastrophe
  3. Reducing Workers Compensation Costs by Improving Safety and Sharing Data
  4. Planning the Workforce of the Future
  5. Bringing People Issues into Focus During M&A

1. Health Captives and Alternative Financing of Health Benefits

As health costs continue to grow globally, organizations are increasingly reevaluating their financing structure for health insurance. In the United States, there is a particular focus on stop loss coverage to address high-cost claimants. In addition to medical stop loss insurance, there are also new forms of financing emerging. For example, Aon’s Health Risk Financing solution offers organizations a flexible line of credit through a third-party capital provider. Funds are available on-demand to protect the plan budget, converting shock claims into manageable, equal payments over an extended timeframe.

Another option to manage high-cost claims in the U.S. is to create a captive and self-fund stop loss for claims above a determined threshold. With the emergence of machine learning and predictive health claim modeling, organizations are able predict and manage claims in a captive, making it an even more attractive option for many employers.

Captives can also be effective solutions for large, multinational companies that want more flexibility in tailoring global benefits to address specific needs of their workforce and advance diversity, equity and inclusion goals. Such flexibility allows global organizations to deliver a global standard of care to all employees. This could include different types of preventative care, fertility support and gender affirming care — all while taking into account that availability, access and cultural norms around these benefits vary significantly by region.

When considering captives as a health financing solution, a close collaborative relationship and an open dialogue between HR, the risk management and finance teams will be particularly beneficial. While risk management and finance can assess the financial viability of captives as a solution — including managing the associated risks — HR can ensure the greater design flexibility afforded by captives is most effectively utilized for the benefit of a diverse and global employee base.

Additionally, in order to help navigate the web of regulations and approvals necessary to stand up a captive, HR and finance should work with their legal counterparts. A captive is not the right strategy for every company, and requires careful analysis from legal and business leaders.

A data-driven collaboration of HR, risk management and finance will generate the best outcomes. While HR can identify trends in employee health, such as rising chronic conditions in a particular region, it is only in partnership with risk management and finance that employers can fully leverage the potential of alternative financing solutions.

45%

Increase in million-dollar healthcare claims in the U.S. from 2018 to 2022.

Source: Sun Life 2023 Stop Loss Trend Report

2. Taking Care of Employees in a Catastrophe

If a hurricane or other natural disaster destroys an employer’s building, it stands to reason that the company will immediately begin its search for alternate employee work sites while making insurance claims to pay for repairs, rebuilding or the acquisition of a new space. The goal is for productivity to suffer as little as possible.

But what happens if an employee’s home is destroyed in a natural disaster — or other infrastructure is destroyed that impacts employees but isn't owned or operated by the company? How does a company plan for that kind of disruption, and what responsibility do they bear? As recently as five years ago, many employers saw this disruption as purely the responsibility of individual employees. The pandemic helped change that mindset, along with climate-driven weather events that increasingly disrupt the workforce. From a practical standpoint, it makes sense that the employer would work to get employees back on their feet to prevent lost productivity. And in a world where employees increasingly say they want to work for a company that shares their values, that compassion makes the choice even clearer.

75%

HR leaders that are somewhat or very concerned about rising workforce costs impacting their business over the next 12 months.

Source: Aon’s 2024 Business Decision Maker Survey

Parametric Insurance: A More Flexible Solution

Natural disasters are easier to predict in the abstract, but knowing what their actual impact will be is trickier. That’s where a solution like parametric insurance can help. A parametric policy is triggered by an event rather than strictly by a loss. For example, a traditional insurance policy would pay to repair the building after the damage is assessed, the cost to repair is determined and the repairs are complete. A parametric policy would be activated as soon as the triggering event occurs (be it a natural disaster like an earthquake or hurricane, or a human conflict like a terrorist attack or war). This option gives the company more flexibility around how funds are spent.

“If a company is buying traditional indemnity insurance to address volatility from a catastrophe, there is no certainty that employees are similarly prepared,” says Michael Gruetzmacher, head of alternative risk at Aon. “So, while the employer may be well protected, a gap remains if employees can’t work due to the broader community impact of the event. The flexibility of a parametric solution with benefits accruing to employees can address these risk factors.”

HR Has Data Risk Managers Need

Knowing the potential effects of a disaster is difficult, which makes knowing how much risk to insure complicated. Using both HR and risk data can help answer questions like: How many workdays will be lost to a storm? And how much will it cost to help employees get back to work?

“HR already has the source data and the expertise to interpret it,” says Madeleine Catzaras, an ESG leader in Aon’s human capital team. “They can get under the skin of the risk, be strategic and look at people costs the same way we look at fixed assets.” For example, absenteeism and health claim data can be repurposed to model how employees might respond to a disaster.

As the climate continues to change, both the frequency and severity of disasters are expected to increase. Combined with new expectations from employees around individual disaster recovery efforts, these issues are likely to remain front and center. The solution may come in the form of a disaster relief fund for employees, or companies using parametric insurance to help employees. Through strong partnership, HR and finance can work together to begin to quantify the risk they previously couldn’t.

14%

Only 14 percent of companies have a disaster relief fund and 17 percent have an emergency assistance fund.

Source: Aon’s 2024 Benefit Spec Select database of 678 employers' salaried benefits

3. Reducing Workers Compensation Costs by Improving Safety and Sharing Data

Workers compensation is an obvious connection point for HR and finance. The health and safety of workers is a top priority for HR professionals, and workers compensation claims can be an expensive driver of costs. Some questions they can tackle together include:

  • How do employers take care of workers who are injured on the job?
  • What are the costs to get employees back to work?
  • How much should prevention play a role?

HR and finance need to align the data, strategy and goals between risk managers and safety professionals. In many organizations, the safety function reports to HR. Those safety professionals may use metrics to measure success that do not necessarily match those of risk managers. Things like injury rates and days missed are valuable, and sometimes mandatory reporting requirements. But they usually focus on decreasing the frequency of injury rather than the severity of injury, which means the cost of claims doesn’t decrease as much. Risk managers, on the other hand, tend to focus more on the total cost of claims filed. By working toward the same goals with the same data, both functions can begin to bring costs down.

Safety and Wellbeing

Traditionally, the main purpose of a safety department in an organization is to ensure the health and safety of its workers by preventing injuries, whether they are caused by accidents or another cause like wear and tear due to repetitive motion or poor ergonomics. But by taking a step further and implementing a comprehensive program that protects workers’ physical and emotional wellbeing, safety professionals can prevent injuries while also reducing the severity of those that occur.

Emotional wellbeing may not be the first thing that comes to mind when preventing workplace injuries, but stress can lead to burnout, among other issues. An employee suffering from burnout may have reduced situational awareness, which can result in injury. Stress can also lead to physical issues that either cause more injuries or make the claims from injuries more expensive. For example, a worker who suffers from high blood pressure exacerbated by stress may be on medication that causes dizziness as a side effect, which could lead to a fall. Similarly, certain musculoskeletal injuries that would ordinarily be treated with steroids may last longer if the employee is diabetic, meaning steroid treatments are usually contraindicated.

The Role of Finance in Safety

When bridging the disconnect between safety and risk management, HR professionals should keep in mind that time is money. By helping risk managers close claims more quickly, they may be able to avoid costly litigation. That’s because the longer claims are open, the more likely they are to involve litigation — ultimately driving up costs. Resolving claims quickly means workers can begin a return-to-work program faster, mitigating productivity disruption.

Finally, HR and finance can partner to champion the investment into safety programs to senior management. It can be difficult for safety professionals to get the attention of senior management because they are seen as a cost center. But by partnering with finance, they can make the case that a robust safety and wellbeing program can not only lower the risk of workers compensation claims, but also decrease the severity of claims.

“Creating a culture of safety and wellbeing contributes to a better employee experience and ultimately helps improve employee engagement and retention,” says Rick Chandler, managing consultant of Risk Casualty Control at Aon.

4. Planning the Workforce of the Future

Finance professionals are accustomed to managing personnel costs while HR professionals find and hire those personnel. But with technology changing rapidly, there are new considerations when determining staffing levels.

2.8M

employer-reported workplace injuries and illnesses in 2022.

Source: Bureau of Labor Statistics

Create a Strategy to Acquire and Develop New Skills

Reskilling and upskilling employees is not a novel concept; however, new technology demands new skills and competencies. Simply hiring new employees with those skills is no longer sustainable given the rapid pace of change. Consider that the shelf life of new technology skills is estimated at five years1. What’s more, hiring workers with in-demand skills like artificial intelligence (AI) is expensive. In order to design the workforce of the future, employers need to define the skills that will be needed going forward and design their workforce around those skills. They can do that by collaborating with finance to model different scenarios, like comparing the cost of upskilling to the cost of offshoring.

"Upskilling and reskilling the workforce or using contractors to fill gaps versus hiring new workers are all examples of where finance and HR need to come together to look at the total cost of labor,” explains Ernest Paskey, partner and head of workforce transformation in Aon’s talent team. “How much is it going to be to hire somebody that has the right skill set compared to, for example, expanding the training budget to equip current employees with the right skills they need.”

As technology like AI expands, an underrated need that employers can fill and use to their advantage is “brain health,” defined as the emotional wellbeing and high cognitive and creative function necessary to adapt to working with AI. HR can promote brain health through strategies like nutritional guidance, emotional wellbeing programs and financial wellbeing support.

$954

Average amount U.S. companies spent per employee “learner” on training in 2023 — a decline from the prior two years.

Source: 2023 Training Industry Report

Benchmarking Total Rewards to Compete for Talent

Building new skills into the current workforce will usually be far more cost-efficient than replacing workers. There are challenges, however, because different industries have different compensation philosophies and practices. For example, technology and life sciences firms tend to award more compensation in the form of stock. When looking to hire or promote from within for new technology roles, companies need to benchmark total rewards against how technology skills are compensated across industries — including emerging roles — and what their organization can offer to differentiate itself as an employer of choice.

Another possible connection point is allowing leaders to manage their workforce needs by using a fixed budget rather than a headcount. For example, some hard-to-find skills may only be required for a few hours per month, allowing the manager to contract for those skills outside the organization while shifting resources to hire more customer-facing or revenue-generating employees.

55%

HR leaders who have materially changed their total rewards strategy or mix to improve their ability to attract and retain talent to manage workforce risks over the last 12 months.

Source: Aon 2024 Business Decision Maker Survey

Preparing Employees for Retirement

When it comes to the cost and design of total rewards, retirement planning has long been a touchpoint between HR and finance. Defined contribution and defined benefit plans are administered by HR. When changes are made to the system, they will either save or cost money — and that’s where finance comes into play. Because more employers are using defined contribution plans across the globe, there is strong alignment between the goals in HR and finance: Both want employees to save as much as they can to prepare for retirement.

Sometimes the need for collaboration is simply around communication. For example, if an employer sets up a program where there is an employer match for contributions up to six percent of an employee’s salary, some workers will take that as a signal that six percent is the maximum contribution or the ideal amount to contribute. As HR encourages people to save more, finance will need to handle any plan design changes that arise.

Ultimately, a retirement plan's goal is to ensure employees are financially ready to retire when it makes sense for them and their employer. Understanding the ROI of employees ready to retire at the right time can help HR and finance collaborate and ensure the funds going into the retirement plan are used effectively and efficiently.

HR and finance can encourage retirement savings through auto-enrollment, automatic increases, catch-up contributions and employee communication.

5. Bringing People Issues into Focus During M&A

A merger and acquisition (M&A) or divestiture are complex undertakings with numerous competing priorities. When HR and finance collaboratively work to navigate and mitigate complexities during deals, a more accurate assessment of people-related costs — and their implications — throughout the entire deal cycle is possible.

Without effective and ongoing communication and collaboration between finance and HR, misalignments may occur. For example, a purely finance-driven model risks underestimating the costs of compensation and benefit programs, such as using overly optimistic cost assumptions when modeling potential headcount savings. Likewise, an HR strategy that overlooks financial implications risks discovering too late that the required resources are not available to resolve inequities between organizations.

In Aon’s 2023 Risk in Review report, 98 percent of survey respondents highlighted talent acquisition, retention, culture and leadership as key focus areas. These people-related issues each have their own significant financial considerations, which is why a close working relationship between HR and finance is not just beneficial, but also necessary. Here are some of the areas where collaboration between these two functions during M&A is particularly important.

Integrating Total Rewards

If people-related financial issues aren’t adequately identified and prepared, they could create additional pressures later in the deal cycle when there may be less time or flexibility to fully resolve them. For example, a key focus for HR during M&A is the integration and optimization of total rewards programs. Consider two merging companies with different eligibility standards for certain benefits or significantly different salaries for the same job. Identifying this potential problem early on would allow time for a pay equity analysis, which can provide insight into problems areas that might need to be addressed.

The pay transparency movement and related legislation will also impact M&A integration planning over the next few years and beyond. Emerging regulations, such as the European Union Pay Transparency Directive, vary across regions and will add significant compliance pressure on combining organizations to address the impact of M&A on pay transparency disclosure readiness. A company might be well prepared on a stand-alone basis, but then suddenly not be ready when a business combination is taken into account.

98%

Senior executives who highlighted talent acquisition, retention, culture and leadership as key focus areas in M&A.

Source: Aon 2023 Risk in Review report

Manage Employee Communications

If employees perceive that leaders are not focused on addressing the impact a deal will have on them, they can quickly become disengaged and even be a flight risk. Regular and effective communication with employees is vital, beginning as early as possible and extending into post-deal integration. In periods of uncertainty that naturally occur alongside a major transaction, prolonged silence can lead to rumors gaining momentum, particularly concerning potentially negative outcomes like restructuring or job cuts. By collaborating early in the deal cycle, HR and finance teams can proactively manage communications, ensuring the narrative supports business objectives.

Limit Disruption to HR Processes

During a major deal, employees want to feel that their needs are considered and valued. Even seemingly minor disruption to payroll or essential benefit coverage can have significant personal consequences for employees, and therefore undermine trust at a time when this is most crucial and may already be at risk. Effective communication, particularly concerning financial decisions and how they may directly impact employees, can alleviate anxiety and maintain or restore confidence among the workforce during periods of transition or uncertainty. HR and finance can work together — alongside other partners such as technology and operations — to ensure employees have consistent access to their benefits. Both functions also need to agree on the rules of the road in terms of granting headcount restructuring credit and then govern against those rules during integration execution.

Bringing Data Together During M&A

Finance teams can provide data-driven guidance on the financial aspects of an M&A, such as liabilities and assets of the target company. HR can enhance this guidance by offering insights into the implications of employee-related costs, such as the value of the talent pool. Early collaboration between HR and finance fosters cohesion between teams, resulting in a more viable and seamless process.

This proactive approach reduces the likelihood of unforeseen issues arising later in the deal cycle, such as the costs of a retention program being unaligned with business objectives. By integrating the financial and human capital perspectives of a deal early on as part of each teams’ due diligence, potential risks can be identified and addressed, ultimately leading to better post-transaction outcomes.

Making Better Decisions Together

By no means is this an exhaustive list of the ways finance and HR need to work together. There are more challenges on the horizon, like pay transparency and benefits equity, that will require deep collaboration.

62%

HR leaders who have implemented new processes or programs to address pay equity and pay transparency in the past year.

Source: Aon’s 2024 Business Decision Maker Survey

Quote icon

The conversations between the CHRO and the CFO have evolved. The CHRO has to be concerned with the growth of the business, and the CFO has to be concerned with the wellbeing of its people.

Lisa Stevens
Chief Administrative Officer, Aon

A more closely aligned partnership between HR and finance in these areas can open the door to new opportunities for organizations, including:

  • More accurate and effective workforce planning. HR has the knowledge of talent needs and trends, while finance has the budget to support them.
  • Alignment of people strategy to financial strategy. When they work together, they can better support and achieve business goals.
  • Improved operational efficiency and cost saving. Integrated data systems can eliminate duplications and joint decision making can avoid costly errors.
  • Smarter decision making through data integration. Combining HR data on employee performance and engagement with financial data on costs and revenues can reveal trends and inform strategies. This data-driven approach helps make informed decisions that drive growth and efficiency.
Quote icon

Finance is focused on growth, which can only be achieved through our greatest asset – our people. So the CFO is invested in partnering with strong HR leadership to cultivate an engaged workforce that will drive sustainable, long-term growth.

Edmund Reese
Chief Financial Officer, Aon

1 Skills aren’t soft or hard — they’re durable or perishable

Aon’s Thought Leaders

Madeleine Catzaras
ESG People Solutions Leader, Health Solutions
Europe, the Middle East and Africa

Rick Chandler
Managing Consultant, Casualty Risk Consulting, Commercial Solutions
North America

Meg Doyle
Partner, Talent Solutions
North America

Michael Gruetzmacher
Head of Alternative Risk Transfer, Commercial Risk Solutions
North America

Christopher Iovino
Senior Vice President, Commercial Risk Solutions
North America

Grace Lattyak
Partner, Wealth Solutions
North America

Craig Martin
Strategic Advisory Partner, Talent Solutions
North America

Dany Mathieu
Senior Vice President, Captive Employee Benefit Services, Health Solutions
North America

Bruno Monteiro da Silva
Head of Human Capital Transaction Advisory Services, Commercial Solutions
United Kingdom and Europe, the Middle East and Africa

Ernest Paskey
Partner, Workforce Transformation Advisory, Talent Solutions
North America

Meghan Rausch
Vice President, Health Solutions
North America

Sven Roelandt
Global Leader, Employee Benefit Financing Strategies, Health Solutions
Europe, the Middle East and Africa

Rachel Western
Principal, Health Solutions
United Kingdom

General Disclaimer

The information contained in this document is solely for information purposes, for general guidance only and is not intended to address the circumstances of any particular individual or entity. Although Aon endeavors to provide accurate and timely information and uses sources that it considers reliable, the firm does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of any content of this document and can accept no liability for any loss incurred in any way by any person who may rely on it. There can be no guarantee that the information contained in this document will remain accurate as on the date it is received or that it will continue to be accurate in the future. No individual or entity should make decisions or act based solely on the information contained herein without appropriate professional advice and targeted research.

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