Sometimes it takes a CFO to bang the heads of risk management and human resources professionals to get them to play together for the good of the company.
That was the case at National Semiconductor, remembers Eugene F. Kiernan, the veteran director of risk management and insurance for the Sunnyvale, Calif.-based maker of integrated circuits.
It happened in the 1980s. After a period of fast growth based on the low-cost, high-volume manufacturing of cheap integrated circuits, the company descended into “slow growth with limited synergy and a silo mentality,” Kiernan recalled at a session of The Conference Board’s recent 2001 Employee Benefits Group in New York City.
With the different departments operating almost autonomously, “every unit met their goals, but the company lost money,” the risk manager said.
As part of an overall effort to foster a team approach, Gary P. Arnold, then the company’s CFO and now a board member, issued a memo establishing the risk management and benefits departments as “separate departments working in unison,” Kiernan says.
The memo clarified the responsibilities of the two departments. Today, they share responsibilities for the company’s medical, dental, vision, life insurance, accident, and income protection benefits.
With National Semiconductor’s risk management department focusing on benefit-financing issues, HR has sought to attract and hold on to employees in the still competitive Silicon Valley labor market, administering such perks as on-site dentistry and hair styling, a post office, and a fitness center.
Since the risk management and benefits units use the same brokerage, Aon Benefit Consulting, the company avoids paying redundant consulting fees. Further, “when there’s a meeting [with a broker], we have a joint meeting” in which both sides have their say, says Kiernan.
The benefits people are interested in the “maximum of benefits, so you can be competitive in the marketplace,” he observes, while risk management pushes for “the most economical way to attract and retain employees.”
While National Semiconductor’s original peace pact may have been an anomaly for its time, joint risk management-HR efforts seem to be on the rise today.
The main reason is that the tightening of the labor market has broken the logjam between the two functions. Suddenly, benefit plans have had to become seriously competitive. The ability of benefits to lure workers is at least as crucial to the survival of many companies as is curbing benefit costs.
In the current labor market, HR and risk managers can no longer do their jobs alone. HR people must come to the financing table and talk intelligently about matters like stock options as a retention tool. Risk managers now must factor the human appeal of benefits into their cost calculations.
Nevertheless, it’s often hard to get the two sides to work together without a top executive forcing them into it, Cynthia M. Keaveney, a senior vice president with Aon Workforce Strategies in Conshohocken, Pa., said at the Conference Board’s benefit conference.
“We find success when there is a senior executive sponsor to bring groups together,” she said
Later, she told CFO.com that that executive could well be the CFO. At the same time, senior financial executives are more likely to approve the budgets of jointly managed programs if savings can be quantified.
For instance, she said, the CFO of a client company she wouldn’t name recently approved the budget of a jointly sponsored program aimed at cutting employee absences and turnover. Provided with the figures detailing the costs of disability and other absences, the CFO saw a chance to save millions of dollars.
As part of the program, the company plans to expand its occupational return-to-work program to off-the-job ailments. It will also cut the time a worker may stay off the job before returning to restricted duty.
A Firmer Basis
Overall, coordinating the efforts of risk and benefit managers provides a firmer decision-making basis for senior financial executives during uncertain times like the present.
National Semiconductor may itself be faced with just such a choice concerning its longstanding short-term disability plan, which pays 60 percent of a disabled employee’s salary tax-free for 52 weeks. Since 40 percent of a typical Californian’s income goes for state, federal, and other taxes, “most people are made whole,” under the benefits plan, Kiernan says.
The benefits are paid for by employees, however. And while the cost averages less than $200 a year, “it’s one of the few minor negatives in our benefits program,” the risk manager says.
Kiernan acknowledges that the tight labor market is putting pressure on the company to pay for the disability income-replacement plan and says that the company may be forced to do it.
Still, the daily drumbeat of layoffs may signal a more pro-employer environment. In that case, the company might choose to continue saving money by requiring employees to pay for disability benefits.
At any rate, both the company’s benefits director and Kiernan would have input in the decision, since they both sit on the board of the disability fund. The balance between the two points of view should serve the company well, insuring that the goals of employee retention as well as corporate prudence will be considered.
Though it was penned in a very different time, Gary Arnold’s memo still seems to contain some very current wisdom.