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Stand-up or fall – the future of HR in jeopardy

Dr Hugh Billot.
inflation

I have worked as an HR practitioner for almost five decades as well as holding CEO roles in a number of consultancies and business service organisations. Dr Hugh Billot.

I have experienced most things: re-structures, large and small; union recognitions and de-recognitions; worker unrest including strikes, work-to-rule, and mass picketing; the creation of a fully single status organisation; competence based training and the transition to a workforce where the aim was for all employees to achieve a relevant qualification; reward systems where all classes of employee benefited from improvements to company productivity and profitability and environments where continuous improvement was the prevailing work ethic. HR was everywhere in the organisations I worked in and promoting change, the application of best practice and constant improvement to productivity and profitability and with everyone sharing in rewards for their growing contributions.

But I ask myself where HR is now? I ask this question based on the state of organisations today as evidenced by:

Britain’s biggest banks have paid their bosses more £177 million in the decade since the financial crisis despite two being bailed out by the tax payer and some adopting many unsavoury practices which have led to billions of pounds of fines. On top of this tens of thousands of employees have lost their jobs. CEOs of FTSE 100 companies earned an average of £4.5 million last year, 160 times the average wage of £28,000 (in the 1970s CEOs earned 15 times the average employees salary)

The public sector is not immune either with one university vice chancellor suggesting a salary of £227,000 is not enough because he doesn’t have a free home. University bosses enjoyed average pay packages of £277,834 in 2015/16 (funded by students) while teaching staff have had their pay held down; university staff pensions plan has a deficit of about £7billion and the university sector has combined debts of around £10 billion and students are leaving universities with debts averaging around £50,000. In local government the top ten earners (including pensions and pay offs) in 2015/16 ranged from £386,116 to £625,570. In teaching one boss of a federation of schools earns around £425,000.

The government has named 360 businesses which have failed to pay either the national minimum wage (NMW) or the National Living Wage. The Office for National Statistics has calculated that 362,000 jobs did not pay the NMW at April 2016

Many employers have developed a low pay economy by linking work to the NMW. The NMW has taken competition out of the labour market and hence the numbers working for the NMW has grown considerably and it is estimated that over 2 million workers are experiencing poverty. More and more workers are  securing pay top-us in the form of tax credits and the Trussell Trust (the largest food bank provider in the UK) issued over one million three day emergency food supplies in 2015/16

Job security is in decline.

In a job environment where recruits can be hired from Europe (where in many countries the NMW equivalent is significantly lower than in the UK) at virtually 24 hours’ notice, hiring and firing has become endemic. Zero hours contracts have grown to one million and the demise of final salary pension schemes in the private sector have added to poverty in retirement for many.

The workplace has grown increasingly unhappy. A never ending succession of rules and regulations has taken much of the fun out of work and workers are increasingly worried to open their mouths for want of getting into trouble. Employers are often demanding more for less and job satisfaction is disappointingly low. According to the OECD people in the UK are among the most depressed in the developed world as they grapple with problems such as job dissatisfaction.

Compensation claims have the prospect of becoming self-perpetuating actions which could completely undermine an organisations wellbeing and capability to perform or even survive. Two recent reports confirm what I am talking about. Firstly a serving police officer received £12,127 compensation after being bitten by a flea while at work excluding the £4,185 legal costs the police had to pay. Secondly the cost of clinical negligence claims against the NHS is now running at £1.6 billion a year.

Gallup research finds 82 percent of managers aren’t effective.

Capping it all is the appalling productivity record. In essence no improvement has been made since pre-recession 2008. While unemployment is at a 40 year low and employment at an all-time high, productivity is going nowhere as cheap labour has minimised investment in capital/robotics and resisted change. Why?, because this picture of the UK has created a disengaged workforce. Workers on low pay are not going to go the extra mile and boost productivity. They are more concerned about paying the bills and surviving.

This poor state of affairs is creating a response but sadly it appears not from HR. So who is doing what? Shareholders are reacting against ‘fat cat pay’ and there are many examples recently where shareholders/investors have voted against executive pay increases. There have been some sweeping cuts to executive pay packages and this is borne out by the latest analysis which shows that the average FTSE 100 CEO pay packet dropped 17 percent between 2015 and 2016.

The government is becoming increasingly involved in the management of people and organisations/business as it seems aggravated by, in particular, stagnating productivity and fat cat pay. The National Living Wage has been introduced to help move away from a low pay economy which it sees akin to a low productivity economy. An apprentice levy has been introduced to address a serious shortage of skills in the UK and counter the current trend of employers taking the low cost quick fix approach of bringing in people from abroad. Gender pay reporting has been introduced for organisations employing more than 250 employees in an attempt to close the pay inequality gap.

The latest government initiatives include: a requirement for all listed companies to publish pay ratios between chief executives and their average UK worker; and for universities to justify paying senior staff more than the Prime Minister and failure to do so could result in fines. Further the government has appointed a UK Director of Labour Market Enforcement and the occupant of that role is considering heavy fines and even jail for bosses who consistently exploit workers and breach labour laws.

The Bank of England is juggling with demand and supply and in so doing sees economic growth at much lower levels than in the past, more around 1.5 percent than the heady past heights of 3 percent. Its reliance on rock bottom interest rates entertained an environment where business could invest and labour cost would avoid becoming inflationary. In taking this approach a debt mountain has been built on cheap money by organisations and the public. Increases in interest rates could easily downgrade growth and add further to a decline in productivity.

In the main few appear to be tackling productivity. UK productivity (output per hour) is lower than at the end of 2007 and has weakened this year. So what has gone wrong? Well it can’t all be laid at the door of the HR practitioner. There are a list of other contributors to the UKs poor performance trend including: lack of investment in both capital and labour; low interest rates; growth in bureaucracy; shareholder pressure to squeeze out maximum returns; pressure groups resisting change;  a developing low pay economy; a collapse in a true effort-reward relationship especially among senior managers in both public and private sector; poor management and leadership and above all else great swathes of worker disengagement found across the nation. I have spent some investigating the cost of disengagement (sickness absence; poor communications; labour turnover; poor management; health & safety; strikes; fraud and theft; lost/poor quality and misbehaviour dispute resolution) and conclude the cost to be around £256 billion per annum which is around 14 percent of GDP. If the causes of disengagement could be halved, the UK would leap from 20th to 11th position in the global productivity league based on GDP per hour.

Hence organisations and the country could gain significantly if there are major improvements to employee engagement. This means tackling the issues above which are so damaging to everyone at work and in retirement. This, in my opinion, is where HR practitioners will stand or fall (some are standing tall already) as at this time they cannot all claim to have excelled. HR has to change and I suggest a more strategic and all-embracing direction which, if taken, could be good for all stakeholders in an organisation and for the country especially as it leaves the European Union.

New direction for HR practitioners

HR practitioners should see themselves as ‘performance enhancers’ capable of working with all employees (top to bottom and bottom to top) to seek enhanced organisational productivity and profitability and ensuring that everyone reaps the rewards of improvements. In doing so they should concentrate on the following:

HR practitioners need to be at the heart of everything happening in the organisation and to cement their credibility to do so they need to thoroughly understand how the business works from supplier, through the process to the customer. In fact it would do no harm if senior HR practitioners had some experience of running a profit generating activity.

Work with everyone to develop and then sustain a culture which will say promote excellence/continuous improvement which all stakeholders will support (employee engagement, change, job satisfaction and a collaborative and worker friendly environment have to be central to culture whatever else is regarded as important).

Hiring employees that have the right attitude to fit the organisational culture should trump other requirements (it is assumed professional HR practitioners will provide appropriate training to new hires).

Obtain or improve their knowledge and understanding of the excellent research, built up over decades, which demonstrates how to manage people to obtain high performance and ensure such relevant knowledge is imparted to and practised by all managers in the business. Give up ‘talk the talk’ and replace it with ‘walk the talk’ to build trusting relationships with all employees and especially senior management and regularly seek feedback necessary to formulate change which will win everyone’s support.

Recognise, understand and challenge conflict in all its forms and work with line managers in particular but all employees to eliminate it. Create teamwork in all areas including the concept of one team for one organisation all pulling in the same direction to ensure success, short and long-term. Refrain from usurping line managers of their responsibility to manage people. Line managers should manage day to day HR not the HR practitioner.

Reduce the focus on transactional activities (and especially avoid the ‘policy police officer’ role which is so demoralising and de-motivational) by leaving that to line management and/or administrative functions and major on transformational actions which will be a source of sustainable competitive advantage and bring continuing success for the organisation for the long term.

Replace ‘traditional HR metrics’ with ‘commercial KPIs’ such as: output per worker or per hour; profit/surplus per worker; employment cost to produce £1 of revenue; sales revenue per employee; total employment cost per employee trend. Smarter HR practitioners could calculate the organisational cost of disengagement. Review these trends monthly. Remember (members of the Chartered Institute of Personnel and Development) that there is a Code of Professional Conduct to adhere to especially in terms of supporting all stakeholders and not fall into the trap of just trying to please management all of the time.

Recognise that almost all change comes about from negotiation and the first rule of negotiation is you have to ‘give to get’ hence effective HR strategies which enable increases in productivity will reward all employees and not disproportionate pay for the few at the top.

Benchmark successful organisations regularly to provide a catalyst to transformational events. Recognise that all employees are talent capable of development and higher levels of competence and contribution and ensure that employee reviews focus on achievement and the future (remember that most employees believe they are more competent than they really are).

Ensure the focus is on profit (or cost effective operation in not for profit organisations) in order to ensure cash is available for investment in plant and people and that employees see a future, whether that be security in the role or a career path.

If HR doesn’t change it may lose its relevance and the HR practitioner will fall. However if the HR practitioner will recognise the sad state of affairs that employee disengagement has created and decide that he or she is going to ‘put things right’ and adopt the strategic direction I have laid out, then I believe HR will have a brighter and more influential future in promoting improved performance and organisational sustainability. Finally, knowing what to do is only about 10 percent of the solution, doing it is 90 percent and that is why leaders, managers and HR practitioners need to change and the sooner the better.