Collaboration Between Finance and HR

The functions are working together more, but there's a disconnect regarding alignment of corporate reward programs with financial and risk goals.

As the economy improves and growth moves to the top of corporate agendas, companies are looking closely at how well incentives for their employees and executives align with organizational goals. Best practices suggest that alignment requires collaboration between finance and human resources. A recent Towers Watson survey of 340 senior executives in finance and HR examined how well companies are fostering collaboration between the functions—and how well they're achieving the alignment that collaboration can engender.

The survey revealed that HR and finance teams in about four in ten organizations work together on setting strategy for reward programs, and the same proportion collaborate on determining changes to reward programs—despite the fact that only about two in ten HR managers think their function works with finance to set overall workforce strategy. Finance managers are considerably more likely to think they work with HR on setting workforce strategy, but they are much less likely to believe they collaborate with HR on developing the company's annual budgets. (See Figure 1.)

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Perhaps as a result of this collaboration, the majority of managers in both functions see their reward programs as successful: Around 60 percent believe reward programs are aligned with the company's talent goals, are instrumental in driving the behaviors needed for profitable growth, and are producing an acceptable return on investment (ROI). However, finance executives are considerably less likely than their HR counterparts to see their organizations' reward programs as aligned with the company's financial goals or structured to discourage excessive risk-taking. (See Figure 2.)

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Towers Watson recommends that companies build a total rewards optimization process through which HR and finance work together to answer three questions that are key to the success of both functions, and of the company overall:

  • What's the right level of total investment in rewards?
  • What's the best way to allocate that investment across reward elements to maximize the employee behavior we want to influence?
  • How do these results vary across targeted employee segments (whether by business unit, age, job level, tenure, skill group, location, performance, or other categories)?

"As the economy improves, companies are putting more emphasis on ways to enhance financial performance," says Emmett Seaborn, a senior consultant with Towers Watson. "While the HR and finance functions have traditionally worked independently, both groups recognize that for workforce programs to succeed, they will need to collaborate more in the future. Ultimately, sustaining and improving performance must be a shared responsibility between the two functions, since it depends so heavily on the relationship between what an organization can afford to invest in its people and the financial goals it has to deliver."