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Insurance for Managing Human Capital Risks


Unlike some forms of workplace insurance, there is no legislated requirement to have established job evaluation or compensation systems: this is a mixed blessing for some small to medium size organizations.

The leadership mindset is typically focused on managing start-up associated risks and growing the operation. Also, during this phase or the organization life cycle, it’s hard to justify the in-house cost for having job evaluation or compensation management expertise. So attending to these human resource (HR) matters commands little leadership attention and resources.

Then the organization grows: new jobs; different jobs; more employees; different pay rates – sometimes for employees in the same job!  At this point, the value of those HR systems as a form of insurance becomes more apparent. Collectively, they become increasingly instrumental in helping the organization manage its growth.

The lack of established HR systems can make an organization vulnerable to both past and future liabilities. For example, an established job evaluation system is a key determinant for Pay Equity compliance in the Province of Ontario for employers with greater than 10 employees. Non-compliance can result in significant financial penalties. Also, a structured compensation system is a key tool for addressing internal equity challenges that arise from past discretionary pay decisions – typically related to recruitment or merit increase. It is also an integral tool for managing payroll costs – which is typically the biggest operating expense in any given fiscal period.

So, at some point in the future as your organization celebrates and moves past its “small” or “medium” life stage, past practices of inadequate HR systems planning or piecemeal HR solutions will start to look and feel like unfunded liabilities. From a Board governance vantage, insufficient HR attention may also contribute to potential sources of organization risk (e.g. compliance, operational, finance, reputation). At that reflection point, it’s easy to see how these systems, if implemented earlier, provide a form of HR insurance with broad risk management coverage.

Like most insurance, it’s more cost effective if you understand and under write the risk earlier than later.

By Dave Nanderam, Senior Associate Consultant at ASSOCIUM.


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