Body of evidence

If HR is doing so well, why is it still failing to deliver on its six core
areas? In a seven-page special report, Nic Paton exposes HR’s poor track record

Nic Paton takes a hard look at HR’s under-performance in six key areas

If HR is doing so well, why is it still failing to deliver on its six core
areas? In a seven-page special report, Nic Paton exposes HR’s poor track record

If leadership, as US president Harry Truman would have had it, is getting
other people to do what they don’t want to do, and liking it, then HR
professionals should all be leaders. Sadly, as we know, this is often not the
case. The harsh reality is that, despite the all too commonly heard platitude
of the workers being an organisation’s most important asset, HR is still too
often mararginalized, unappreciated and not considered core to either strategic
direction or corporate success.

Strip away the warm talk about HR’s role in promoting productivity and
work-life balance, tackling the gender pay gap and stress, improving industrial
relations and corporate social responsibility, and, for the vast majority of UK
workers, the picture is still one of long hours, stress, pay differentials,
mistrust and scepticism.

A survey by Personnel Today’s website, personneltoday.com, in August, found
85 per cent of HR professionals polled felt their profession was not involved
in running the business at the highest level. As we shall see, this failure to
become a credible, hard-hitting player in the boardroom is the key to HR’s
under-performance and failure to deliver on these crucial workplace issues.

HR’s failings in its six core areas

1 Productivity

Problem

Despite all the talk of organisations genuinely beginning to understand the
importance of human capital in boosting productivity, UK productivity per hour,
it is estimated, still lags behind the US by 26 per cent, France by 24 per cent
and Germany by 11 per cent.

Just last month, research by Personnel Today and Deloitte & Touche found
HR staff were still struggling to measure the contribution made by staff to the
bottom line. Even though 76 per cent of firms attempted to measure human
capital, only a few believed the methods they used – such as HR benchmarking,
HR metrics and the balanced scorecard – were effective.

UK workers are the second most insecure in the world about their jobs, with
only workers in South Korea worse off, according to the Organisation for
Economic Co-operation and Development.

HR professionals, claims the CIPD, are every day being hindered in their
drive to improve productivity by the UK’s overly complex employment
legislation, particularly the Working Time Directive.

The TUC, in turn, blames the country’s low productivity rate on a culture of
mediocrity and short-termism among managers that encourages slashing pay,
cutting jobs and lengthening hours as a quickfire route to better productivity,
forgetting about the longer-term consequences. These again are failings that
can in part be laid at the feet of HR.

But jumping to the conclusion that HR should be the whipping post for
Britain’s low productivity would be unfair, argues John Philpott, chief
economist at the CIPD.

Much of the debate about how to improve productivity has been conducted at a
macro level between the Government, employers and unions, with the role of HR,
rightly or wrongly, largely sidelined.

Part of the reason for this is that productivity is notoriously difficult to
measure. "You cannot say that differentials in HR practice explain why
Germany and France are ahead of us. There has, for instance, been a difference
in levels of sustained investment," he says.

Yet, Philpott concedes, only a minority of those who run UK organisations
consider people management to be a top strategic priority. "The CIPD and
professional specialists in people management and development must do more to
take the case for people management to the very core of the productivity debate
and enlist Government and policy makers as well as social partners as key
allies for change," he wrote in a recent report.

Solution

HR’s biggest failure has been, too often, to miss the link between skills
and productivity, and so addressing this would go some way to providing a
solution, argues Andy Westwood, head of policy at the Work Foundation.

Training is too often uncoordinated, short-termist and haphazard, and money
is wasted or more focused on senior managers rather than on intermediate level
employees, he suggests.

"You are much more likely to hear an HR manager saying ‘let’s send
manager x on a leadership programme’ than you are to see an employee being put
forward for, say, an NVQ," he says.

Yet some organisations are beginning to take a proactive look, from an HR
perspective, at this issue, which could provide valuable lessons. Ford, for
instance, in August, said it had dropped the practice of "managing
out" (or rank and yank, if you prefer) the lowest performing 10 per cent
of its staff.

That approach, championed by US giants such as GE, had led to a very strong
negative reaction from employees, admitted John Walker, vice-president of HR
for Ford Europe. Instead the company now uses a much wider range of measures to
evaluate performance and boost employee engagement, including performance
development committees and balanced scorecards. In turn, Ford has seen
productivity at its plants rise from 63 per cent two years ago to 98 per cent.

When it comes to bridging the skills gap, the Government, too, is playing a
part. Last month, Ivan Lewis, the minister for adult learning, gave the green
light to plans for employers to be given a greater say about education and
training.

But some programmes, such as the Government’s £1.25bn science strategy will
only work if more is done to help businesses tap into innovation and if lessons
are taken on board from Germany and the US, suggests the Work Foundation and
TUC.

One of the continuing problems is that a large amount of productivity
research seems to be on trivial issues, such as the benefits of office design,
rather than the wider issues of how to boost productivity, adds Philpott.
"There needs to be a harder edge and a more analytical approach by the HR
community."

2 The gender pay gap

Problem

A significant, but at the time little reported, victory in the battle to
close the gender pay gap occurred in March this year. The Public and Commercial
Services Union, which represents 280,000 lower and middle-ranking civil
servants, many of them women, won a deal with Acas, the Government’s
arbitration service, that it should share out £5m between 900 staff because the
way their pay had been awarded was discriminatory.

Yet this victory masks a bigger picture of failure and under-performance by
HR. More than 30 years after equal pay legislation made it on to the statute
book, the gender pay gap is estimated to be about 18 per cent. Unison, for one,
calculates Britain’s gap is the worst in the European Union. Its women members,
it says, on average earn 50p to 66p for every £1 that a man earns.

The MSF union last year calculated that women in the financial sector earn
£250,000 less in their lifetime than their male colleagues because of the gap,
a situation encouraged by individual contracts and merit-related pay.
Similarly, a study last year by the London School of Economics found a £240,000
difference over the average working lifetime of a woman, even if they remained
child-free. If they had children this rose to £380,000.

Just as damning, a study in July of this year by online recruitment company
TopJobs found that 56 per cent of women had experienced pay discrimination in
the workplace, compared with 27 per cent of men.

The Government is trying with, for instance, with the establishment of an
Equal Pay Task Force and the appointment of an "equal pay champion"
in Denise Kingsmill, deputy chairperson of the Competition Commission.

But one of the problems for HR with any drive towards closing pay gaps of
any sort is that, historically, most pay structures will have built up over a
long period of time and so are cumbersome, difficult and contentious to
untangle, explains Martha How, a director in the PricewaterhouseCoopers HR
consulting practice.

This is particularly the case where pay rises are rewarded through length of
service, meaning there is naturally likely to be an imbalance towards older,
male workers who have not taken a career break or who have simply been with the
firm for years.

"You cannot suddenly reduce people’s pay, and at the same time you
cannot just unilaterally increase people’s pay. You have to acknowledge the
complexity of it and how hard these things are to uncouple," How explains.

Another problem identified by the Work Foundation is that employers often
use previous salary history to pay women less, so perpetuating the gender pay
gap.

Solution

It is a failure of HR that after 30 years the gender pay gap is still so
rife, or indeed needs to be discussed at all in an article such as this. Denise
Kingsmill, for instance, last year strongly recommended that HR needed to have
a place at the boardroom if employers were to tackle the gender pay gap.

HR, she said, had a fundamental role to play if the Equal Pay Task Force was
to meet its target of halving the gender pay gap in five years.

While most firms said they took equality seriously, just 30 per cent of
those she had spoken to had an HR representative on the board.

Other initial recommendations – criticised in some quarters as being too
weak – included that organisations needed to implement voluntary equal pay
audits, work-life balance initiatives, gender databases and have targets in
place.

But the Government’s lead, which requires public sector organisations to
conduct equal pay reviews by April next year is likely to have a galvanising
effect on organisations across the board, Martha How predicts.

"When large chunks of the public sector make a commitment to do that
then that brings it to the notice of the rest of the HR world. But reviewing it
is one thing, uncoupling another," she says. Others insist only compulsory
gender audits will eradicate the pay gap altogether.

Incremental change, rather than a sudden cash splurge, for instance a
three-year plan to migrate people to the appropriate grade or salary, may be
one solution in helping to convince hard-headed board members that a solution
is feasible without blowing the bottom line, suggests Martha How.

Reputation may be another, suggests Richard Powell, senior consultant with
the reward and performance management practice at Towers Perrin. A recent study
by the firm found 40 per cent of those polled said the damage to reputation
from adverse publicity, along with the operational risk of losing good talent,
was the main worry when it came to equal pay. HR professionals looking to sway
a recalcitrant board, take note.

3 Work-life balance

Problem

At first glance, the issue of work-life balance is one where HR should get a
large tick and the words ‘well done’ written in the margin. Indeed, one of the
criticisms from managers about work-life balance is that it is, if anything,
too much of an obsession among HR professionals.

Certainly, if the column inches in the newspapers and the level of
discussion are anything to go by, work-life balance as a concept is now firmly
embedded in organisations across the country. Firms large and small are offering
people more flexible working structures and using new technology to do so, a
trend given added impetus by the events of September 11 and people re-assessing
their careers.

Some recent examples include the launch this month of a package of work-life
balance initiatives by Dixons to improve staff motivation and productivity. And
last month Thames Water published a booklet, drawn up in partnership with the
unions, outlining to its 5,000 employees what work-life choices were open to
them. At the same time, Comet, where men make up 69 per cent of the workforce,
has taken the innovative route of offering fathers one paid hour off work to
spend pursuing educational activities with their sons, who have to be between
the age of 11 and 14.

The Government, too, has got in on the act, launching a campaign on the
issue in 2000 and implementing the Working Time Directive. From April next
year, the Employment Bill’s ‘right to ask’ passes on to the statute book,
meaning that if you have a small child and ask for more flexible working hours,
your employer must give that request serious consideration and explain in
writing any reason for turning you down. Many organisations – and HR
departments – are seeing this as in effect a blueprint for all employees, not
just parents, and taking action to educate managers accordingly.

What’s more, the issue has moved out of the narrow orbit of mums and carers
to encompass all workers. A survey of clients in April by HR consultancy
Chiumento, for instance, found two-thirds were getting more and more requests
for flexible working arrangements, with workload pressures rather than family
commitments cited as the prime reason by four out of 10 respondents.

Yet, despite the upbeat comments and initiatives, British workers still work
some of the longest hours in Europe. Just last month a study by the Joseph
Rowntree Foundation found 21 per cent of mothers and 41 per cent of fathers
regularly started work between 6.30am and 8.30am, with a quarter of mothers and
45 per cent of fathers regularly finishing between 5.30pm and 8.30pm.

One-in-three fathers said they routinely worked more than the 48 hour limit
set by the working time directive, with fathers in professional and managerial
jobs working the longest hours.

A similar study by the National Centre for Social Research, also to coincide
with last month’s National Work-Life Balance Week, found that millions of men
are effectively ‘weekend fathers’ because of Britain’s long hours working
culture.

One or both partners in most dual income families worked outside the
standard ‘nine to five’ routine and almost a third of fathers put in more than
the 48 hours a week, it found.

A recent study by the Economic and Social Research Council concluded that
the gap between ‘enlightened rhetoric’ about work-life balance and the reality
in most workplaces "remains disturbingly wide". What’s more, there is
an issue of occupational class in the amount of access workers have to such
benefits.

"Women in managerial and professional jobs with higher incomes and benefits
are in much better position to achieve a balance than their much lower-paid and
insecure counter-parts employed, for example, in the retail trade and
textiles," it said.

Just as worrying is the fact employees evidently do not trust HR or
employers when it comes to communicating the benefits of work-life balance.

A study by the Institute for Employment Studies in April found that, even
where organisations are prepared to promote flexibility, there is often a
‘take-up gap’.

Employees are reluctant to step forward and ask for a better deal for fear
it will damage their career prospects.

IES’s study of six organisations found workers were worried about being seen
as bucking an entrenched culture of long hours, did not know what they could
ask for or how to do it and feared it might cost them too much in lost pay.

A more recent study by flexible working consultancy Flexecutive found 81 per
cent of employees feared that asking to work flexibly was tantamount to ‘career
suicide’. Perhaps just as seriously, line managers – the most stubborn obstacle
to work-life balance – often remain sceptical.

Despite the slow culture change being seen, many managers still believe
work-life initiatives, in a tough economic climate, are a luxury that will
damage the business and require extra hours to implement. HR still has some way
to go to resolve this breakdown in communication.

Solution

"The aim should be empowering managers so that they can equip
themselves to do this. HR has moved a long way in this, but not far
enough," says Carol Savage, managing director of Flexecutive.

"But it is not all HR’s fault. If I talk to an HR director I am
preaching to the converted. It is more a matter of how you put those policies
into place," she adds.

A lot of managers are still so stuck in a culture of 50 hours-plus working
week that they cannot see any alternative. Getting movement comes down to the
ability of HR professionals to effect change and change attitudes from the top
down. It is, once again, HR’s ability to bring people with it, from the
boardroom downwards, that is at the heart of the problem.

It’s vital that HR aligns itself closely to the business and presents
work-life balance as a business case, says Caroline Waters, head of employment policy
at BT. The company, through its Freedom to Work initiative has 700 job sharers,
5,200 home workers, 8,000 part-time workers and 60,000 workers who work
remotely.

"We are successful in this at BT because the HR function is so attuned
to the business. We know how to talk to managers and how to switch managers
on," she says.

HR needs to be able to show managers, from the board downwards, that
work-life balance can translate into a benefit for the business, workers and
customers, she adds.

4 Corporate social responsibility

Problem

When it comes to corporate social responsibility (CSR), business leaders and
HR professionals are nervously looking across the channel. From next year,
French companies will have to demonstrate their commitment to CSR by giving
detailed accounts of their social and environmental record.

To an outside observer, CSR would be an obvious ‘quick win’ area where HR
professionals could roll up their sleeves and get stuck in.

The concept, defined by the European Commission as a process "whereby
companies decide voluntarily to contribute to a better society and cleaner
environment", is bound up in the belief that businesses have a duty to
their wider community that goes beyond staying within the law and satisfying
stakeholders.

But it’s exactly the ‘touchy-feely’, new-agey wooliness of CSR that has been
a problem for most in HR in the past. Many argue that it’s the last thing the
profession needs when it’s trying to reposition itself as something
harder-edged, more corporate, strategic and deserving of a place at the top
table. Fortunately, so far at any rate, the European Commission has said it
will not make it mandatory for employers to introduce CSR policies.

But CSR is an area HR professionals increasingly ignore at their peril. Trade
and industry secretary Patricia Hewitt, for one, called for businesses to drop
their blinkers about CSR at a conference in July. CSR, she suggested, can
deliver a competitive edge in the war for talent.

Similarly, the CIPD believes CSR can be helpful in preventing crises such as
WorldCom. HR professionals need to take control of CSR to ensure companies are
not driven purely by short-term stakeholder return, it argues.

Of course, Enron won six environmental awards in 2000, was voted the best
company to work for three years in a row and published a 65-page code of ethics
as well as a report on its environmental, economic and social performance. So
it’s not all a one-way street.

But in an increasingly competitive environment, and with firms vying to be
employers of choice, the question of consumer power is a serious one. A study
last May showed that almost 50 per cent of consumers – all potential employees
too of course – thought CSR was an important consideration, while 20 per cent
would actively boycott products on ethical or social grounds.

And a survey by CSR group Business in the Community in July found 76 per
cent of chairmen and chief executives polled felt CSR improved creativity,
while 73 per cent thought it led to better profitability.

However, 78 per cent also warned that competitiveness would only be improved
if responsible practice was integrated throughout the whole business.

Pioneers of CSR include organisations such as Lattice, which is training
young offenders and people with educational problems to meet skills shortages
in the company. Marks & Spencer, too, has gone as far as setting up a
committee to ensure staff are fully involved in the business, a key tenet of
CSR.

Indeed, more and more firms are getting in on the act. Last month, for
instance, saw the launch of a new Corporate Social Responsibility Index for 500
UK companies including the FTSE-350.

Solution

Far from distancing itself from CSR, HR needs to be the link between core
business objectives and CSR, argues independent think-tank Demos.

HR can be the catalyst for driving forward innovative projects and
identifying key employees to champion CSR throughout an organisation, it
suggested in a report in July.

"[HR departments can] produce effective, innovative responses to social
problems in ways which allow the solutions to be taken up more widely,"
said Rachel Judd, author of the report Getting down to Business, at the time.

Staff development, which no one would deny is not a key HR responsibility,
can be helped by CSR, as has been discovered by organisations such as Lattice.

The PR benefits of CSR, both in the wider community and, more importantly
from the HR perspective, in terms of attracting high-flying recruits and aiding
staff motivation and commitment cannot be ignored either.

"There has been a slight tendency for CSR to be seen as an isolated
thing rather than as a part within the organisation as a whole," says
Eddie Gibb, head of communications at Demos. CSR should be thought of a
catalyst for innovation and skills development, he suggests.

CSR needs someone credible to champion it – whether or not from HR – and
must be effectively communicated throughout. "There is a definite HR
benefit in driving the process. You can apply the abilities you bring in
through CSR to corporate business activities. You do not need to separate it
out and keep it at arms length," he says.

Advice in many ways just as pertinent for the relationship between HR and
the business community at large.

5 Stress

Problem

The number of people who claim to be suffering from stress at work continues
to rocket.

The Health and Safety Executive (HSE) estimates stress is now the second
biggest cause of work-related illness in the UK, with one in five workers
reporting they have been affected by it. Some five million working days are
thought to be lost each year in the UK because of stress-related absence.

The CIPD’s annual employee absence survey in August found that the number of
working days lost to sickness had risen to 10 from 9.3 in 2001, with stress
cited as the most common cause of long-term absenteeism. In February, the TUC
reported that union funded ‘stress claims’ had risen from 516 in 1999 to a
staggering 6,400 in 2000.

A recent study by Towers Perrin found half of the HR directors and managers
polled said stress was a potential concern, with 35 per cent saying it was
quite a concern and 11 per cent feeling it was a serious concern.

Yet dealing with stress has become something of an industry within industry.
There are now estimated to be more people working in stress management within
the UK than there are personnel in the armed forces, and stress management has
become a key occupation for both occupational health and HR professionals.

The HSE, for one, will next year publish the first management standards on
stress in the workplace. These will provide a clear yardstick against which to
measure an employer’s management performance in preventing stress. In July, it
also launched a major campaign to raise awareness of workplace stress.

So why the anomaly? One of the difficulties for HR professionals is that,
while the causes of stress are pretty well known – lack of control, lack of
autonomy, long hours, lack of job satisfaction, bullying and so on – it’s much
harder to judge how resilient a person is going to be all these factors. People
react differently to different kinds of stress and stress can present itself in
different ways, from mental illness through to heart disease.

Another difficulty of dealing with stress is that the workplace is rarely
the sole cause of stress in an individual.

There’s also the issue that some stress is good for you, and ‘under-work’ is
just as much a problem in inducing stress as overwork, suggests Angela Patmore,
managing consultant at the Nerve Centre. Stress management programmes can in
fact make a situation worse by overprotecting people and making them
emotionally unstable, she argues.

Often dealing with stress is too much focused on treating the individual and
not enough on preventative processes, adds John Ingham, senior consultant at
Penna Consulting.

HR is very good at dealing with stress once it raises its head in an
individual context, but much less good at creating processes and an environment
that ensures stress doesn’t arise in the first place. Too often stress is also
dealt with as a compliance issue rather than one of changing a working culture,
he contends.

Solution

Creating an environment where people can self-report symptoms of stress, and
where managers are able to recognise stress and nip it in the bud early, is
vital to effective stress management, argues Ingham.

"You have to look at developing responses to be able to help managers
assess stress.

"Stress can be a positive, so it is not something you want to avoid completely
in organisations. But HR needs to help people to maximise its upside," he
says.

"A workshop-based approach can help people to understand the sorts of
internal emotions that stress is likely to raise and the sorts of behaviour
that are likely to arise, for instance how stress might affect your sleep
patterns, moods, eating habits and so on," he adds.

But HR professionals also need to be wary of always looking to reduce
stress. A balance must be struck, argues Patmore.

Employee assistance programmes are certainly helpful when it comes to
tackling stress, but the key has to be early intervention, adds Kate Bleuel,
head of health and risk at Towers Perrin.

Two years ago just 21 per cent of companies offered employees stress
counselling. Now it was more like 71 per cent. "It’s about training and
support so that when line managers are given a note from a GP they immediately
react," she says.

6 Industrial relations

Problem

It doesn’t take much to look around and realise that when it comes to
industrial relations – so long an issue thought to have been relegated to the
back burner – that HR’s failings and under-performance are coming back to haunt
the profession. After years of a sense that industrial relations could safely
be put to one side as long as constructive partnership programmes were hammered
out with compliant unions, the spectre of increased trade union militancy has
returned with a vengeance.

Whether it’s underground workers, fire fighters, railway employees, college
lecturers, local government employees or post office staff, the unions are
feeling reinvigorated and newly confident again.

Indeed, nearly half of employers are bracing themselves for strike ballots
over coming months as unions become more aggressive, a survey on industrial relations
by law firm DLA reported last month.

The study of 243 large employers and trade unions found more than 40 per
cent of unions anticipated an increase in industrial action over the coming
months, up from 33 per cent last year. And predictions of strike action from
public sector employers had almost doubled since last year – up from 18 to 35
per cent, it also found.

Of course, not all of this is HR’s fault. Once Labour swept to power in 1997
there was bound at some point to be a reaction from unions that had for so long
felt themselves emasculated by the Conservatives. In some respects, it’s
remarkable that the reaction took so long to rise to the surface.

Labour’s hefty public sector investment programme has also proved a
catalyst. With the carrot of more money but the stick of radical reforms
alongside it, there was almost bound to be rumblings of discontent from the
unions, or at the very least, aggressive manoeuvring to ensure lower paid
workers did not miss out. Legislation on compulsory union recognition and the
Information and Consultation Directive have also helped to give unions a new
sense of confidence and purpose.

But these arguments serve to ignore the fact that HR has by and large failed
to tackle the issue of industrial relations imaginatively when it had the
chance, argues HR consultant Paul Kearns, of Personnel Works. The main change –
partnership agreements – is hardly the most innovative [solution] imaginable,
he explains. "HR has not had to deal with the situation very well in the past
20 years. A lot of HR people have not had experience of industrial relations
from the bad old days, and do not take a strategic view on it," he says.

There’s also still a sense, if you will a hangover from the 1970s, that IR should
by definition be about conflict, argues Ron Jackson, consultant in the HR
consultancy business of Hewitt Bacon & Woodrow. "Years ago, you could
not be a senior HR person unless you had bloodied your nose around the table.
That is, I think to an extent, still prevalent," he says.

Then there’s the question of pay. Public sector pay is currently rising at
around 3.5 per cent to 4 per cent, compared with 2-3 per cent in the private
sector, according to Income Data Services.

But when it comes to executive pay, the rises are much higher, between 9.3
per cent, if you believe a study of FTSE-100 companies in August, or 16.1 per
cent according to a Labour Research Survey at much the same time.

In the public sector, a survey by the website SocietyGuardian.co.uk found
last month that a third of hospital, council, charity and housing association
chief executives earned £100,000 or more last year.

This situation, compounded by the executive fraud and excess witnessed in
the US by the likes of Enron and WorldCom, has added to the climate of mutual
distrust between employees and employers.

Last month, for instance, TUC general secretary John Monks called corporate
Britain "a disgrace", blaming the scrapping of final salary pension
schemes, executive pay and corporate sleaze for the rise in militancy among
union members.

Solution

While HR can only do what senior executives allow it, HR professionals have
shown no vision in how to change the conflict-based relationship between unions
and employers. Nor indeed has HR addressed why it is that the modern workplace
has not developed to a point where workers no longer feel the need for union
representation, says Kearns.

HR also needs to reskill itself to meet the changing IR environment.
"The number of HR professionals I meet who have never spoken to an
employee representative, let alone a trade union, is frightening," says
Jackson.

According to the CIPD’s Philpott, HR needs to take a serious look at
positioning itself to be able to work as a conduit to get both sides to the
table. "It’s about being an honest broker and being able to show the
benefits of partnership."

Some organisations are beginning to reassess their IR.

Consignia, for instance, which has in the past had a poor record of handling
its industrial relations, last month said it planned to recruit a company-wide
board-level HR director for the first time in an effort to improve its IR.

The company also said in July it would consult with unions on how managers
are trained in an attempt to radically overhaul a culture of bullying.

Also in July, the UK Passport Agency, which has traditionally had a
difficult working relationship with the unions, said it would allow trade
unions to contribute to the development of HR policies, including areas such as
recruitment, retention and redundancies.

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