Editors Column- Uninsurable HR Risks- A Big Problem

For years, I've been in a cat-bird seat understanding human resource risk management. One message I’ve preached to clients and readers is the uninsurable risks in HR dwarf the insurable ones (i.e. employment practices liability claims). 

What Companies View as Their Greatest Human Resource Concerns

1. Hiring people you can trust 
2. Getting people to produce
3. Retaining good employees 
4. Training them to become more productive
5. Team building and motivation 
6. Discipline and termination
7. Compliance 

One of the challenges we face as HR executives or risk mangers is the “if all you have is a hammer, everything looks like a nail” problem. When I first left my litigation practice after seventeen years, I was out there preaching employers should be deathly afraid of employment practices liability claims. While I may have high marks for my presentations, it wasn't a motivating subject for business owners who are, by nature, extremely motivated and anything but risk averse. What I finally woke up to is that the greatest risk facing any business owner is this: not growing their business! Every other risk is a distant second, third, fourth, etc.  And when you think about it, the HR risks presented above are arranged in order of the most important factors required to grow a business. Let me touch on each one in more detail. 

Hiring- Who you hire is the tipping point in the employment relationship. Most human resource risks can be solved by an effective hiring process, and yet, for the typical small to mid-sized company, hiring is viewed as something to “get done with quickly” and little more. For such firms, hiring becomes a randomized, ad hoc event, rather than a measured, systematic process. There is a wide variance in the effectiveness process among these firms. 

What an employer can do:
 
• Make sure you have a formalized hiring process. 

• Take a checklist approach, containing all of the key hiring elements, including: skill testing, personality assessments, extensive background checks, thorough interviewing, pre-hire fit for duty exams, and drug tests. 

• Always ask my favorite interview question during the hiring process: “Tell me what felt unfair to you at your previous jobs?”  There is no more powerful and revealing question to ask to avoid a risky hire. 

• Find out what strategies and techniques the best companies in your industry are utilizing to attract and hire the most talented employees. Many employers unnecessarily aim at the middle of the pack, instead of trying to adopt or model truly great hiring practices. 


Productivity- Now that you've hired somebody you can trust, it’s time for them to get busy. In the book 100 Percenters, based on extensive surveys, author Mark Murphy concludes that the typical employee works at just a 72% level. This means that, on average, 28% of every employee’s productivity is literally left on the table—every day. And if you’re trying to grow a business in today’s hyper-competitive environment, that’s a big risk!  This is a classic case of “death by a thousand cuts,” because a person who captures just 72% of their potential productivity level, while clearly not one of a company’s star performers, may still be doing just enough not to raise any red flags. And yet, the person’s far-from-optimal performance level is, over time, slowly draining the company dry.

What an employer can do:

•Conduct a thorough examination of the performance management process. Find out what’s working and what isn’t.  Conduct surveys and focus groups to obtain answers. 

•Create standard operating procedures (SOP’S) for all activities, including what is being done and how it is done best. Then, you have something you can continually improve upon, preferably through monthly process improvement meetings. 

•Create benchmarks of good performance as they relate to a process or result.

•Rewards results, not activities. Remember: don’t mistake activity for productivity.


Retention/Turnover-Now that you've got somebody you can trust, who is highly productive, they are in a position to help grow the business. The last thing you want to do is lose one of these valuable employees. Whether it’s called retention or turnover, it’s really the same thing and it comes back to a question I ask all the time: “If they were to quit, would you be relieved or upset?” If the answer is the former, then it’s time to let him go. If the answer is the latter, then it’s time to redouble your retention efforts. 

Turnover can be contagious. When a manager is highly effective, he or she invariably develops similarly capable staff/team members. If you lose this caliber of team leader or manager, you can lose the whole team as well. Similarly, if one of your top sales people leaves, their support staff will typically be out the door soon after. 

What does it take to keep great employees? Ask them! Again, conduct surveys and focus groups. I’m not a big fan of anonymous statistical surveys. I’d rather ask people open-ended questions they respond to in writing or on a face-to-face basis, such as: “What’s going well, what could go better, and what would you change if you were in a position to do so?” Remember- it’s the dialogue you’re after. 

What an employer can do:
 
•Analyze the extent to which their current resources are going towards retention efforts. How much are we spending on benefits, wellness, training, continuing education, incentives, bonuses, gifts, etc. and then ask a simple question, “Are these expenditures giving us the best bang for the buck?” 

•Many employees leave because of a failed relationship with their manager. But most managers are poorly trained (see below). Get them to management training! 

•We have a Retention Program Possibilities spreadsheet which helps analyze retention programs based on the formula of: cost x ease of implementation x impact to help determine where to best spend retention dollars. If you would like a copy, email me at [email protected] 


Training- We work in an information-driven environment.  So it’s little wonder we must learn more to earn more. As Dr. Deming stated when asked about the return on investment (ROI) of training, “You either believe that education has the greatest leverage to it or you don’t.” Chances are, if you’re reading this article, you’re highly educated and well paid. It’s your education that is the most important factor in having gotten you where you are today. While perhaps you may be self-motivated to obtain additional education on your own, sadly, the vast majority of employees do little to educate themselves once they graduate from school. Training is crucial because it addresses directly the three most important needs stated above. When you train people, they become more trustworthy, productive and stay longer as they can see possibilities for career growth. When those three things happen they don’t sure you. 

What an employer can do:
 
• Offer training. Buy books, CD’s, DVDs. Create a company library or training room. Use the ThinkHR Learn program for compliance and leadership training. Send them to night school and industry-related seminars.

• Training is one thing, but implementation of that knowledge is another. “From abstraction to action,” as I say. This is where a company must add additional coaching and follow-up services to make sure people use and implement their training— to get things done. 

Playing Team/ Motivation- Let’s call this the “soft stuff.” Team building and motivation have everything to do with the culture of your organization. What standards should you demand? Case-in-point: Zappos is well-known for offering new employees who have completed their initial training program, a $3,000 bonus—to quit! CEO Tony Hsieh realizes that over time, it will cost him less to pay that $3,000 now, than to have somebody working for his company not fully committed to achieving its goals. Given this approach, you can imagine the quality of their team environment. And teamwork and motivation directly drive productivity. 

What an employer can do:

• One of the fastest ways to build team cohesion helps team members better understand how they can support each other. An easy to implement and powerful exercise: Find out what are the three most important things the team or team member does every day. Then ask: “How can we support you in doing this better?” When you get the responses add them to your SOP’s and training programs.

• Motivate people towards their needs, not yours. Right out of Maslow 101- survival, security, belonging, ego, self-actualization)

• Show them you care…no matter how you do that.


Discipline and Termination- As mentioned above, I give executives a simple test: “If an employee were to quit, would you be relieved or upset?” Many times they say they’d be relieved. Then, I try to find out why that person is still occupying a seat on the bus. As you can well imagine, their answers are along the lines of: 

a. They’ve been with me for a really long time (and I feel a level of indebtedness or know them personally). 

b. I don’t know how I’d be able to transfer their knowledge over to a new employee and I don’t know if I can take the hit of their leaving (because we really don’t have well-documented standard operating procedures). 

c. I’m concerned they might file some kind of claim against me because they are (fill in the blank)…and no, I haven’t documented their poor performance! 

The cost of maintaining a non-performer is enormous. Chances are, they not only fail to do their own jobs capably, but they also suck time and energy out of their more productive co-workers, as well. What I advise employers is this: The longer you keep those folks on the bus, without directly addressing their performance deficiencies, the riskier they get. 

What an employer can do:

• Make sure your managers have clearly defined performance expectations. Make sure “the system” is not the problem.

• Demand your managers document substandard performance. 

• Put such employees on a performance improvement plan. If they respond positively, fine. But if not, they can allege they weren’t warned or given an opportunity to better. Bottom line: no termination should ever come as a surprise.
 
• Let poor performers go—sooner rather than later.

• Conduct exit interviews whenever possible. Don’t take no for an answer. 

In my experience, when the employee is finally let go, then the owner or manager really learns the truth about him or her. Other employees will say things like, “I’m so glad you let her go because... (you can fill in the gory details).”  Often, a termination removes the cloak that hid things you never previously knew about. 

Compliance concerns- Compliance remains a concern of most every organization mainly because HR executives and risk managers have been trained to fear loss. Since this article is about non-insurable risks, I’ll add nothing to this section other than the observation that if you are careful about managing your workforce and follow the recommendations in this article, chances are, you’ll have little or no compliance concerns. Remember this: people who trust each other, don’t sue each other. 

Conclusion- The uninsurable risks inherent HR practices, dwarf the insurable ones. There remains an incredible opportunity to help your company or clients to better such practices and grow their bottom line. 

Don Phin, Esq. is VP of Strategic Business Solutions at ThinkHR, which helps companies resolve urgent workforce issues, mitigate risk and ensure HR compliance. Phin has more than three decades of experience as an HR expert, published author and speaker, and spent 17 years in employment practices litigation. For more information, visit www.ThinkHR.com.


Need insurance for You, Your Family or Your Business?
We can match you to a qualified, local insurance expert!
Further Reading
Here's what HR professionals are told to worry about most: FMLA, ADA, EEOC, DOL, OSHA, NLRB, FLSA, OFCCP, GINA, HIPAA, COBRA, Title VII, etc. Discipline, termination, layoffs, bullies, violence, EPLI, etc. Protecting ourselves fro...
Since I hadn’t been to a SHRM convention in a number of years, I felt it was my duty to attend one since it was occurring here in San Diego. After poring through the workshops, speaking to dozens of HR professionals and vendors, and roaming the ent...
Every once in a while, I amuse myself by reading The DIGEST Of Equal Employment Opportunity Law. If you're looking for some good bedside material, you can always link here. Here's what I learned from a perusal of this most recent Digest: If an...
In a case brought by the EEOC against the Fairbrook Medical Clinic, the plaintiff, Dr. Deborah Waechter, alleged four years of harassment by the sole owner of the family medical center in Hickory, NC. Apparently, the owner created a hostile work en...
The greatest risk any business, including yours, faces is lack of proper sales and marketing. With today’s commoditization of products and services, it’s the experience that tends to matter most. Those companies that produce the best sales and market...