Platt Perspective on Business and Technology

When and if it might make sense to outsource Human Resources 8

Posted in HR and personnel, outsourcing and globalization by Timothy Platt on February 21, 2013

This is my eighth installment in a series in which I discuss issues and considerations that would go into determining whether Human Resources functions and processes should be retained in-house, or whether they should be outsourced to third party providers – and if so for which services (see HR and Personnel, postings 134 and loosely following for Parts 1-7.)

I ended Part 7 by noting that:

• Capacity to readily monitor systems and processes in place, and not just as a matter of written and intended policy but as they are carried out in practice is essential. And this is where the potential challenges of in-house versus outsourced enter this story, and within the in-house paradigm locally distributed versus distant and centralized in-house. And managing this as a due diligence matter means maintaining positive operational control based on a clear understanding of what is being done and how and for whom, everywhere in the business’ organizational systems and for all of its personnel. And this brings me to the second, closely connected set of issues that I proposed as topic for discussion at the top of this posting: monitoring and tracking HR performance itself as a due diligence and risk remediation exercise.

And I turn to that here, beginning with some basic observations:

• For most Human Resources processes and their applications, consistency and transparency are vital. Individual employee privacy and confidentiality have to be protected but there is an overriding need for employees to see themselves as being treated fairly and consistently with others in their workplace, and without possible grounds for claims of bias.
• Business operations and processes, and internal methods carried out through third party providers can often be hidden from the hiring company in their details with only input and direct output visible, and this applies to outsourced HR and Personnel processes and their implementation as much as it does for any other types of business processes.
• A lack of transparency and resulting inconsistencies can arise in-house too. But these issues are usually easier to identify and characterize when everything is being done in-house then when they are outsourced.
• This clearly has due diligence and risk remediation implications where both consistency and demonstrable consistency are desired goals, and where opacity in the What and How can foster discrepancies in process and outcomes and at the very least create perception of unfairness. And this brings me to the point I cited above as topic for today’s posting: seeing and evaluating HR systems, and course correcting and evolving processes and practices in place so as to systematically lessen the likelihood of this bias.

The points of this discussion become particularly important here because most businesses and their Human Resources services in fact systematically and widely violate the basic principles of consistency and transparency that I have been discussing up to here and for at least one core functional area and with a range of impact that spans essentially their entire personnel rosters. I intimated at this when I wrote Part 7 of this series and I present and discuss it here: specific employee by employee salary levels.

• Most every business with employees and a headcount that go beyond that of a single owner, has at least something of a list of defined employee positions that need to be filled. And each of them generally has at least a loosely defined set of employee qualification requirements and a list of responsibilities that would have to be fulfilled to meet at least minimal required performance standards for employment.
• And bringing this into focus for purposes of this posting and discussion, most every such defined position also carries with it a set allowed compensation range, and with minimum, maximum and average salary levels that employees in those positions would hold. An employee, according to this compensation model, would never be placed in a position with the business at a compensation level below that minimum as determined for the position, and if their compensation were to rise to and exceed the maximum set, they would have to be promoted in order to stay within range – assuming they stay with that company.
• The difference between lowest and highest can be fairly big, and this is important as it means an annual salary increase does not automatically and always have to mean a promotion due to pay exceeding a set maximum. And the salary ranges in place for all employees can be and generally are adjusted up periodically to account for inflation and salary increases that are provided simply to maintain at least the same real income levels received.
• This is where things get interesting. There is often some overlap between the compensation ranges available for one position and the next level up (e.g. with some programmers at least potentially being paid more than some senior programmers.) When a new employee is hired (say a new senior programmer) the business generally seeks to bring them in towards the low end of their position’s pay range so they will not have to be promoted for at least a few years. A more junior level programmer who has been with the company a while might actually be getting paid more than the more experienced and higher level senior programmer they report to. And of course there can be significant salary differences between same level and same position type employees – and in patterns that do not necessarily match up with current job performance review scores.
• What happens if someone with access to this information as to who is getting paid what, gets careless and leaves a printout of it in the photocopy room and employees involved get to see it?
• That, I add is a very explicitly real world example that I have seen played out, and a lot of people were very upset as a result of it. In this case the salary list covered the entire Information Technology department and the HR staff member who made copies of this listing for a meeting was in a hurry and left the original in the photocopier – and for convenience they had used an IT department photocopier as it was closer and not blocked from use by a long line of other waiting users. So this posting is about consistency and transparency where that is what is needed, but it is also about confidentiality and opacity where that in fact is seen as required too.
• There is a reason why individual salaries can and do differ in this way. Most businesses seek to negotiate the lowest compensation package they can when hiring a desired best fit job candidate, and negotiations can lead to different starting salaries from day one that can diverge father apart as raises are set as a percentage increase over current salary. 5% of $80,000 is a larger number than that same 5% level but of only $65,000, and annual increases cumulatively expand the differences – and even without additional exemplary performance based increases being added in.
• There is a reason why individual salaries received by a business’ employees constitute one of that business’ most closely guarded secrets – and this is not just to limit what competitors would know when trying to hire away best employees. This is also to limit conflict and ill-will as current employees compare notes and see how their compensation levels compare with those of their colleagues.

One of the core, foundational reasons why consistency and transparency are so important is that inconsistency and opacity do not work, long-term and people do find out. HR and business policy in general seek to preserve privacy and confidentiality over personal employee information and for a variety of reasons. That is required by law in most countries and legal jurisdictions and it is good business practice anyway. Salary and other compensation details are seen and rightly so as protectable in this way. Many and even most businesses conflate that with a strategy to keep their overall payroll expenses down and the result is this opaque and unbalanced policy and practice.

And with that as a pervasive if negative-example case in point, I turn back to the issues of in-house versus outsourced. The overall goal of HR managed and tracked processes might be transparency and consistency but this takes place in the context of need for individual confidentiality and privacy, and both to protect the individual employee and as this situation highlights, to protect the business too. Monitoring and tracking, and course correcting and adjusting as needed are important and even vital. Any outsourcing agreements with HR or related providers have to allow for and even actively support this.

If a business is to violate, and even systematically and pervasively violate the core principles of operational and process consistency and transparency it needs to have very specific reasons for doing so. And it needs to know where this is being done and where there is operational risk from discrepancies arising and certainly where any veil of opacity might be lifted, intentionally or otherwise. And where differences do of necessity arise as for example where employees based in different countries get different benefits such as health insurance coverage, it is important that this be understandable and that it seem reasonable – and that it not be just a source of potential unpleasant surprise if someone leaves the wrong papers in the Xerox machine room. Identifying possible friction points that can arise here through outsourcing and resulting loss of hands-on control and oversight need to be considered when contemplating any business process outsourcing, and that certainly applies here for Human Resources outsourcing.

I am going to finish this series here at least for now, though I fully expect to continue several lines of discussion that I have at least touched upon in these postings. Meanwhile, you can find this and related postings at HR and Personnel and also at Outsourcing and Globalization.

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