Over 100 Canadian HR and risk professionals exposes gaps, challenges, and opportunities for differentiation
Whether it’s runaway inflation wreaking havoc with compensation budgets, a pandemic with staying power, labour shortage, or workforce exhaustion, there is no shortage of issues keeping HR up at night.
The area of people risk is not new, but efforts to define and measure key risks, and accept their inter-connectivity, may be new to HR leaders. That’s why Mercer Marsh Benefits (MMB) has conducted a global people risk survey collecting feedback from more than 2,500 HR and risk professionals. This research defines people risk as the business risks generated by how you attract, manage, equip, motivate, and retain your workforce.
Now in its second year, more than 100 Canadian HR and risk professionals were asked to rank 25 key people risks based on likelihood and severity of impact.
The results are not just fascinating; they uncover several surprising blind spots that will need immediate attention. However, it’s not all doom and gloom. There are clear opportunities ahead for both HR and risk managers to not only mitigate challenges ahead, but differentiate their organizations.
Mental Health Risk Still on the Rise
Mental health was the only health and safety-related risk to make the top 10 in this year’s people risk survey.
Fortunately, HR and risk managers both view this challenge with equal trepidation with a rank of second and third, respectively. The concern is warranted. More than a third of claims under employer-sponsored disability plans are for mental illness. The employee toll from the pandemic has exacerbated feelings of isolation and exhaustion. Employee mental health has also been eroded by factors we cannot control, including the conflict in Ukraine, the impact of climate change, and social fractures.
Unfortunately, four in 10 organizations admit not addressing employee mental health risk. It’s time for HR to review their well-being strategy and programs with a focus on mental health.
Beyond the mental health risk ahead, it’s also worth noting that Canadian organizations only ranked pandemics and other communicable health conditions as 14th. Does this lack foresight? This pandemic and its associated wear on our workforce is not yet behind us. HR needs to work with their risk counterparts to keep adapting HR programs since employee needs and expectations keep evolving.
Navigating Governance and Financial Risks
Of the top 10 people risks, four fall under this pillar. Legal, compliance, and financial practices are new in the top 10, reflecting concerns over whether people programs are compliant with legislation.
Increasing health, risk protection, and well-being benefit costs are high up the agenda, reflecting a rise in insurance costs (as a result of increasing mental health claims, pent-up demand from the pandemic, and rising inflation). Despite that, only 31 per cent of Canadian organizations currently have an effective, articulated cost containment strategy encompassing plan design, health risk management, and insurance placement to manage benefit costs for the next three years. The absence of a strategy to contain costs could force organizations to introduce less appealing cost-saving measures such as benefit reductions – with subsequent knock-on effects on employee attraction and retention. We suggest proactively developing a three-to-five-year strategy including redesigning programs for value, which means redirecting funds towards benefits that employees value the most.
Canadian organizations are also lagging when it comes to recognizing administration and fiduciary risk (ranked ninth compared to second globally). With more benefit providers, more digital well-being solution vendors, more technology-based admin systems, and more third-party administrators, there are increased margins for error and data breach risks. Ignoring this risk may, at best, lead to a governance lapse and financial costs and, at worst, damage your brand. Periodic audits are necessary to ensure good governance.
Accelerated Digitization Creates Risks
Cyber security and data privacy are the top risk in all geographies, including in Canada. Cyber risk is not just a technology risk; it’s a people risk. In fact, 85 per cent of breaches have a human element. Two pandemic-related factors are adding to the risk: high staff turnover (two out of three employees are reported to take files with them when leaving their employer) and remote working (which makes it harder to keep systems secure). As such, cyber and talent risks are connected. We suggest an analysis of your technology systems and employee attrition patterns, to identify any exposures, particularly upon employee exit.
Meanwhile, HR technology obsolescence was ranked 11th. Yet, seven in 10 do not have effective digital-first benefits administration and other talent management processes. By not investing to counter technology obsolescence, at best organizations could fall behind in their employee experience, and at worst could be exposed to data breaches. The absence of a digital first HR and benefit programs can make a well-intended employee value proposition (EVP) and culture seem dated. In fact, six in 10 employees who felt their experience deteriorated during the pandemic had no access to benefits through technology. Consumer-grade delivery of benefits is not only a powerful talent tool, but it can be more cost-effective (at a time when increasing benefits costs are ranked fifth as a risk). HR needs to regularly evaluate the way benefits are being delivered to employees.
Competition for Talent Seen as Greater Risk
Attraction, retention, and engagement earned the fourth spot for HR this year. This is not surprising as the competition for talent remains intense. What is surprising is risk managers ranking attraction and retention as second. Risk managers are seeing that the inability to attract and retain is very much an operational risk. We are seeing this materialize, for instance, in airport disruptions and shuttered restaurants who cannot find cooks or serving staff. Remote work, coupled with many employees re-evaluating their careers, is resulting in turnover and the tightest labour market in memory. Mitigating this risk requires an EVP. Only 25 per cent of Canadian organizations currently have a competitive EVP in place. HR needs to work together with risk managers to refresh EVPs, covering all elements of total rewards, with a focus on flexibility.
Beyond talent recruitment and retention, risk related to the changing nature of work ranked third for HR leaders, but only 12th for risk managers. HR’s response is no surprise given that the move to remote working and increasing automation may require new skillsets and new approaches to attraction and retenion. It is surprising that it did not make the top 10 for risk managers, given the challenges with labour disruptions. HR needs to work more closely with their risk counterparts in adapting to the changing nature of work. Inaction here affects more than people – it affects productivity and business continuity. HR policies and benefits need to be re-evaluated to ensure they are in-step with hiring new skillsets, remote working, and employees’ expectations for flexibility.
Are Environmental and Social Risks under the Radar?
Canada was the only country not to have an environmental and social risk rise into the top 10 risks, coming in at 17th. Underestimating this risk is a blind spot. According to Mercer’s ‘Global Talent Trends’ survey, 97 per cent of employees expect their employers to have a sustainability agenda while only one in four HR people have a stated plan. Organizations that do not put sustainability at the core of their operations will lose the competition for talent, especially with the younger workforce. As well, external stakeholders such as customers, investors, and suppliers will want to partner with organizations that have a formalized ESG (environmental, social, and governance) position.
Similarly, diversity, equity, and inclusion (DEI) risk ranked low for both HR (15th) and risk managers (23rd). Further, only 51 per cent of Canadian organizations are currently addressing this risk. This is very surprising given the constant corporate and media attention paid to DEI. Not unlike climate change, not prioritizing DEI updates to HR programs and policies could lead to loss of competitiveness and brand damage. All stake- holders have high expectations when it comes to employers weaving diversity, equity, and inclusion into their culture and programs. Your HR and benefit programs need to be evaluated for DEI readiness. This may include adding benefits such as gender affirmation coverage and family building benefits (e.g. fertility coverage). It also means ensuring that disadvantaged employee groups are not left behind.
People risk is an evolving area, with more complex risks emerging all the time. Navigating these risks will require all stakeholders to work together to assess their likelihood and impact, but also accept their inter-connectivity. When that happens successfully, organizations and their employees alike will reap the rewards.
Guy Vachon is a partner at Mercer Canada.
