People drive business success HR Risk: managing risks that matter A - PowerPoint PPT Presentation

People drive business success HR Risk: managing risks that matter A meeting with IIA – Orange County 13 September 2012

Discussion agenda � People related risk in today’s environment � HR risk universe � Hot topics � How leading companies manage HR risk � Questions HR Internal Audit Discussion Page 2

People related risk in today’s environment HR Risk management creates a significant competitive advantage. Human Resource functions that understand risk implement effective processes and controls to manage the risks that matter, anticipate the impact of a rapidly changing business environment and drive business success. Megatrends in HR Risk affecting business success today ► Sub-optimal results due to misalignment of Talent and business needs ► Ever-increasing retirement fund deficits ► Increased oversight and governance of remuneration ► HR compliance challenges from accelerating regulatory change ► Inability to implement a genuinely global business model ► Under-investment in HR systems and resources HR Internal Audit Discussion Page 3

People related risk in today’s environment Market reach HR challenges Trends in successful organizations… • Right person, right place, right time • Global organizations aligning talent management programs with strategic business • Regulatory diversity objectives • Global rewards strategy • Expanded focus on international reporting through payroll, labor law, and immigration • Leveraging workforce data • Talent management programs, IT systems and processes integrated globally, regionally or by business unit • Standardization of global operating • Increased suite of mobility policies reviewed regularly models collides with national and sub- • Inclusion of international assignments in their overall talent management framework national regulation and increased suite of mobility policies reviewed regularly • Amplified risk from cross-border • Co-ordinated identification and management of a human resource risk across multiple mobility internal business functions, and heightened wider corporate awareness Are the careers of internationally mobile employees managed on an enterprise-wide basis (as part of an 75% overall strategic talent management program)?* 20% of 350 Global companies surveyed had changed or of expatriates have expanded their suite of left their employer mobility policies within the within two years of last 24 months, and over repatriation ** half were planning to do so in the next six months** The inability to deploy and compete in a global market will impede growth * Source: EY - Managing today’s global workforce ** Source: EY Global Mobility Effectiveness Survey 2011. North America only HR Internal Audit Discussion Page 4

People related risk in today’s environment Operational agility HR challenges Trends in successful organizations… • Pace of regulatory change • Formal global pay policies and increased Board oversight resulting in greater flexibility • Diminished employee engagement to respond quickly to local regulatory changes • Data security and Integrity • A standardized approach to understand and meet the appropriate compliance • Leveraging HRIS technology requirements • Integrated approach across corporate functions e.g., policy compliance, payroll, legal • Compliance with global tax and social etc. security reporting • Internal HR processes and implementation of appropriate controls to ensure • Increased corporate audit focus on HR compliance with internal audit procedures processes and global compensation • Linkage of the impact of legislative changes to HR strategy in order to validate that programs both cost competitiveness and value to the employee is maintained • Increased administrative and financial costs resulting from additional employee tax levies Massive increase in EU Directive on domestic legislative Social Security change around 73% 378 23 employee taxation 58% 355 Golden age of technical change of companies cited Tax Information Exchange inadequate HR of HR leaders Agreements have expanded compliance risk cited management New employment rapidly during the last three years as a major area HR compliance as OECD levies to from 23 to over 378 agreements of concern** one of their Article 15 supplement tax now in place globally top three issues* changes and social security The pace of legislative change is increasing risk and uncertainty * Source EY Global Human Capital Conference Survey 2011 ** Source: EY Global Mobility Effectiveness Survey 2011 HR Internal Audit Discussion Page 5

People related risk in today’s environment Cost competitiveness HR challenges Trends in successful organizations… • Pension funding gap • Use of shared services and centers of excellence driving consistency and reducing HR • Disparate HR systems process costs globally • Ineffective service delivery model • A shift from defined benefits to defined contribution plans • Increased regulatory complexity • Performance of pension asset liability matching • Gathering accurate employee data for • Improved labor and stakeholder relations strategic decision making across • Aggressively harmonized human resource and payroll systems multiple systems • HR services aligned with key business needs and objectives Pension underfunding Before center of excellence After center of excellence can have a severe France France impact on business Mexico Mexico Switz Switz continuity Czech Czech Canada Canada Germany Germany Center of Excellence Long term bond yields have fluctuated USA USA by 2.5% since 2000 resulting in a 50% Italy Italy movement in liabilities UK UK Australia Australia Yield on global equities since 2000 has been 4.5% per annum against Sweden Sweden Japan Japan an expected return closer to 9%. Brazil Brazil Life expectancy in Western Europe HR systems can be the last in line for corporate investment, has increased by 7 years since 1980 resulting in a 20% increase in liabilities* compromising service delivery HR Internal Audit Discussion Page 6 * Source: Hewitt 2009 study

People related risk in today’s environment Stakeholder confidence HR challenges Trends in successful organizations… • Data privacy • HR data integrity and security elevated to a strategic level • Executive regulatory compliance • Engagement with shareholders and proxy advisors in preparing remuneration • Stakeholder scrutiny of executive disclosures and for annual meetings remuneration • Reworked remuneration plans linking pay to business strategy, company • Managing low 'yes' votes during performance and shareholder value shareholder meetings and control • Established formal global pay policies and increased Board oversight and flexibility to possible reputational damage respond quickly to local regulatory changes • Pay plans are not performance • HR Risk Management embedded in performance metrics and goals oriented leading to dissatisfied shareholders and media scrutiny • Adhering to differences in global executive remuneration regulation with associated compliance risk • Pervasive and sophisticated attacks and penetration of HR-related systems 47% 73% Say on pay Pay for legislation: performance 47% of companies cited their Only 73% of IT professionals measures: greatest challenge in managing surveyed have a clear US: Dodd-Frank Act (2009) compliance and risk was understanding of privacy Germany: VorstAG (2009) inefficient HR processes or lack laws impacting their Australia: 2 Strikes Law (2011) Influenced by shareholder interest of resources* organization** UK: Executive pay reform (2012) groups e.g., ISS in UK, Australia, US Executive remuneration and data security are in the media spotlight * Source: EY Global Human Capital Conference Survey 2011 ** Source: EY Global Information Security Survey 2011 HR Internal Audit Discussion Page 7