If you’re like many CFOs, your role includes overseeing many human resources functions beyond management of your finance and accounting team. Human capital, talent, workforce, personnel, human resources, or just HR – no matter which term your organizations uses it comes down to the same issues: recruiting, training, and managing everyone who works for your organization and the associated short- and long-term costs.
However, there’s more to HR than managing costs. CFOs are strategists, and in today’s competitive labor market, your company’s growth is tied to retaining and recruiting top talent. That means putting together a competitive compensation and benefits package while creating long-term strategies to develop essential leadership positions.
In this post, we’ll explore why CFOs may take on HR duties as well as four reasons why it makes sense for a modern CFO to oversee HR – and a couple of situations in which CFOs may need to take a step back from HR.
CFOs and HR: Four Reasons it Makes Sense
The typical CFO job description may not include the management of human resources. However, that’s precisely what many CFOs are doing.
As a CFO during the Recession, cost-cutting was paramount to your company’s survival. Eliminating an executive position often meant yours remained while HR was cut. Your traditional role was altered as you took on HR responsibilities; there was just no one else left to do the work.
You were in good company: about one-fifth of CFOs surveyed in 2011 had taken on more HR duties during the previous three years, according to a survey by Robert Half Management Resources.
Working for an early-stage company is another route CFOs take to HR. Newer companies often lack the financial resources to add an HR executive and with few employees to manage, there really isn’t a need.
Regardless of how you got here, as CFO you are now managing HR. While lower-level HR staff handle job postings, onboarding, payroll, and forms needed to maintain compliance, you handle more strategic HR duties:
• Putting together a competitive but cost-effective benefits package
• Developing employee performance evaluations process
• Strategizing and building an executive team
• Keeping the organization in compliance with employment law requirements
A CFOs skillset is a good fit for these and other aspects of HR. We’ll discuss a few.
1. Employee compensation and benefits costs are going up.
With labor and benefits costs comprising an ever-growing slice of your budget, as the person charged with financial forecasting and budgets, a CFO’s management of HR can make a lot of sense.
As CFO, your job is to manage the finances and watch the bottom line. Rising healthcare costs, as well as increased wages in a competitive job market, will continue to impact that bottom line. As CFO you’re likely spending more time analyzing expenditures and devising ways to cut those costs.
That’s not an easy task: health benefits costs increased by 3.6% in 2018, according to Mercer’s “National Survey of Employer-Sponsored Health Plans.” Smaller employers – those with 10 to 499 employees – took an even harder hit with an average increase of 5.4%. The 2019 increase is expected to rise by 4% this year, continuing to outpace both workers’ earnings growth and inflation.
Moreover, reducing costs isn’t going to get any easier: data from HealthAffairs indicates the cost of healthcare goods and services will continue to rise through 2027 and at a faster growth than we’ve experienced over the last ten years.
It’s no wonder that the Mercer report also noted midsized and large employers ranked “managing high-cost claimants and “creating a culture of health” as top strategies for the next five years. Considering the per-employee average healthcare cost is nearing $13,000, keeping that number from increasing is critical.
Other benefits that need financial management include those not traditionally under a CFO’s administration, such as employee training expenses, and those that are, such as retirement plans and employment claims legal expenses.
2. Financial know-how is necessary during negotiation with benefits vendors.
A CFO’s understanding of financial lingo mean involvement during negotiations with benefits vendors is critical to getting the most bang for your buck. CFOs may also better understand modeling tools offered by benefits vendors because financial modeling is a strength for financial executives.
Using a combined finance and HR team approach to negotiating benefits packages and costs will result in the best options for the budget and employee needs.
3. CFOs are data-driven and compliance- and process-oriented.
A CFO’s strengths include being process-oriented and making decisions based on collected data. Those qualities are needed in HR but are often overlooked by busy HR professionals preoccupied with day-to-day tasks.
A survey by Launchways vendor partner Paycor noted 43% of small and medium-sized organization (SMBs) don’t track costs associated with recruiting, hiring, and onboarding new employees.
Creating a consistent process for reviewing, rewarding, or removing employees is essential no matter your company size. Then, your data analysis skills can make sense of data collected to find opportunities for efficiencies.
Even when processes are effective, without the data to back up their claims, HR may have a difficult time convincing their executives that employee engagement dollars are money well spent. That’s particularly true if HR hasn’t made developing C-suite relationships a priority.
Process-driven and already in the C-suite, a CFO is often an organization’s best option for this combined role of tracking and analyzing HR spending and communicating the value to executives.
4. CFOs develop long-term strategic plans which include talent and leadership.
When you took on HR duties during the Recession, it’s likely you focused on obtaining the best results with the fewest number of employees. You made strategic talent decisions based not just on the cost of talent and benefits, but also on getting the most productivity for your money.
Talent issues have changed dramatically since then. Now, retaining employees is crucial to the bottom line as companies compete for a shrinking pool of available, qualified candidates. In fact, a 2019 Deloitte survey of CFOs found that 80% rated leadership as a high priority for their organizations.
However, you know it’s not all about the money: low unemployment and an aging population mean fewer qualified workers available to help your company grow. Compensation, benefits and perks, opportunities, and culture are all part of the mix.
As a CFO, you likely either manage or work with the CEO to manage the creation of essential strategic responsibilities such as developing a leadership team and defining employee roles and objectives as well as managing the entire team’s performance.
Cases Where a CFO May Need to Step Away from HR
As your company grows and becomes more complex, there are good reasons to hand over some of the HR duties you’ve assumed.
1. HR is taking up too much CFO time.
If non-urgent and non-strategic issues such as employee discipline or hiring are taking up too much of your time, it might be time to hand over some of your HR duties to a strategic HR partner.
Even if you offload some HR responsibilities, you can continue to maintain oversight of benefits and insurance and lead your organization’s long-term strategic talent retention and recruitment efforts. With the insight you gained tackling less strategic HR duties, you can continue to advocate for more tools to capture and analyze HR data as well as training, benefits, and perks that result in improved employee satisfaction, engagement, and productivity.
2. It’s time to hire someone with different people skills.
Another reason for stepping away from HR can be admitting that you may not have the necessary people and communication skills needed to handle employee issues one-on-one. It’s not that you’re a lousy communicator, it’s just that employees may assume as CFO you’re only interested in finances, not people.
Alternatively, as finance chief, you may be excellent at presenting high-level financial information to executives and your board but struggle to explain personnel issues in terms other than dollars and cents. If your organization can hire an HR professional whose people-focused skillset complements your more analytical side, it could be a sound business decision.
Increasing compensation and benefits costs continue to affect the bottom line. However, with a shrinking pool of qualified candidates, retaining and recruiting employees is a top priority. A CFOs financial expertise and ability to model different scenarios are critical to creating effective HR processes at any business.
Because CFOs often work with the CEO to strategize for growth, in today’s talent shortage, understanding and planning for talent retention and recruitment is a top priority. An informed and involved CFO can also advocate for employees when there is no HR executive to do so.
As companies grow in size and complexity, CFOs who are too involved in HR should advocate the hiring of an HR executive or outsourcing more HR duties. That goes double if a CFO’s communication skills are better adapted to the board room than conversations with employees.