Why CFOs Should Rethink Their Human Capital Strategies

As companies have struggled to maintain sound financial health through continued economic volatility over the past few years, they have asked more of their CFO than ever before.

Global economic volatility is persistent, and although inflation has fallen, it remains stubbornly high. Despite a strong labor market, the threat of a recession looks more dire by the day. That’s why CFOs are looking for ways to safely reduce their balance sheet liabilities without disrupting operations, reducing sales or adversely affecting the quality of customer service.

CFOs are strategic partners who can help companies use capital more efficiently and manage risk – an especially important skill set now. One area where CFO insights are becoming increasingly important is human capital management. A company’s workforce is both its biggest expense and its most powerful revenue engine, which is why CFOs are increasingly working alongside chief human resources officers to ensure employees are as engaged and productive as possible.

Now is the time for CFOs to look at their balance sheets and determine how well resources are being allocated. In many cases, the CFO finds that their human capital investments are not being put to the best use, a costly mistake that leaves the company and its employees in a weak financial position.

The role of human capital in your financial strategy

CFOs work with CHROs to assess and respond to the effects of pandemics, high inflation and other forms of economic stress that employees are experiencing. Ninety-six percent of companies say that ensuring employee well-being is an organizational responsibility, and one of the top-ranked areas “most impacted by employee well-being” is financial results. From the success of sales teams to the quality of customer service, employee morale is a key driver of revenue and customer retention.

The health of your workforce is inextricably linked to your company’s financial performance. Gallup estimates that employees are actively engaged value Companies lost $7.8 trillion in lost productivity worldwide. Meanwhile, at a time when only one worker is active job search For every two open positions, employee engagement and satisfaction are competitive imperatives. It is clear that the CFO cannot ignore human capital management as a critical financial priority.

While many traditional aspects of the CFO role (such as careful accounting and compliance with tax laws and regulations) are vital to maximizing revenue and minimizing risk, there are many other ways to reduce costs and improve workforce health.

Are investments in your workforce paying off?

As finance leaders carefully evaluate their balance sheets, they must consider whether the company’s spending on human capital is generating sufficient ROI. For example, benefits are among the largest human capital expenditures, but too many companies waste money on benefits that employees don’t use (at least not fully). PTO is a repeat offender here because it is often underutilized or used in a way that actually increases stress and lowers morale in the workforce.

2022 year survey found that employees had an average of 9.5 unused vacation days at the end of 2021, while nearly a third of those surveyed said those days would not carry over to the following year. This means that a large number of vacation days that companies have earned are forfeited each year. And even when employees do take PTO, they remain tied to the office: 49% say they work at least an hour a day while on vacation, and 24% work at least. Three hours each day. At a time when 58% of employees say that work is the most important cause of their mental health problems, it is a bad sign that they are not taking the time they deserve.

According to the US Bureau of Labor Statistics, benefits account for nearly a third of total compensation costs (and a significantly higher share in sectors such as state and local government). CFOs need to make sure their organizations are spending that money wisely.

How CFOs can reduce balance sheet liabilities

but millions As vacation days are lost each year, many states (such as California, Colorado, and Illinois) require companies to account for unused PTO and compensate employees for unused time. This means that unpaid PTO balances can accumulate over time, leaving companies with significant financial liabilities when employees decide to cash out. CFOs should pay close attention to these liabilities and minimize them as much as possible.

Some employers have tried to avoid this problem by offering what is disingenuously called “unlimited PTO.” Many employees with unlimited PTO will tell you that there are actually strict limits on how much vacation time they can take. Employees with unlimited PTO leave 10 days off per year, far less than the average of 17 days. When employees don’t get enough time off, companies increase the risk of burnout and turnover. A more transparent and sustainable way to meet employee flexibility demands is to provide convertible benefits that automatically convert unused vacation time into other predetermined financial rewards, such as contributions to a retirement or health savings account.

Given how much companies invest in benefits packages each year, more CFOs are looking to explore innovative new ways to compensate employees and strengthen their balance sheets. The strategy is part of a broader shift toward more strategic responsibilities for CFOs, as well as greater collaboration across the C-suite to build a healthy workforce.

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