Cost Reduction: With or Without Headcount Reduction Roselyn Sands Thomas McCabe

1. Context van de opdracht (Remember Darwin?) Survival of the Fittest: How « fit » are you? Do you « work smart »: Right person/Right Skills/Right Place/Right Time? 1. Context van de opdracht

“Fitness” Requires Cost Competitiveness 68% of organizations are under severe pressure to reduce HR costs* 1 in 4 Organizations truly understand the full HR cost baseline* 25% reduction of operating costs are typically achievable on large scale HR transformations* * Source: Corporate Leadership Council 2011

Examples of Human Resource Costs ‘Visible’ Human Resources Costs Human Resources / Payroll Costs Processes, Policies, Program & Service Delivery Budget Staff Time Spent on Human Resources Administration Excessive Vendor Fees ‘Invisible’ Human Resources Costs Added Costs Lost Productivity Lost Revenue Capital Utilization Lost Revenue Due to Lack Of Training Lost Productivity Due to Absenteeism Benefit Coverage for Ineligibles Ineffective Human Resources Service Delivery Model Misaligned Compensation Programs Payroll Errors

HR Cost Reduction with or without headcount reduction – That is the question! Employment costs HR functional costs Cost of employment Resources HR service delivery Vendor management Salary costs Tax efficient compensation Change pay mix Cost effective HR policies Redundancies Review working practices Refocus employees Address absenteeism and turnover Policy and process efficiency HR structures Roles and responsibilities Compliance versus discretionary activity Value of services delivered Consolidation of multiple vendors

HR Costs Ideas Opportunities Reduce overtime cost Address working patterns and organization to reduce overtime use Reduce social security taxes through / of tax effective compensation Cost effective compensation design: Benefits in final (car) Profit sharing agreements Savings plan Think benefits too (not only compensation) Evaluation of current benefits leading to social security savings: Lunch vouchers Supplementary pensions Laptop/Mobile phone/Internet Cost efficient HR policies Evaluation of current HR policies to ensure they take advantage of tax effective planning opportunities: Hiring policy Termination policy Global mobility policy

Human Resources Ideas Opportunities Reduce contractors and temporary headcount Undertake analysis of non-permanent headcount Review cost saving opportunities and understand any resourcing issues that might arise Introduction of innovative working practices Review of working time arrangements to assess opportunities to implement flexible or reduced work hours or career break Refocus employees Redeploy employees in areas where shortage of resource needs. Review resourcing needs and roles and responsibilities to understand where there may be redeployment opportunities Assess where activities and training may be required to prepare for redeployment Address turnover and absenteeism issues Understand reasons for absenteeism and employee attrition (eg, leavers interview) Develop mitigation activities to address these issues Redundancies Headcount reduction Careful planning and preparation is essential Information and consultation requirements Calculation of budget for redundancies costs Readiness of the business to deal with an up turn in the market

HR service delivery Levers Hypotheses Opportunities Introduction of efficient and effective HR processes reflecting best practice Back-office efficiencies and savings could be achieved in the HR function through: Policies and process: efficiencies and effectiveness in the delivery of HR processes with increased automation and consistency where appropriate Structure: Changes to the way the HR function is structured and located including shared services and outsourcing options leading to cost savings through wage arbitrage Roles: Moving to best in class HR to FTE ratio and increasing line management responsibility leading to headcount reduction Review of HR function including: Feasibility study for introduction of HR shared services, outsourcing and relocation of processes to low cost locations HR process assessment to review effectiveness and efficiency against best practice Assess HR non-headcount spend to review value for money and ensure the HR function is optimizing return on investment Review of current HR structure and roles and responsibilities. Comparison against internal and external benchmarks and ensure work is being undertaken at the appropriate level Alternative HR deliver models including SSC, outsourcing and low cost locations Implementation of an appropriately structured HR function Compliance versus discretionary activity Quick win cost reduction opportunities through ceasing all non business critical activity Review non headcount costs and assess where non business critical activities are occurring Undertake ROI assessment to ensure it is delivering against objectives

Manage HR vendors effectively Levers Hypotheses Opportunities Evaluation of HR vendors Evaluation and proactive management of HR vendors may lead to a reduction in costs through: Consolidation of multiple vendors Lower cost providers More effective / efficient service HR vendor review (including expatriate relocation) – efficiency and effectiveness Organisations commonly use multiple HR vendors across function and operating companies. Making the most of potential economies of scale to consolidate providers can provide some substantial cost saving opportunities. Review HR vendors in place across different groups Consider length of contracts in place including break clauses and potential penalties Understand interest in consolidating providers