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Human Resources Management - A Risk Based Approach

There is nothing we do in life that doesn’t come without some modicum of risk. Business is no exception, with business risks continually needing to be managed. Take cash flow as an example – it is the life blood of any business and needs to be managed carefully.

Employing people is no exception and a risk based approach makes a lot of sense. If you think back to all the people you have worked with over the course of your career, you will find that the majority of them have been pretty good to work with and have done at least a good job. However, a small percentage, generally around 2%, will have caused problems – either they are not good at their job or behaviourally they just don’t fit the organisation the way the others do.


According to the Oxford Dictionary, the definition of risk is "an act that brings about an unpleasant or unwelcome event". These "2%ers" bring unwelcome and unpleasant events to the business - sometimes on a daily basis. For example, the good employees have to pick up the slack from an unproductive employee. At other times, they may have to correct mistakes from people who don’t take care with their work. Alternatively, they have to manage their frustrations because of another employee who just wastes their time and energy or aren’t respectful of others.

The traditional approach to managing people is a one size fits all. People systems are built around the lowest common denominator (the 2%). Take performance management systems as an example. All employees whether they are a talent in the organisation or a 2%er are treated exactly the same.

This is not a good approach for managing risk. The information contained in the performance appraisal form can often be contrary to the information needed to defend a claim of unfair dismissal should an employee’s employment be terminated because of poor behaviour. In fact these systems can create higher risk in these circumstances.

Whilst it is unlawful to discriminate between employees, a contemporary approach to performance management is to manage like groups with like groups. A conversational approach for the 98% of people who do the right thing to keep them engaged, and a more robust fact driven "problem-solving" approach for the 2% who cause a problem.

Generally, 98% (or thereabouts) of employees are low risk. There are some simple things that can be done to keep these employees engaged. Often these things do not cost a lot of money. It is the conversations that are held about how they are going, where they can improve and any training and development that is on offer for them. Other little things such as non-monetary reward schemes, social get-togethers or similar can also help.

However about 2% of employees can be high risk. These are the ones who could take action in an industrial tribunal. Claims of unfair dismissal, adverse action or similar can occur. If this happens, the costs start mounting up. The legal fees can be quite exorbitant. Then there are the costs that can be awarded against an employer by the court as well as damages or other civil penalties.

Employment risk, like other business risk, requires early intervention. A recent case where the employer did not act early enough cost approximately $300,000. The employer faced two adverse action claims and an unfair dismissal claim even though the employee was identified as high risk during his qualifying period (the period of employment where unfair dismissal claims cannot be made). Whilst the matters never went to court, settlement of the claims through the unfair dismissal mediation process resulted in the employee receiving a substantial sum to drop all the claims. The legal fees and other costs, such as management time, also added up.

Therefore employment risk needs to be proactively managed. Hiring the right employees – those that fit (skill and behaviours) the organisation – is paramount to reducing cost (time and money) in a business. Where a 2%er slips through the cracks, it is important that they be managed early as soon as the risk starts to increase. Proactively managing risk is important to a business, particularly in relation to employees.

Article by Di Armbrust Outcome HR Pty Ltd Di Armbrust

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