1. January 15, 2009
Keys to Success in Public
Sector HR Restructuring
Michelle Lewis-Blossman, Houston
Jim Sowers, Houston
www.mercer.com

2. Introductions
Mercer presentation team
Michelle Lewis-Blossman, Principal, Southwest Region of Mercer Human Resources Consulting
Michelle is a Principal and Market Representative for Mercer’s HR Effectiveness consulting practice.
She has 15 years of professional experience working with public and private sector companies and
organizations in various stages of their lifecycle from start-ups, healthy, mature companies to those that
require restructuring and turnaround. Prior to joining Mercer, Michelle was a Director for Alvarez &
Marshal’s Public Sector Restructuring practice, where she served in interim human resource roles for
clients facing severe financial and operational distress. Her primary focus was on cost containment and
cost reduction within the HR function.
Jim Sowers, Global Human Resource Effectiveness Segment Leader of Mercer Human Resource
Consulting
Jim is the Global leader of Mercer’s HR Effectiveness consulting practice. He has more than 25 years of
professional experience that includes a mix of practice leadership, project management, client service,
and academic activities. Prior to joining Mercer, he was the national managing director of Buck
Consultants’ HR Management practice, a regional service leader of Deloitte Consulting’s Organizational
and Change practice, as well as the firm’s competency leader for organization strategies. Jim was also
managing principal for Towers Perrin’s Houston office, and regional leader for the firm’s Strategy and
Organization practice. He was also a principal with Holland and Davis, a Houston-based management
consulting firm, and the general manager for International HR Development Corp.’s energy sector
consulting group. He began his business career in finance with Citicorp and ADP, Inc., and in consulting
with Arthur Anderson.
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3. Desired outcomes
By the end of our session, you will have:
A framework to review your HR department;
A list of potential steps to take to examine sources, reduce uses and
increase value in your HR Department;
A sample case study; and
A list of potential tools and resources to assist you.
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4. Setting the global context for public sector organizations
GAO issued multiple warnings about
federal fiscal crisis
– Minimal reform programs underway
Federal slowdown in domestic spending
State budget deficits driven by housing
crisis and increasing costs in state health
care
Global
credit
– 20+ states face fiscal deficits of $34B
Housing crunch
or more
markets
Mortgage
decline
crisis
Stock
Job
Limited availability of capital
market
cuts
volatility
Global
Volatility of the stock market
recession
Increasing community and tax payer
pressure
Industry culture of late adopters
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5. In the absence of strategy, action may be driven by bad news
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6. 2009 will be tougher than 2008; 2010 recovery will be slow
Surviving (and thriving) in uncertainty requires change
Financial and trade
protectionism may increase
Emerging markets
still have appeal, but
growth is declining
Changes in
consumer
More government Impact of
behavior
intervention and credit crunch
re-regulation is still ahead
Unemployment is
rapidly deteriorating
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7. Economic crisis adds new urgency to managing human capital
Outsourcing
Executive pay
Employee Health Outsourcing
Executive pay
Employee Health
“The financial crisis and global
Germany, Sweden,
“Australia,
“The World Health Organization recession will accelerate adoption
Switzerland, UK and US are
projects that by 2015, about 2.3 of global outsourcing and
leading a global movement to
billion adults will be overweight offshoring as strategic business
Unemployment curb executive pay.”
Unemployment and more than 700 million will be tools as organizations respond to
obese.” economic adversity with a forceful
“The average unemployment rate push toward cost-reduction.”
in the OECD area, estimated at
5.9% this year, is forecast to
climb to 6.9% next year and reach
Investment management
7.2 percent in 2010.” Investment management
Retirement funding
Retirement funding
“The current economic environment has led to falling
returns from commercial real estate, a sector that
pension funds are more exposed to than any other
“The financial crisis wiped
alternative asset class and where global assets
over $4 trillion (€3.2 trillion)
Healthcare managed on their behalf reached over US$512 billion
Healthcare from global pension assets
in 2007.”
between January and
“Total health-care costs October, according to the
under current policy will OECD; pension fund returns
nearly double across the Downsizing across the OECD are falling
Downsizing Employee savings
developed nations from the by an average of more than
Employee savings
current 6.7% of GDP to 20%.”
“Only 47% of the large companies engaged in major
12.8% by 2050.”
downsizings actually met their cost reduction goals..
“One in five workers have
54% of companies surveyed hired back many of the
reduced the amount they
people they laid off…in the past recession,
save into a pension because
shareholders actually punished rather than rewarded
of the credit crunch.”
companies involved in the biggest job reductions.”
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8. Economic stress impacts business segments differently
Actions will vary based on business conditions
Economic Impact on Performance
So far, so steady Bend, but don’t break Hardest hit
Example Players Example Players Example Players
− Public sector − Consumer staples − Financial services
− Low cost retailers − Pharmaceutical − US auto industry
− Select global companies − Airlines
− Select energy companies
Workforce Actions Taken Workforce Actions Taken Workforce Actions Taken
− Prune low performers − Make performance-based − Significant layoffs and limits on
staff reductions all hiring
− Ensure top performers are aligned
with top opportunities − Implement one-time health − Freeze salaries for all
care program savings employees
− Opportunistically scout talent
− Freeze salaries for some − Eliminate bonuses
− Invest in workforce planning
categories of employees − Focus on retention for select
− Limit salary increases
− Reduce bonus payouts key leaders
− Increase use of variable reward
(tighten goal and target
elements
setting)
− Reduce training costs
− Rescind outstanding offers;
− Shift costs/risks to employees delay hire of non-essential
talent
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9. Organizations are taking steps to address economic concern
Balancing cost-cutting with short- and long-term value
are somewhat/very likely to
invest in addressing drivers of
health care cost increases
are somewhat/very likely to invest
in wellness programs to improve
employee engagement and ensure
employee health-related behaviors
are somewhat/very likely to
reduce investments to
improve overall HR services
are somewhat / very likely to
invest more in outsourcing
additional HR functions
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10. HR plays a critical role in shaping an organization’s response to the
business conditions
Effective HR functions are designed to adapt to both challenging and
growth-oriented business environments. In any case, HR must always
be prudent in its investments and in its cost management efforts.
When times are tough, it is especially critical for HR to help their
companies navigate through challenging human capital issues. Being
creative and speedy with HR approaches to drive the right behaviors in
an uncertain environment is the most important work HR can do.
The talent pool is the deepest during the toughest times. While
focusing on cost management is immediately important, targeted
recruiting of key talent, positions the company for the recovery.
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11. Examining Sources
Reducing Uses
Increasing Value in HR

12. Preparing the HR Response
Sources, uses and HR value
1
Whether evaluating the
Whether evaluating the
Plan
Plan
department to identify
department to identify
immediate cost
immediate cost
reductions or preparing
reductions or preparing
2
for more positive
for more positive
Do
economic times with Do
economic times with
systems and process
systems and process
changes, there is a
changes, there is a
3
productive way to evaluate
productive way to evaluate
and restructure your HR Review
and restructure your HR Review
department.
department.
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13. Understand sources and uses of your funds
Make decisions that impact the bottom line
1
Plan
Deepen your understanding of the budget Plan
Build from bottom up
Conduct aafunction-by-function
Conduct function-by-function
(budget review)
(budget review)
Organizational knowledge
– Understand primary sources and uses of +
revenue by function, activity and role within HR strategy
+
HR department.
detailed understanding of budget
=
– Understand the effectiveness of your uses
Business and HR Strategy aligned with
and the value your “customers” place on
HR Operating Strategy
them, as well as the potential gaps between
them.
– Account for how every dollar comes in and
how every dollar goes out.
– Include “new needs” in the budget, not on
top of it.
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14. Account for every dollar
Sample allocations by HR function
Retirement Benefits
Time &
2%
In this sample case, HR devotes the Attendance
Compensation
Non-HR 1%
largest amount of labor hours and cost 5% Payroll 1%
2%
to the Staffing function performing Staffing
HRIS/HR Applications
20%
activities such as Staffing Customer 6%
Service and Candidate Assessment.
Organization
Development
The second largest investment of time 8%
HR Department
is spent on HR Department
Management
Management, which involves tasks 17%
Employee Relations
such as HR Department Administrative 9%
Support and HR Department Meetings. Non-Retirement Benefits Training
Tim e (%)
13% 16%
Function Tim e (Hrs) Time (%) Cost C ost (%) FTE Staff
Staffing 13,062 21% $333,562 18% 6.3 15
HR Department Management 10,807 17% $263,386 14% 5.2 31
Training 9,855 16% $283,091 15% 4.7 19
Non-Retirement Benefits 7,978 13% $267,953 15% 3.8 13
Employee R elations 5,728 9% $202,810 11% 2.8 22
Organization Development (OD) 4,720 8% $179,186 10% 2.3 23
HRIS/HR Applications 3,794 6% $76,367 4% 1.8 13
Compensation 3,078 5% $122,440 7% 1.5 11
Payroll 1,506 2% $32,621 2% 0.7 6
Retirement Benefits 1,111 2% $36,182 2% 0.5 7
Non-HR 790 1% $23,524 1% 0.4 8
Time & Attendance 354 1% $7,550 0% 0.2 4
Grand Total 62,784 100% $1,828,673 100% 30.2
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15. Understand where your resources are spent
Sample allocations by activity
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 (HR’s)
HR Department Administrative Support 6,094
2,350
Employee Health and Wellness Program Administration
Staffing Customer Service 2,288
HR Special Projects 2,033
1,988
Employee Records Management
Employee Data Maintenance 1,726
Candidate Assessment 1,643
1,568
New Hire Data Administration
In this case, when examining the data
Training Program Coordination/Administration 1,539
at the activity level, HR dedicates the
largest amount of resources to HR
HR Department Meetings 1,522
Department Administrative Support.
1,244
Orientation Program Delivery
This activity is defined as providing
Workers’ Compensation Administration 1,206
general secretarial or administrative
Background/Reference Checking 1,169
support to HR department staff.
1,115
Employee Relations Customer Service
Activities may include processing
Job-Specific Training Delivery 1,061 department mail, copying, scheduling
meetings, filing, greeting and receiving
visitors, and receiving and coordinating
incoming calls.
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16. Build from the bottom up
Plan HR budget to execute HR strategy
1
Plan
Define relationships and delineate HR organizational ROI Plan
Compare with prior year’s budget and spend
Why do they vary?
–
Challenge historical assumptions
–
Don’t transfer the problem to someone else
–
Determine core and non-core services
How do you know which services are core? And non-core?
–
Which services ensure alignment and support the business strategy?
–
Which services put the organization at strategic, regulatory or legal risk by not providing them?
–
Pay close attention to redundancies across departments
Are any lines of business providing duplicate HR services?
–
Are any vendors providing duplicate HR services?
–
Evaluate the ROI on each vendor contract
What leverage do you have to decrease your cost with your existing vendor or by changing vendors?
–
Can you cancel non-core contracts, renegotiate others?
–
Can you extend payment terms or challenge vendors to increase the value of their services?
–
Increase the involvement of the HR department
How are you engaging the HR team?
–
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17. Build from the bottom up
Plan HR budget to execute HR strategy
1
Plan
Define relationships and delineate HR organizational ROI Plan
Benchmark your performance against peer organizations
Do you have a larger or smaller HR staff? Are you getting half the work done with twice as many people?
–
How do you compare to the national average? If you are larger, does your staff level provide you with flexibility to
–
redeploy staff in times of crisis?
Are there key departmental processes and controls that are undefined, limited or missing altogether that have
–
indirect costs associated with them?
Is there a lengthy termination process that encourages workarounds?
–
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18. Sample HR benchmarks
Benchmark your HR department against comparable organizations
Time Allocation by Function: Benchmark Current vs Desired
25%
HR FTE Ratio By Function
21%
20%
Company X 2,001-5,000 FTEs
17%
16% 16%
Benchmark Benchmark 15%
Function Staff (FTEs) EEs per FTE by Size by Industry 15% 14%
13% 13%
13% 13%
Recruitment 6 473 400 592
9%9% 9%
10% 9%
8%
8% 8%
8%
7%
7% 7%
Benefits 7%
2.5 1136 676 840 6%
6% 6%
6%
5%
5%
4%
4%
5% 3%3%
Compensation 2.5 1136 1692 2016 2%
2%
1%
Learning & 0%
8.3 342 422 853
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Sample Organization
Current Benchmark Desired Benchmark
Trends in Time Allocation by Roles
Percentage of Time Spent by HR Staff: Benchmark Current vs Desired
60%
53%
50%
40% 33%
30%
28%
27%
26%
30%
21%
20% 14% 13% 13%
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19. Connecting the Dots
Getting from where you are to where you want to be
2
Do
Do
Develop a solid plan on which you can execute
1 Strategy How does the current HR strategy support and positively impact the business strategy?
Does the HR strategy make the best use of the core resources and assets that you have or are you trying to force a square
peg into a round hole?
If there is a gap between present and needed resources, how will you develop or acquire them?
2 Structure How does the departmental structure support the new departmental strategy and overall operating model?
How much harmony is there between functional and corporate/overhead functions?
3 Systems and How well do your systems and processes support the revised strategy and structure?
Processes How aligned is your compensation and incentive-based pay structure to support use of new systems and processes?
Given that public sector is now competing for the same talent as the private sector, how competitive is your compensation
with the labor market for the talent in harder to fill roles?
If there are gaps, then how can systems and processes have a greater impact?
What training are you providing to clarify and calibrate performance expectations across the organization?
How are you tapping into your employee value proposition and considering implementing things your employees may have
been asking for, like flextime, mentoring, work-site development and career advancement (especially for your best and
brightest – if you know who they are), or access and exposure to senior leaders?
How are you building your bench?
What kinds of revisions and investments are in order?
4 People Do you have the right people, with the right skills, in the right roles at the right time?
To what degree are current personnel professionally and technically proficient?
What is gap between where they are today and where they need to be?
What kind of training is in order to keep pace and to be a market leader?
How many people fill a gap instead of maximize their abilities or potential for the role?
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20. Restructure HR department
Next time change is in order, the HR function will be ready for it
3
Review
Remain a key contributor to organizational success Review
Continuously review budgets and contracts on a regular basis
to make sure that they reflect the truth.
Take a pragmatic look at core services, systems, processes
and technology behind them to ensure that as the market
changes they continue to support the strategy.
Create feedback loops to ensure people are
heard and that you are alerted to potential issues
before they become problems.
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21. Potential Tools and
Resources

22. Potential tools and resources
http://www.mercer.com/unprecedentedtimes
Available Podcasts, Web Articles and Special Reports include:
Changing times: The impact on employer-provided health benefits
Sculpt benefit programs to cut costs, retain talent
Tough economic times: Rapid cost savings opportunities for employers
Focus on the markets
Mercer’s investment consultants speak about the current market events
Heads up: Communication strategies for tough times
Fast forward: Accelerating business change through effective communication
Strategic funding policies for pensions
Volatility affects pension funding status
Surviving uncertainty: Benefits in a time of recession
Chaos in the markets…so what’s my pension budget?
Managing health care benefit expense in today’s unprecedented economic times
Is spending on health and benefits a good investment?
Turbulent financial markets: Impact on DC plans
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23. About Mercer
Mercer is a leading global provider of consulting, outsourcing and investments services,
with more than 25,000 private, public NPO and public sector clients worldwide. Mercer
consultants help clients optimize workforce performance and maximize the effectiveness
of their health, retirement and other benefits. The firm also provides customized
administration, technology and total benefit outsourcing solutions. Mercer’s investment
services include global leadership in investment consulting and multi-manager investment
management.
Mercer’s global network of more than 18,000 employees, based in over 40 countries,
ensures integrated, worldwide solutions. Our consultants work with clients to develop
solutions that address global and country-specific challenges and opportunities. Mercer is
experienced in assisting both major and growing, mid-size companies.
For information contact:
Michelle Lewis-Blossman
(713) 276-2277
michelle.lewis-blossman@mercer.com

24. www.mercer.com