In part 1 of this series on changing the internal audit function we presented a framework for effective internal audit people management, comprised of four aspects of the employee lifecycle. This framework covers all the important touch points with your colleagues to make the employee experience as effective as possible and helps to ensure that you can get the best out of all your people.
- Attract is all about taking a long-term view of your resourcing needs and having the means to effectively attract and select people with the skills, knowledge, and attitudes you need.
- Reward, at its simplest, is about attracting, retaining, and motivating audit staff who use their skills and knowledge to deliver your objectives. Ensuring that the reward system you have in place promotes the behaviors you have identified as being key to your success.
- Manage is about ensuring that your people are led and motivated. To do this effectively, your managers require the proper tools and skills. This will mean that people are fully empowered to make decisions at the right level and at the right time. It also includes holding people accountable for their actions, through regular and honest feedback on performance.
- Develop a focus on ensuring that you are successful in identifying and developing talent at all levels of your function, and that people are supported in the development of their capabilities, knowledge, and experience.
We also explored the first characteristic of this framework – Attract – which involves examining recruitment selection techniques, using AI, and effective onboarding of new colleagues. In this next article we explore the second aspect of our framework of effective internal audit people management – Reward. As with each article I write, my hope is that there are one or two ideas that you can take away and be able to implement within your organization.
The two areas of focus in this article include – independence of the reward decision, and the employee value proposition:
Independence
Those of you who follow my ideas on effective internal audit know that I normally dismiss structure and process around independence, rather suggesting that independence is all about mindset. However, reward is one area where I do think some process is important.
Although I normally do not refer to IIA standards as I generally find them overly prescriptive, I will make an exception here.
“The Chair of the Audit Committee should be responsible for recommending the remuneration of the chief internal auditor to the remuneration committee. “
“The remuneration of the chief internal auditor and internal audit staff should be structured in a manner such that it avoids conflicts of interest, does not impair their independence and objectivity and should not be directly or exclusively linked to the short-term performance of the company”
These two quotes are taken from the UK Internal Audit Code of Practice, published by the IIA. It’s likely there will be similar local guidance in your area.
The question that needs to be asked is — Do your remuneration arrangements meet these two criteria? In particular, if you incorporate bonuses into your pay structure, on what basis is the pool for the bonus set? How much does the profit for this period influence the amount and could this influence auditor judgement? For example, if you found a problem in some aspects of the financial performance that you know will lower the overall level of company profit, and therefore the resulting bonus pool, could it influence whether or when you raise that point? I suspect not, but weakening the link between the bonus pool and absolute financial performance can help with this.
