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My guest for Episode #238 of the My Favorite Mistake podcast is Tom Applegarth, Vice President Human Resources for Preferred CFO, a company that provides Finance, Accounting, HR & Payroll support for small companies. Learn more at PreferredCFO.com.

Tom has over 30 years of experience, including serving at high-profile companies such as Goodyear Tires, Payless ShoeSource, and Amoco, with HR experience across the United States as well as Europe, Asia, and Latin America.

Tom's experience has brought significant, measurable improvements in employee engagement, attrition reduction, recruitment of the best and the brightest employees, and establishment of high-impact HR processes and improvements.

In the episode, Tom opens up about a costly slip-up early in his career during a sensitive employee termination process involving a plant manager. Why does Tom think he should have elevated the internal conflict about firing (or not firing) that person to the CEO? What led to the company getting sued, which cost them far more than a fair severance would have cost? What were Tom's lessons learned?

• Would it have been risky to go over their heads to the CEO?

In the complex world of Human Resources (HR), making an error in judgment can have lasting repercussions for companies. For smaller companies, navigating these challenges will require both experience and a nuanced understanding of the HR landscape. Tom Applegarth, a Vice President of Human Resources at Preferred CFO, shares insights from his more than 30 years in HR with some of the most well-known global brands. His journey demonstrates the importance of managing human resources effectively, especially in smaller organizations.

The role of HR can sometimes be misunderstood within an organization. While HR ultimately serves the interests of the company, it is also instrumental in creating a healthy and fair working environment for employees. Previous roles in organizations such as Goodyear Tires, Payless Shoe Source, and Amico allowed Tom to develop HR processes that foster higher employee engagement, reduced attrition, and effective recruitment strategies.

Throughout his experience, one crucial lesson was the value of taking a balanced approach to decision making. HR should consider the interests of not just the company and customers, but also employees. Balancing the needs of all three constituencies is what differentiates successful companies.

Tom shares critical lessons from an incident early in his career where he was handling a sensitive termination process. The experience taught him the importance of adhering to corporate policy, reserving a fair chance for employees to improve, and offering decent severance packages, regardless of the pressure from managers focused on immediate PNL impact. This mistake ended up costing the company a million dollars in lawsuit and served as a cautionary tale that has shaped Tom’s HR approach throughout his career.

Unfortunately, many small companies make mistakes in not giving adequate importance to HR management until issues arise. It is often thought that hiring a full-time HR person is too expensive. Alternatively, companies may assign HR tasks to employees that lack the knowledge and experience to effectively navigate the complexities of HR.

Preferred CFO provides an effective solution for such companies. They offer necessary HR support, allowing small companies to ensure compliance, manage employee grievances, and build a community within the organization without hiring a full-time HR professional. Avoiding HR-related mistakes and potential lawsuits can save a significant amount of money in the long run.

Ensuring that employees have the ability to raise ethical or procedural issues in a safe and confidential manner is vital for any organization. A robust protocol should be in place for employees to report issues to supervisors or HR. However, if employees do not feel comfortable reporting directly within the organization, having an external reporting avenue accessible will provide an additional layer of security.

A key element in successful human resource management is the continuous improvement of processes, systems, and people. A balanced approach that considers all stakeholders – employees, customers, and investors ¬¬– lays the foundation for successful business operations. Whether it's dealing with a sensitive firing situation or establishing effective whistleblower channels, the role HR plays in small businesses cannot be underestimated. Equipping your small business with the right HR support can prevent costly missteps and promote a healthy corporate culture.

Recognizing that not all employees feel comfortable directly reporting ethical or procedural issues to superiors within their organizations, secondary reporting avenues become vital. One method is an anonymous 1800 number, acting as a lifeline for employees enabling them to air their grievances without fear of retribution. This external channel can afford employees some level of anonymity and assurance, especially in situations involving bad managers or problematic HR personnel.

The utility of an anonymous reporting channel goes beyond offering mere anonymity. Its role can span as an intermediary between the employee and the organization's leadership. It involves relaying detailed accounts of issues raised by the employees to the leadership without revealing the identity of the employee. This level of confidentiality can encourage more employees to be forthcoming with their concerns, which can help preempt potential problems.

Simply providing an anonymous reporting line is not enough; the organization needs to execute a robust communication strategy ensuring that all employees are aware of this avenue. Regular and constant reminders of its existence could range from including details during team meetings to displaying posters around the workplace. The more visible and accessible it is, the greater its utilization and impact on the organization's health and transparency.

Despite the promise of privacy, there's often a level of skepticism among employees regarding the anonymity of their reports, particularly in low trust environments. This doubt can significantly impact the effectiveness of such systems. To counter this, companies could consider having these services administered by external independent entities. This can add a layer of credibility since the external firm has no explicit interest in protecting the company at the expense of the employee.

The current job market has changed significantly from years past, with technology offering transparency regarding job opportunities and pay scales. Today's employees have access to a wealth of information about potential employers, making it far easier to seek competitive salaries and appealing work cultures. Consequently, companies must be competitive – not only concerning remuneration but also in fostering positive workplace cultures and exceptional management.

To attract and retain top talent, businesses must understand current market pay rates and offer ‘in-the-ballpark' compensation packages. Regularly participating in and purchasing salary surveys can allow businesses to stay competitive. But competitive salaries are part of the equation; retention also hugely depends on the work culture and management quality. Regularly evaluating what each employee wants from their career and making an effort to fulfill those needs, particularly for top performers, can significantly enhance employee satisfaction and retention.

Ultimately, companies today need to adapt to the evolving job market, nurturing trust, ensuring adequate compensation, and promoting a healthy work culture. As Tom Applegarth from Preferred CFO suggested, avoiding these measures can leave businesses ignorant of potential issues, vulnerable to public exposure, and ill-prepared to retain their best people.