Data & Research October 3, 2011

Positive Link Found between Risk Management Maturity and Performance

The Aon Risk Maturity Index found a positive relationship between the maturity of an organization's risk management framework and its financial performance.
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Aon Risk Solutions partnered with The Wharton School of the University of Pennsylvania to launch the Aon Risk Maturity Index, a proprietary online tool created to empower risk and finance leaders to assess the development level of their organization’s risk management structure and implementation. Using a preliminary set of index data for publicly traded companies – ranging from mid-sized firms to the largest Fortune 100 organizations, Chris Ittner with The Wharton School determined a statistically significant relationship between the organization’s risk maturity rating and financial performance.   

Ittner’s findings reflect that higher risk maturity ratings are associated with improved return on assets and stock performance for most firms and the components of maturity associated with these performance differences are likely to vary by industry.  

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In addition, analysis of information gathered by the index to date points to common threads among organizations that received an above-average risk maturity rating (i.e. 3.5 – 5 on the 1-5 rating scale). 

"We are seeing firms that rate above average in risk maturity differentiate themselves in three areas: risk complexity awareness, formal agreement on risk management strategy/expectations and the degree to which organizational architecture is aligned to support achievement of risk management objectives," said Michael Joiner, Associate Director of Enterprise Risk Management for Aon Global Risk Consulting. "Organizations seeking to enhance their risk management framework can use these three characteristics to develop an initial roadmap."  

Questions for the Aon Risk Maturity Index were created to align with the following 10 characteristics of risk maturity: 

  • Board Understanding and Commitment to Risk Management, 
  • Executive-level Risk Management Stewardship, 
  • Risk Communication, 
  • Risk Culture: Engagement and Accountability, 
  • Risk Identification, 
  • Stakeholder Participation in Risk Management, 
  • Risk Information and Decision-making Processes, 
  • Integrating Risk Management and Human Capital Processes, 
  • Risk Analysis and Quantification to Understand Risk and Demonstrate Value, and 
  • Risk Management Focus on Value Creation. 

As the index database grows, Aon and Wharton look to identify the specific sets of activities that deliver the greatest return on investment and how they may differ by industry. The index is accessible by all interested organizations by emailing a request to risk.maturity.index@aon.com.  

Additional information can be found at http://www.aon.com/riskmaturityindex.
Data & Research October 3, 2011

White Paper Explores if Low-Income Workers Benefit From 401(k) Plans

Research from the Center for Retirement Research at Boston College found both low- and high-income workers benefit from employer-sponsored defined contribution plans. 
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The paper, titled “Do Low-Income Workers Benefit From 401(k) Plans?” explores the hypothesis that employer contributions to defined contribution (DC) plans may affect total compensation differently for low and high-income workers. The authors used data on workers’ prior earnings to estimate the effects on earnings.

Additional employer contributions to DC plans led to reduced wages much less for low-income than for high-income workers, the researchers found. This means that employer contributions increase the total pretax compensation of low-income relative to high- income workers, partially offsetting the larger tax benefits that these contributions provide to high-income workers, the authors concluded.

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The findings imply that both low- and high-income workers benefit from employer contributions. Low-income workers benefit because their total compensation rises; high-income workers benefit because the increased access to tax-advantaged saving more than offsets their loss of money wages, even though their total compensation is about the same. This suggests that conventional approaches may overstate the share of benefits from tax-preferred retirement saving plans with employer participation that go to high-income employees by assuming that contributions reduce wages equally for all employees.

The paper is available on the Center for Retirement Research: http://crr.bc.edu/images/stories/Working_Papers/wp_2011-14_508.pdf

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