Human Resources Management What Metrics Should You Be Using

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Human Resources ManagementWhat Metrics Should
You Be Using to Rate Your Effectiveness?

• Bob Keller
• Vice President, Compensation Benefits
• Norwood Promotional Products, Inc.
• 2006 Indiana State
• Human Resources Conference
• August 29, 2006

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Agenda

• A seat at the table
• Metrics will help get you there
• Key HR Metrics
• How to Use Metrics Effectively
• Top Ten Recommended Metrics

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1. A seat at the table

• Long term HR objective
• The objective of every HR professional
• How do you accomplish this?

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Answer

• Through speaking the language of business
• Financial Language
• Quantitative
• Qualitative, to support your points
• Business Process Language
• Unique to your business and industry

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HR is usually quality focused

• We often speak in quality terms
• Cant measure in dollar terms
• Or difficult to quantify

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My premise

• Until you speak in financial and business process
  terms you will never have an equal seat at the
  table
• HR will only be considered tactical and
  administrative
• You wont have senior managements true respect
• Be strategic!

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2. Metrics will help you get there

• What are your strategic objectives?
• Productivity
• Cost management
• Customer satisfaction
• Employee Satisfaction
• Others
• Develop metrics/measures that quantify goals and
  sell their accomplishments
• This is beyond your department budget

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3. What are the Key HR Metrics? Principles

• No cookie cutter approach
• Analyze your company key drivers
• Analyze your business and industry
• Get to know your sr. executives needs and focus
• Set your priorities, agenda to match business
  needs
• Costs/savings are king
• Less (metrics) is more
• Performance improvement on all key organizational
  drivers

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Metric Categories to Explore

• Compensation
• Benefits
• Employment
• Turnover/Absenteeism
• Training and Organization Development
• Workers Compensation
• Employee Attitude Surveys
• Labor Contracts
• HR Department costs
• Revenues per FTE

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1. Compensation

• What is your Average Hourly Rate (AHR)?
• Total company, individual plants
• What is your average annual Salary?
• Exempts, non-exempts
• What is your annual payroll?
• Average annual base pay per employee?
• Merit pay increase percent
• Hourly, non-exempt, salaried, executive
• Incentive compensation programs

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Why Important

• Comparison to product people competitors
• Comparison within your industry community
• Comparisons between plants
• Global competitor costs
• Cost management

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Example - Implications

• Your plant/company AHR 15
• Community AHR 14
• Key people competitor AHR 16
• Key products competitor AHR 13.50
• Global product competitor AHR 3.00
• What potential impact will your situation have
• on the business?

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2. Benefits

• Medical Plan Cost
• Company paid portion per employee
• Total cost per employee
• Total employee population
• Other Plans Dental, STD, LTD, Pension, etc.
• Government mandated benefits
• Total plans cost
• Per employee
• As a percent of company-wide average base pay

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Why Important

• Second largest company expenditure
• Comparison to product people competitors
• Competitiveness
• Attract and retain employees
• Costs the company can/cannot afford

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Example 1 Cost trend success

• Percentage Change in Costs 2002-6
• Cost decrease to company -11
• Cost increase to employees 30
• Cost increase total Company ees 25
• National medical cost increase 68
• Company cost
• Starting cost 13.5 million
• Current cost 11.9 million
• Annual cost savings 1.6 million

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Example 2 Vs. National Average

• Medical Plan cost per employee
• 6,114
• National Average (Manufacturing)
• 7,279
• Annual savings (Company 2,500 ees)
• 3 million
• Company annual savings at 75 cost
• 2.25 million

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Example Single Page Cost Summary
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3. Employment

• Cost per hire
• Internal staffing department
• Requisition management, internet, agencies, open
  houses, campus
• Applicant tracking system, reports
• IT overhead, telecom, other overhead burdens
• Reference checking
• Executive search
• Responsiveness/Efficiency
• Response time
• Time-to-fill
• Hire ratios
• Hit Ratio offers accepted vs. offers made
• Qualitative
• After one year working for the company
• After five years
• Should be part of annual Talent Assessment Review
  Process (Session C)

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Why Important

• Significant company-wide expense
• Internal function vs. agencies or outsourcing
• Cost
• Internal customer satisfaction
• Efficiency
• Effectiveness
• Internal talent development
• Cost effectiveness

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Example Employment Costs
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4. Turnover/Absenteeism

• Annual turnover rates
• Voluntary, involuntary
• Coding (reasons)
• Complete financial cost of turnover
• Cost to train, recruit, declining productivity of
  incumbent, unfilled position overtime or contract
  labor, unemployment compensation, new hire
  training and learning curve of new hire
• Absenteeism percentage rate
• Similar additional cost to the business
• Do the math with your management to get buy-in

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Why Important

• Obvious costs of replacement
• Turnover - permanent employees
• Absenteeism temporary, overtime or lost
  production
• Huge hidden costs for both

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Example Turnover Costs
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5. Training Organization Development

• Training (vs. educating) expenditures
• Cost per unit of training delivered
• Change in behavior and performance
• Impact financial results or outcomes (ROI)
• OD Succession Planning
• Internal candidates filling openings
• Employee Attitude ratings
• Viable individual development plans

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Why Important

• Training, OD perceived as difficult to quantify
• Training one of the first budget items to be
  eliminated during downturns
• Must be very specific to defend
• Sell the expected financial impact, then measure

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Examples

• Sales training increased revenues per sales rep
• Hourly workers increased efficiency
• Managers improved leadership, higher employee
  satisfaction, less turnover, increased efficiency
  
• Generic savings
• Decrease in turnover, recruitment, new hire
  training and learning curve factors

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6. Workers Compensation

• Cost per employee
• Total company-wide costs
• Savings won in contested cases
• Reduced reserves through investigation
• OSHA DART rates
• Importance of trends
• Days away from work, on restriction or job
  transfer

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Why Important

• Multi-million dollar annual expense
• Second largest HR expenditure category
• Lost cost reduction opportunity if sites dont
  focus on it

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Example Workers Compensation
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7. Employee Attitude Surveys

• Employee satisfaction versus
• National/industry/vendors medians
• World class (75th percentile) companies
• Prior years
• Sorted by
• Company location
• Departments in each location

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Why Important

• Employee satisfaction correlates to customer
  satisfaction
• Customer satisfaction correlates to sales
• Additional financial correlations to turnover and
  absenteeism

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8. Labor Contracts

• Increase/decrease in hourly AHR
• Cost savings/cost avoidance achieved
• Compensation
• Benefits
• Manufacturing efficiency

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9. HR Department Costs

• Total HR costs per FTE
• True HR costs, not non-HR costs thrown into HR
  budget
• Annual admin. cost of each outsourced HR program
• HR Costs as of total Manpower Expense
• Number of employees per HR head
• Annual admin. cost of each outsourced HR program
• Benchmark to national/industry/similarly sized
  companies
• HR Costs include/exclude mandated government
  benefits

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Why Important

• Knowing your costs and how you compare gives you
  opportunity for continuous improvement
• Communicates the value of HR compared to
  competition and the external world in an
  objective and financial manner

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Example Total HR Costs
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10. Revenues per FTE

• Revenues per FTE of your company
• Historical trend
• Versus other companies in your industry
• Versus customer satisfaction trends

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Why Important

• Establishes HR as a strategic partner
• Helps control staffing levels
• Even in prosperous times
• Appropriate organization design (flatter)
• Eliminates need for many layoffs
• Efficient companies are more profitable companies

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Example Revenues per FTE
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SummaryTop Ten HR Metric Categories

• Compensation
• Benefits
• Employment
• Turnover/Absenteeism
• Training and Organization Development
• Workers Compensation
• Employee Attitude Surveys
• Labor Contracts
• HR Dept costs
• Revenues per FTE

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SummaryTop Ten Recommended HR Metrics

• Compensation
• Average hourly rate (AHR) average annual salary
• Benefits
• Company paid portion of medical plan costs of
  all benefit plan costs
• Employment
• Cost per hire response time
• Turnover/Absenteeism
• Complete cost of turnover per hourly/salaried
  employee
• Complete cost of absenteeism per hourly/salaried
  employee
• Training and Organization Development
• Positive financial impact per delivered training
  unit
• Workers Compensation
• Workers Compensation costs
• Employee Attitude Surveys
• Employee satisfaction versus median and 75th
  percentile companies
• Labor Contracts
• Change in average hourly rate (AHR), other cost
  savings/avoidance
• HR Dept costs
• HR expense as of total Manpower expense (do
  the same for other functions as well)

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SummaryTop Ten Recommended HR Metrics

• Compensation
• Average hourly rate (AHR) average annual salary
• Benefits
• Company paid portion of medical plan costs of
  all benefit plan costs
• Employment
• Cost per hire response time
• Turnover/Absenteeism
• Complete cost of turnover per hourly/salaried
  employee
• Complete cost of absenteeism per hourly/salaried
  employee
• Training and Organization Development
• Positive financial impact per delivered training
  unit

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SummaryTop Ten Recommended HR Metrics

• 6. Workers Compensation
• Workers Compensation costs
• 7. Employee Attitude Surveys
• Employee satisfaction versus median and 75th
  percentile companies
• 8. Labor Contracts
• Change in average hourly rate (AHR), other cost
  savings/avoidance
• 9. HR Dept costs
• HR expense as of total Manpower expense (do
  the same for other functions as well)
• 10. Revenues per FTE
• Revenues per FTE

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Top Ten Recommended HR MetricsPrioritized

• Revenues per FTE
• Revenues per FTE
• HR Dept costs
• HR expense as of total Manpower expense (do
  the same for other functions as well)
• Employment
• Cost per hire response time
• Compensation
• Average hourly rate (AHR) average annual salary
• Benefits
• Company paid portion of medical plan costs of
  all benefit plan costs
• Workers Compensation
• Workers Compensation costs
• Training and Organization Development
• Positive financial impact per delivered training
  unit
• of internal applicants filling promotional
  opportunities
• Turnover/Absenteeism
• Complete cost of turnover per hourly/salaried
  employee
• Complete cost of absenteeism per hourly/salaried
  employee
• Employee Attitude Surveys

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SummaryHow to Successfully Use Them

• 1. Choose the metrics most important to your
  company
• - Select a few to start
• - The 20 that drives the 80 (most) value
• - Make sure your numbers are accurate
• 2. Use them as your HR metrics in Quarterly
  Business Meetings with Senior Management
• 3. Compare to appropriate benchmarks both
  internally and externally
• 4. Use Continuous Improvement

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Suggested ReadingHR Metrics

• How to Measure Human Resources Management
• Jac Fitz-enz, Saratoga Institute, McGraw Hill
• Benchmarking, The Search for Industry Best
  Practices that Lead to Superior Performance
• Robert C. Camp, Xerox, Quality Press
• SHRM Customized Human Capital Benchmarking
  Service

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Suggested ReadingFinance

• The McGraw-Hill 36-Hour Course for Non-Financial
  Managers
• Robert A. Cooke, McGraw Hill
• Understanding Balance Sheets
• George T. Friedlob, Wiley
• Finance for Strategic Decision-Making
• M. P. Narayanan, Jossey-Bass

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Suggested Self Development Course to Attend

• Financial Management for Non-Finance Managers
• Any Universitys School of Business

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Norwood Promotional Products, Inc .

• Premier supplier of customized products and
  business solutions
• Headquartered in Indianapolis
• Pens, mugs, KooziesTM, caps, magnets, canvass
  bags, marble crystal awards, personalized
  calendars, etc.
• Purchase through distributors
• Ask for our products by name
• Positive Norwood Experience