Human Resources Management What 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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Human Resources Management
What Metrics Should You Be Using to Rate Your Effectiveness?
Bob KellerVice President, Compensation & Benefits
Norwood Promotional Products, Inc.
2006 Indiana State Human Resources Conference
August 29, 2006
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Agenda
1. A seat at the table
2. Metrics will help get you there
3. Key HR Metrics
4. How to Use Metrics Effectively
5. 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 Can’t 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 won’t have senior management’s 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
1. Compensation2. Benefits3. Employment 4. Turnover/Absenteeism5. Training and Organization Development6. Workers Compensation7. Employee Attitude Surveys8. Labor Contracts 9. HR Department costs10. 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 & ee’s +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 ee’s) $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
National Average
Company
Delta Cost Savings
Per hire
100 hires
$4,262 $1,964 54% Less
$ 230,000 per annum
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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
National Average
Company
Delta
Cost Savings
% of base pay
100 hires at est. 25% of pay
18% 14.8% 18%
$875,000
per annum
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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 don’t
focus on it
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Example – Workers Compensation
Reduction Delta Cost Savings
$3.5 million per annum cost
20%
50%
$700,000
$1.75 million
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7. Employee Attitude Surveys
Employee satisfaction versus National/industry/vendor’s 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:
Median North
Central U.S.
Company Delta
Per FTE
2,500 FTE
$1,554 $1,063 32% Less
$1.3 million per annum
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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
Revenues FTE’s Revenues Per FTE
Company A
Company B
$500 million
$400 million
2,500
2,500
$200,000 per FTE
$160,000 per FTE
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SummaryTop Ten HR Metric Categories
1. Compensation
2. Benefits
3. Employment
4. Turnover/Absenteeism
5. Training and Organization Development
6. Workers Compensation
7. Employee Attitude Surveys
8. Labor Contracts
9. HR Dept costs
10. Revenues per FTE
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SummaryTop Ten Recommended HR Metrics
1. Compensation Average hourly rate (AHR); average annual salary
2. Benefits Company paid portion of medical plan costs; of all benefit plan costs
3. Employment Cost per hire; response time
4. Turnover/Absenteeism Complete cost of turnover per hourly/salaried employee Complete cost of absenteeism per hourly/salaried employee
5. Training and Organization Development Positive financial impact per delivered training unit
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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SummaryTop Ten Recommended HR Metrics
1. Compensation Average hourly rate (AHR); average annual salary
2. Benefits Company paid portion of medical plan costs; of all benefit
plan costs
3. Employment Cost per hire; response time
4. Turnover/Absenteeism Complete cost of turnover per hourly/salaried employee Complete cost of absenteeism per hourly/salaried employee
5. 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 MetricsPrioritized1. Revenues per FTE
Revenues per FTE
2. HR Dept costs HR expense as % of total Manpower expense (do the same for other functions as well)
3. Employment Cost per hire; response time
4. Compensation Average hourly rate (AHR); average annual salary
5. Benefits Company paid portion of medical plan costs; of all benefit plan costs
6. Workers Compensation Workers Compensation costs
7. Training and Organization Development Positive financial impact per delivered training unit % of internal applicants filling promotional opportunities
8. Turnover/Absenteeism Complete cost of turnover per hourly/salaried employee Complete cost of absenteeism per hourly/salaried employee
9. Employee Attitude Surveys Employee satisfaction versus median and 75th percentile companies
10. Labor Contracts Change in average hourly rate (AHR), other cost savings/avoidance
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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 University’s 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”
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