bob keller hr metrics presentation indiana shrm 8-29-06 - final 8-21-06

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”