buckley hr metrics 2011_dec_12
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HR Metrics:Speaking the Language of Your CFO
HR.com Presentation
December 12, 2011
Presented by:Robert J. Buckley, MBARO Buckley Consulting
Agenda
Why Are We Here? Characteristics of High Credibility HR Metrics Generic Examples Case Studies
Recruiting Metrics Benefits Metrics
The Future of HR Metrics Q&A
Compensation Tie-In
Why Are We Here Today?
We are here to learn ways to communicate better with our CFO’s
Communication courses for HR Professionals Finance is the language of business HR needs to step up and be a business partner
HR Metrics: The HR “dialect” to communicate in Finance
Finance HRGAAP ?
Characteristics of QualityHR Metrics
Accurate Consistently engineered
There are no GAAP or FASB Rules for HR Metrics Fully integrated into the business Driven by business strategy Impact measured in $dollars (Finance) Enabled by technology The level of HR metric used is driven by the
needs of both client and provider
HR Metrics Orientation
HR Service Provider
Corporate/
Business
Manager
Metrics which track transactions
Time To Fill
Number of Positions Filled
EEOC Applicant
Tracking
HR Metrics Orientation
HR Business Partner
Business
Leader
(Major Business)
Metrics which have $dollar Impact
% Increases in Health Care
HR Expense Ratio
Turnover Costs per Employee
HR Metrics Orientation
HR Trusted Advisor
Enterprise Leader
CEO
Board
Metrics having $dollar impact on
Income Statement
Revenue & Net Income by FTE•Salaries as Percentage of Operating Expenses•Turnover Costs
Generic Examples
COST PER HIRE
Advertising + Agency Fee + Employee Referrals + Travel Costs (applicants & staff) + Relocation Costs +Recruiter Compensation and Benefits
÷
Number of Hires
$25,000 + $50,000 + $10,000 + $5,000 +
$20,000 + $150,000 = $260,000
÷
100 Hires = $2600 per hire
HEALTHCARE COSTS PER EMPLOYEE
Total Costs of Healthcare
÷
Total Number of Employees
$15,000,000
÷
1000 employees =
$!5,000 per employee
Generic Examples
REVENUE PER EMPLOYEE (or FTE’s)
Revenue
÷
Total Number of Employees (or FTE’s)
$120,000,000
÷
1000 (1037) = $120,000
TIME TO FILL Total Days Elapsed to Fill Requisition
÷
Number of Employees Hired
3347
÷
100 = 33.47 (Average number of days to fill a requisition)
Generic Examples
TRAINING INVESTMENT PER EMPLOYEE
Total Training Costs + (Opportunity Costs)
÷
Headcount
$6,000,000 + ($50,000,000/220 working days = $227,273 daily payroll costs X 5 days of training) $1,136,365 = $7,136,365
÷
1000 employees = $7,136 Training Investment per Employee
TURNOVER RATE
Number of separations during month
÷
Number of employees on payroll during the month X100
167
÷
1000 employees = 16.7% Turnover Rate
Generic Examples
TURNOVER COSTS PER EMPLOYEE
Total cost of separation + replacement costs + training costs + vacancy costs (contingency worker costs - wages and benefits not paid because of vacancy)
÷
Number of employees
$8,800,000
÷
1000 = $88,000 Turnover costs per employee
Recruiting Metrics
Case Study
Company Situation
Cost per Hire is too High 28% of base salary Industry benchmark: 17% of base salary
Time to fill is too long 57 Days Industry benchmark: 44 days
Hiring managers upset Hiring costs are soaring Extensive opportunity costs Increased workload for existing staff
Intervention
Hiring Past Practices• 65% - Agencies (retained and contingent)• 35% - Other (internet, referrals, university)
New Hiring Strategy• Leverage Internet (46%)
• Targeted: Specialized skills and Director + positions• General: All other positions
• Company website/internet, Monster.com, HotJobs.com, etc.• Enhance Employee Referral Program (11%)
• Increase bonus from $500 to $3,000• Increase university sourcing (15%)• Agencies used only for C-level of niche positions (25%)
Results Cost per Hire decreased*
16% of base salary $7,296 less per hire
Time to Fill decreased 19 day decrease (54 to 35) 6 days less than benchmark (44 days)
Vacancy Costs decreased Saved over $1.3M Better able to capitalize on new business opportunities
Total savings over $2.3M per year
Includes cost of 1 additional recruiter
Formulas
Cost per Hire = (Advertising + Agency fees + Referral fees + Travel costs + Relocation costs + Recruiter pay/benefits, etc.) ÷ Number of Hires
Time to Fill = Total days elapsed to fill requisitions +Number Hired
Vacancy Costs = Contingency worker costs + OT for employees + Lost opportunities - Vacancy salary and benefits
Financial Impact
Expense Type 2009 2010 HR Metric Applied 2009 2010Hire 135 135 Cost per Hire 17,234 9,938Agency Fees % Base Salary 28% 16%
Retainer 400,000 73,000 Time to Fill 57 38Contingent 1,350,078 496,831 Days Vacant 7,685 5,139
Vacancy/OpportunityUniversity 128,000 162,000 Cost per Day 559 582
Internet 157,998 162,000 Vacancy/OpportunityCost per year 4,305,143 2,984,914
Employee Referrals 3,000 45,000 Savings 1,320,229
Other (Relocation,travel, recruiter salaries, etc.) 287,514 353,280
TOTAL 2,326,590 353,280Savings 984,935 Overall Savings 2,305,163
42%
Impact on Income StatementRecruiting Metrics
Income StatementNumbers inThousands
12/ 30/ 2010 12/ 30/ 2009 12/ 30/ 2008
Total Revenue 52,516,000 45,188,000 32,373,000Cost of Goods Sold 7,541,000 9,832,000 4,045,000
Gross Profit 44,875,000 35,356,000 28,328,000Research & Development 6,783,857 6,131,000 6,830,294Selling General &Administrative 8,993,296 9,267,136 6,301,653Others 2,264,009 6,110,000 510,000
Total Operating Expenses 26,933,838 13,847,864 14,686,054
Interest & TaxExpense 5,386,768 2,769,573 2,937,211
Net Income 21,547,071 11,078,291 11,748,843
Benefits Metrics
Case Study
Company Situation
2009 Employee benefits skyrocketed 32%• Average US medical benefit increased 9.2% for same
year*• Rising benefit costs undermine product cost
competitiveness
Competitive pressure from China• Competitor sells product for 75% less• Market share decreased 40% as a result
*Source:www.benefitsnew.com
Intervention
Decrease Costs Join a consortium to increase buying power and reduce
fees Transition from fully-insured to self-insured
Redeploy Headcount Move manufacturing team offshore to increase product
cost competitiveness by lowering benefits costs
Decrease Administrative Costs Implement an employee self-service system Decrease benefit administrator headcount
Results Decrease key benefits costs
US: Monthly benefit cost per head Before: $255/head; After: $214/head
Redeploy headcount US: (decrease headcount) Benefit savings = $36M-$10M=$26M decrease Asia: (increase headcount) benefit costs = $42M inc. $46M=$4M
increase. US benefit savings ($26M)-Asian Benefit Cost ($4M) = ($22) Total Benefit
savings (increased cash in balance sheet)
Decrease administrative costs Previous salaries 400K-New Salaries 50K = $350K savings New self service cost 200K - Previous IT cost 52K = 148K IT cost 350K-148K = 202K Total Savings
Formulas
Savings Cost Increase
Benefit Savings:
US benefit cost per head X Benefit Savings per head = Reduced benefit cost per head
Headcount Reduction:
US: The average cost per head X Decrease in headcount* = Total Savings (Comp & Benefits)
* Includes the 7 Ben Admin RIFs
Headcount Increase:
Asia: The average benefit cost per Asian local national X Increase in headcount = Benefit costs
Employee Self Service:
Cost of self service administrative service (IT costs)
Financial Impact
Before After Before After Delta
US Comp &Benefits 10,041 4,800 639,401,178 298,971,794 340,429,384
Asian Comp & Benefits 57,000 62,241 726,408,000 793,199,304 - 66,791,304
AdministrativeHeadcountReduction 8 1 400,000 50,000 350,000
Employee SelfService (IT) Minimal Full Range 52,378 200,000 - 147,622
Total 67,049 67,042 1,366,261,556 1,092,421,098 273,840,458
Headcount Change Total Benefit Costs
Impact on Income StatementBenefits Metrics
Income StatementNumbers inThousands
12/31/06 12/31/05 12/31/04
Total Revenue 473,117 407,099 291,649
Cost of Goods Sold 67,937 88,577 36,441
Gross Profit 405,180 318,523 255,207Research & Development 61,116 55,234 61,534Selling General &Administrative 81,183 83,488 79,245
Others 20,396 55,045 4,595
Total Operating Expenses 242,485 124,756 109,833
Interest & TaxExpense 48,497 24,951 21,833
Net Income 193,988 99,804 87,867
Compensation Tie-in
Compensation is the alignment mechanism that is most effective in an organization…
Return on Training Expense
TRAINING INVESTMENT PER EMPLOYEE
Total Training Costs + (Opportunity Costs)
÷
Headcount
$6,000,000 + ($50,000,000/220 working days = $227,273 daily payroll costs X 5 ΔΔΔdays of training) $1,136,365 = $7,136,365
÷
1000 employees = $7,136 Training Investment per Employee
ROTE= Avg. Training Investment per EE ÷ Δ in Group Revenue (at a time interval) X Δ in Group Revenue (at a time interval) ÷ Avg Dept Wage
7136 ÷ 20,000,000 X 20,000,000 ÷ 75,000 = 9.5%
ROI = 9.5%
If the WACC is 7% < 9.5
Training is making the company money. Your CFO will approve this EVERY TIME.
The Future of HR MetricsBusiness Intelligence
• PREDICTING THE PRESENT• Harrah’s Entertainment, Citibank, CVS and Dunkin’
Donuts are almost there with an approximately 6 week lag in their business intelligence systems
• Real-time Opportunity reporting + real-time risk detection reporting = real-time enterprise reporting THE ABILITY TO REACT.
• Business intelligence technology firms are currently embedding HR Metrics into their Business Intelligence Dashboards for CEO’s and “C” level execitives (SAP/Business Objects, IBM/Cognos, Oracle/Hyperion)
The Future of HR MetricsBusiness Intelligence
• Do you really want to have technology and finance experts construct the metrics that HR will be judged by?- The time to become involved in HR Metrics is NOW!
• Success stories for HR Metrics• William Clay Ford (Ford) includes the success rate of HR in
recruiting and retaining high performing salespeople as an HR metric in his BI Dashboard
• Jeff Immelt (GE) includes the ratings of the developmental experiences of his high potentials as an HR metric in his BI Dashboard
One of the Most Important HR MetricsAdding Value to Your Personal Bottom Line
What is the value of today’s discussion of HR Metrics for you?
• Formula (Very Conservative)• Annual Compensation X Percentage Productivity Increase -
($Dollar Cost + Opportunity Costs*) = Net Value• Financial Impact Impact
• $75,000 X .005 (.5%) - ($0 + $42.61*) = $332.39 Net Value to You As a Participant
*opportunity cost ($75,000/220 working days/8 per day = $42.61)
Summary• Some Final Thoughts
• HR Metrics are formula-driven and easy to use
• HR Metrics and BI are fast becoming “the way we do things around here” - so catch the wave now! Early adoption is over…
• If you become an HR Metrics user-both you and your HR organization will gain increased respect from CEOs, CFOs and senior managers
• If you don’t use HR Metrics someone who isn’t HR (Finance or IT) will use them and may even imbed them in a BI Dashboard for the CEO or Board - “and the fault will lie not in our stars but in ourselves” (Shakespeare)
Contact Information
Robert J. BuckleyPresident
RO Buckley ConsultingPhone: 908.502.5251Mobile: 646.595.6128Email: robert@robuckley.com
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