Human Capital Metrics – Time to Rethink Their Value?

Over the course of many years there have been countless attempts to develop HR/HC metrics. Always the skeptic, I have come to believe that the attempt to develop and utilize the metrics is a little overblown. For example an extensive analyses of staffing, employee training, rewards provided, and employee attitudes are difficult to accurately measure and for many executives outside of HR, worthless. In short, with few exceptions, I don’t think the traditional HR metrics are worth a hoot. Looks like I’m not alone. According to a study conducted by ISR, a global research firm, few of the metrics evaluate the effect of human capital management on corporate performance. ISR conducted a poll in which 100 business executives were asked their opinions regarding HR/HC metrics. Here’s what they said:

• 91 percent of those surveyed have some measures related to human capital, but only 46 percent assess the impact of human capital on business performance.


• 77 percent of those surveyed conduct an employee opinion survey, but only 47 percent use those findings as part of their human capital key performance indicators or balanced business scorecard.


• A modest 43 percent of the respondents use human capital measures within senior executive appraisals, and an even smaller percentage – 30 percent – include human capital measures as part of the senior executive bonus system.

Uh, in a nutshell, that’s not good. So, where to from here? Jack Fitz-enz, founder and chairman of the Saratoga Institute, now a part of Spherion's Human Capital Consulting Group, suggests these 10 metrics. Interestingly, the HCM software my firm developed addresses all but two of the metrics.

• Your Most Important Issues. These are the targets of all lower-level measures. Whether it be one or a few measures, make certain that you are focused on them and that your metrics lead in a direct line to them.
  

• Human Capital Value Added. How do the people in your organization optimize themselves for the good of the company and for themselves? This is the prime measure of a person's contribution to profitability and shows that you can answer the question: "What are people worth?"
  

• Human Capital ROI. This is the ratio of dollars spent on pay and benefits to an adjusted profit figure.

• Separation Cost. It's important to know how many people are leaving and from which areas, but it's more important to know what that costs the organization. The average cost of separation for an employee is at least six months' equivalent of revenue per employee.

• Voluntary Separation Rate. Loss of personnel represents potential lost opportunity, lost revenue, and more highly stressed employees who have to fill in the gaps. If you can cut the separation rate, you don't incur the cost of hiring for these positions or lose quality in your customer service.

• Total Labor Cost Revenue Percent. This is total benefit and compensation cost as a percent of organizational revenue: the complete cost of human capital. In other words, this shows how much of what you are taking in through revenue goes to support the company's total labor cost (including temporary, seasonal, and contract or contingent workers. Thus, it accounts for all your W-2 and 1099 employees.
  
  This metric is designed to help you track changes in your workforce. You can do this best by comparing this metric to your revenue factor, your compensation costs, your benefit costs, and your contingent off-payroll Costs. If your Total Labor Cost Revenue Percent is increasing, you need to see if this is because your compensation costs or your benefit costs are increasing or if your revenue is decreasing. This will help you determine what actions to take based on your business objectives. Cutting costs may only help in the short-term if revenue is decreasing.
  
  Also, by looking at this number in comparison to your contingent off-payroll costs, you can analyze whether or not your contingent workforce is contributing to an increase or decrease in your total labor costs.

• Total Compensation Revenue Percent. This is the percent of the organization's revenues that are allocated to the direct costs of the employees. This differs slightly from Total Labor Cost Percent; it does not include the costs for any off-payroll employees who receive a 1099. It only accounts for any on-payroll employees. Again, it is best to compare this measure to your Revenue Factor, your compensation costs, and your benefit costs to analyze what is happening with workers before creating strategies to address any concerns.

• Training Investment Factor. Forces are in conflict within the workplace. There is a continuing invasion and distribution of technology aimed at improving individual productivity and a growing demand for better service. Yet many workers cannot read, write, do simple calculations or talk intelligently with customers. The organization must invest in bringing up basic skills.

• Time to Start. With the ongoing shortage of talent, recruitment will be a major challenge. Monitoring the time from approval of a requisition until someone is on the job is a strategic indicator of revenue production.

• Revenue Factor. This is the basic measure understood by managers.

Labor Economics and the Market for Ignorance

I live in San Antonio, Texas. It’s a wonderful city in which to live and raise a family. However, the city is home to a sizable population of the under-informed. And when it comes to labor issues, these folks just itch for a fight. The latest issue to make headlines is whether an employer, named in the story below, is racist and discriminatory. Here’s what WOAI in San Antonio writes about our latest debacle:

Is it racist to pay workers more for the same job in a mostly Anglo upscale neighborhood than you would pay in a mostly minority poorer neighborhood?

A labor rights group says it is 'racist and discriminatory' for Bill Miller Bar-B-Q to pay workers $9 an hour at locations on San Antonio's north side, while workers doing the same job for Bill Miller on the mostly Latino west side make $6.50 an hour.

Activist Monica Garcia of the Southwest Workers Union says she knows the reason for the pay disparity...she says it's blatantly racist.

Full credit is given to Jim Forsyth with WOAI for writing this. Read Mr. Forsyth’s entire article on WOAI’s website.

Here’s my take:

• Activists need to be much more informed about their chosen rants. The Revs. Al Sharpton and Jesse Jackson often are poorly informed regarding the issues on which they choose to comment. Remember Rev. Sharpton’s Tawana Brawley controversy? Cindy Sheehan has very little knowledge, if any, regarding the political issues prompting the war with Iraq. How could she? She is not on the U.S. government’s payroll. Activists carry a significant amount of personal baggage representing what are most likely years of hardship and the perception of personal injustice. When an issue conveniently comes along reflecting those personal hardships, out comes the bullhorn. Such is most likely the case with Ms. Garcia.


• The allegation of racism is simply ridiculous. Ms. Garcia should consider attempting to sell the media (and thus the public) on allegations of discrimination alone and leave racism out of the equation. Racism is not covered by Title VII of the Civil Rights Act of 1964 nor is it covered by any other employment-related law. Discrimination, on the other hand, IS covered by the Age Discrimination in Employment Act, Executive Order 11246, the Equal Opportunity Act of 1972, the Rehabilitation Act of 1973, the Pregnancy Discrimination Act of 1978, the Age Discrimination in Employment Amendments of 1986, the Age Discrimination Claims Assistance Act of 1988, the Americans with Disabilities Act of 1990, the Older Workers Benefit Protection Act of 1990, the Age Discrimination Claims Assistance Amendments of 1990, the Civil Rights Act of 1991, the Age Discrimination in Employment Amendments of 1996, the Higher Education Amendments of 1998, and Executive Order 13145.


• Ms. Garcia clearly has very little concept of labor economics. Where the labor supply is in greater demand and thus the supply is shorter, the price for labor increases. Such is the case here in San Antonio where the north side of town is largely represented by citizens who have at the very least a high school diploma and many have achieved education beyond high school (I’m stating this as delicately as possible). Point is; there is not as large a labor pool of workers from which to draw in order to staff the restaurants on the north side of town as compared to the other locations in the city. The greater the supply, the lower the price. Simple economics. It has nothing to do with racism.

I could go on… the price of housing is more expensive on the north side of San Antonio. The price of food is higher on the north side of San Antonio despite the fact that we have one grocer in the city. The price of fuel is higher on the north side. Reasons? The demand for housing is greater on the north side of town and the residents of the north side of the city are in a better position to pay more. It's not fair, but that's not part of the equation.

Some may ask why this issue is even in the Prophet’s blog. Here’s why:

• Labor economics is apparently not well understood by a majority of the population. A little research would be useful. However, intelligence doesn’t sell well in the media.


• The “racism card” is a cheap shot. It’s yelled in what seems to be desperation. When in doubt, or not, yell racism. Discrimination, on the other hand, is a valid issue. If a non-minority worker and a “worker of color” hold the same job, have the same tenure, and perform identically, and the “worker of color” is paid less than the non-minority worker, THAT is discrimination. If that is the issue Ms. Garcia is attempting to promote, she should prove it in court.

Ms. Garcia and any of her followers should conduct some research beyond observing the "Help Wanted - We Pay $x.xx" signs on store fronts. Knowledge of, in this case discrimination law, well-researched facts and a the development of a solid argument carry more weight than a stupid rant. But, ranting comes easy for those who are ignorant.

HR Managers Gone Bad

Once in awhile, sometimes more often than I wish, I’ll hear stories about HR practioners gone bad. We’ve all heard them and it’s irritating because it stains our reputations as professionals. Here’s one I heard of not long ago…

Seems an employer has a work hours policy of between 9:00 a.m. and 3:00 p.m. In other words, employees of what I’ll call ABC Corp, are expected to be in their chairs between the hours of 9:00 and 3:00. Simple enough. The employees can come in early and leave a little early or come in late and leave a little late as long as they get in a minimum of eight hours of work. This particular employer has, like many employers, a building with a large parking lot right next to it. As ABC Corp is a sole tenant, it is pretty simple to see who is coming and going. Of course, over time, talented parking lot observers (PLOs) will be able to associate cars with people. So it seems was the case. The PLOs noticed that the parking lot was beginning to empty out shortly after 3:00 day after day. The “perps” included employees of ABC Corp that came in just before 9:00 in the morning. Simple math tells us that those perps hadn’t put in the required eight hours.

It didn’t take long before ABC Corp management took notice and called upon the HR manager to correct the issue. The manager’s mandate? Nail the perps and remind the employees that the ability to work flexible work hours is a privilege, not a right. Well, as one might expect, that’s exactly what the HR manager did and with badge in hand, reminded the employees that they were there to work the required hours. Nothing like endearing oneself to the workforce.

Some of you might be asking what’s wrong with the HR manager’s actions? Oh, let me list the ways. OK, I will.

• The HR manager acted as a police officer. Policing the work force is not the responsibility of the HR manager nor should the HR manager have let the company execs convince the HR manager otherwise.
• Acting as a police officer, which many HR professionals feel compelled to do, does nothing to gain the trust of the workforce. Managers are not only relieved of their respective responsibilities to talk directly to their subordinates regarding reasons for early departure, but, and this is a large but (I’ll leave the other ‘t’ off), the managers have less respect for the HR manager as well. After all, managers are employees too.
• As the HR manager played the cop card, the manager pitted the workforce against the management team who then held the HR manager responsible for the mess. Not a position of envy. Repairing this sort of damage takes time and may, in fact, be irreparable.

Now the last reason. This reason is not bulleted because it is, perhaps, the most important reason the HR manager was wrong to act in the manner in which the manager acted and thus deserves its own paragraph. The HR manager missed an important opportunity to correct the problem by not exploring the root cause of the early departures. If employees are leaving early, there must be reasons. For example, are there individual relationship problems between subordinates and their managers? Are employees bored because there are too many employees with task overlap? Do they understand that they have specific objectives they are working towards? Has ABC Corp fully communicated the goals of the organization to the extent that the employees feel a part of ABC and wish therefore to contribute? Is there a daycare problem? There are, undoubtedly, more questions one could ask. In other words, what is ailing the human capital prompting early departures?

As is the case in the example above, HR managers are too often caught in a role of police officer. There are reasons for this sort of thing but that doesn’t excuse the HR manager. Clearly, the HR manager should endeavor to communicate his or her abilities as a professional to the management team. Most importantly, the wise HR manager should look beyond the tendency to react in a punitive fashion and explore the real issues behind, in this case, the early departures.

What about you? Are you aware of HR managers gone bad?

Employee Relations – Whose Job is it?

Does it ever appear to you that managers are simply too busy to deal with their subordinates? You know, the coaching, mentoring, guiding, ensuring people are doing their jobs sort of stuff. The sort of stuff that is used to retain employees. I suppose that’s why we have jobs, in part. As HR professionals, we deal with managers’ people issues. Employee relations, right? Employee relations has been one of the tasks of HR professionals for years. It’s the sort of thing where Fred walks into the HR manager’s office and unloads an unpleasant employee relations issue on the willing HR manager who eagerly takes it on in an effort to be helpful. Fred simply didn’t want to bother his manager with the issue. Happens every day. Here’s the rub, we’ve got to stop it from occurring. That’s right. Employee relations should NOT be a task for which the HR manager is responsible.

Now, let me clarify. I’m not suggesting that HR professionals no longer address federal, state, and local labor law issues. I suppose one could label such tasks as employee relations. I tend to associate the knowledge of employment law with, well, employment law. Not employee relations. What I’m addressing here is the relationship a manager has with his subordinate… his or her skill at building relationships with his or her employees. This sort of skill includes, but is not limited to, the ability to clearly describe what is expected of the employee with respect to performance; the ability to recognize the employee’s work when warranted; the ability to guide, coach and mentor the employee; the ability to correct performance as necessary; the ability to provide a career path for the employee; and on and on.

It’s those “abilities” that many managers don’t have, don’t want to have, or simply don’t have time to perform (or so they say). So, in steps the HR professional to save the day. Nothing could be less helpful for the manager. Instead of taking a monkey off of the manager’s back, by removing the employee relations responsibilities, the monkey now in effect, becomes a gorilla. Mistakes the manager has made which resulted in Fred’s initial visit above are made again. The manager does not have the opportunity to learn from someone who knows how to handle the issue. That someone is the HR professional. It is his or her job to coach and mentor the manager. Not to do the job for the manager.

So, whip out your job descriptions and remove the employee relations responsibilities. Leave that to the managers. Don’t make the mistake of prohibiting them from doing their jobs. Oh, one last thing. The number one reason people leave their jobs voluntarily is due to the relationship they do, or don’t have with their managers. Help your managers so they can help you and your employer retain good, talented, capable employees.