Category Archives: Connecting Dots

August 7, 2012 · 4:30 am

Decreasing ROI on Human Capital

PwC Saratoga publishes an executive summary every year that picks out noteworthy new data from its US Human Capital Effectiveness Report.  The report covers more than 200 unique metrics related to the effective management of human capital from more than 300 organizations in 12 industry sectors.  The average organization in this year’s report has yearly revenue of $5.5 billion and 19,500 employees.  While PwC Saratoga gathers information globally, this report covers data from US operations only.

This executive summary is not a difficult read – it includes some case studies – and it contains some pretty sobering statistics.  For example:

The revenue per FTE (full-time equivalent) has been declining steadily since 2008 –  by 18% — and has only marginally improved over 2006 levels. During the same time period, labor cost per FTE has grown nearly 14%:

It doesn’t take an MBA to understand that when costs rise and revenue falls:  you have a big problem.  And when labor costs rise and productivity declines, HR has a big problem.

The continued growth in labor costs per employee could be surprising to some given the relatively flat increases that trended during the recession.  According to this survey data, however, even during the darkest days of the recent recession, compensation costs per FTE (without healthcare or other benefits) increased year over year.  Surprising no one, though, health care costs increased year over year with the exception of 2009-2010.

The bottom line is that while the all-in cost of labor is going up, the revenue produced by that labor is decreasing, thus the diminishing ROI of human capital in the U.S.

While this might look like bad news for HR – do they really understand the dynamics of business? – it actually creates the beginning of the business case for increased investment in workforce planning, productivity and engagement.

Turning these trends around will take clear-eyed assessments of the current state, deep knowledge of solutions and the ability to connect the dots between multiple organization and environmental dynamics, compelling fact-based business cases for new investment and the courage to take bold action.

Want to be a strategic business leader?  This may be your best opportunity yet!

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Filed under Average Wage, Business Case, Business Success, China Gorman, Connecting Dots, FTE, Full Time Equivalent, HR Credibility, Human Capital ROI, PwC Saratoga

July 31, 2012 · 5:00 am

Getting leave management wrong has consequences — and they aren’t what you think!

Leave management is one of those tactical HR functions that we’re required by law to get right.  With more than 300 state, local and federal laws/regulations with which to comply, U.S. employers have to stay on top of an ever-changing morass of guidelines that impact their employees in very personal ways.  It’s not just about vacation or PTO.

Workforce Management has published trend survey data on this topic and even though the subject of tracking employee time off is pretty tedious, the issues surrounding it are business critical.  The 2011 trend survey, published in early 2012 and sponsored by WorkForce Software, is amazingly interesting. I know, surprising, right?

For example, unless you’re the one responsible for ensuring compliance with all applicable laws/regulations, did you know that 40% of employers report an error rate of 3 or more unearned leave days per 100 employees per pay period? That’s pretty big from a payroll expense perspective.  And what do you do when you find out? Clawback the unearned time? And how do you do that? Take time out of next year’s leave pool? Ouch.

That’s why I found it really interesting that when the survey asked employers what the greatest negative impact of non-compliance was, Employee Morale was far and away the biggest impact. Regardless of the employer’s size.

Here’s why this makes sense to me:  I learned early in my leadership career that you have to get employees’ compensation right. You have to pay them the right amount; you have to pay them on time; and you have to manage their time off accurately. You can’t screw up any of these and not impact morale. And if you screw up any or all of these up more than once you’re sunk.

And so it really isn’t surprising that more than litigation fines/costs and brand equity/reputation, employee morale is HR’s biggest concern in ensuring compliance in managing time off. I don’t think this concern is driven by the old “touchy-feely” rap that HR used to get. This is cold, hard reasoning about the cost to the engagement and retention of employees if the organization can’t get the basic building blocks of paying people correctly right.

So reducing the error rate isn’t just about reducing payroll dollar mistakes, it’s about productivity and morale. There’s more interesting data in this report. You can download it here.

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Filed under China Gorman, Connecting Dots, Engagement, HR Data, Leave Management, PTO, Talent Management, Workforce Management, WorkForce Software

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July 17, 2012 · 4:30 am

Paycheck Pessimism

Most people in the HR space know Glassdoor™ as a social media site that gathers anonymous information about employers from current and former employees.  Users can leverage their Facebook network to uncover connections at a company, view current openings, as well as review proprietary information that includes salary reports, company reviews, interview questions, CEO approval ratings and more.  It’s an incredibly useful site for job seekers to get the real skinny on a potential employer from the people who know it best:  its employees.

Of course, for employers and HR professionals, the site offers a full array of branding and recruitment-oriented services including the ability to create enhanced company profiles, Facebook career profiles, targeted job ads and more.

But for our purposes at Data Point Tuesday, we like Glassdoor™ because of its Quarterly Employment Confidence Survey.  Couple this report with monthly BLS reports and you get a robust picture of workforce and employer confidence and other dynamics.

For example, the Glassdoor Employment Confidence Survey surveys employees on their confidence in the areas of pay raises, job market expectations, company outlook and job security.  It’s great data and it’s presented in a highly consumable format.

The most recent survey was conducted by Harris Interactive between June 12 and 14 of 2,208 adults 18 years or older and was published on July 6.  Generally the data show improving or holding steady opinions on workplace confidence dynamics by employees with the exception of optimism in pay raises.  This dropped since last quarter to 40% (from 43%), while 37 % do not expect a pay increase – a low since the survey began in Q4 2008.

At first glance this seems a little off.  Expectations for a raise are at the lowest point since the 4th quarter of 2008 – and lower than the 4th quarter of 2008 when the economy was at its worst? Aren’t we starting to feel better about the economy?  Well, some of us are and some of us clearly are not!  The report says this:

  • Employee optimism in pay raises has dropped slightly since last quarter to 40%, while 37% reported they do not expect a pay increase…
  • The gender gap is closing around expectations for a pay increase over the next 12 months; 41% of women expect an increase compared to 40% of men.  However, men’s optimism around pay has declined five percentage points since last quarter while women’s optimism crept up one percentage point.
  • Younger workers are significantly less optimistic about pay raises than last quarter; 37% of 18-34 years olds expect pay raises in the next 12 months whereas nearly half (49%) expected raises last quarter.  All of the other age ranges have increased 2-4% from last quarter – 48% of 35-55, 42% of 45-54 and 36% of 55+ year olds.

So, if I read this right, men and young people under 35 report strong declines in optimism about pay increases while women report slight increase in optimism.

Men:  down 5%

Young people:  down 12%

Women:  up 1%.

How does this track with your turnover and engagement data?  Tracking turnover data by gender and age demographic is common.  How about engagement data?  Can you make connections between this lack of reported paycheck optimism among males and young people to the engagement data in your organization?  It might be worth a look.

And it might be worth keeping an eye on during the coming quarters – particularly in relation to the election in November.  Young people played a very active and pivotal role in the last presidential election.  Is their level of paycheck pessimism such that they won’t participate as strongly?  Or will it motivate them to even higher levels of activism?  And how will that translate to your organization’s turnover and engagement rates?

This is what’s so great about data.  They let you connect import dots.  Also, they always raise more questions than answers – but if you’re interested and aware you’ll start asking more of the right questions and connecting critical dots.  And who knows?  That could lead to formulating more effective people management and business risk mitigation strategies.

Isn’t that what HR is all about?

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Filed under Bureau of Labor Statistics, Connecting Dots, Engagement, Glassdoor, HR, HR Data, Turnover

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