Theme 3: Business decisions and strategy What criteria would you use to measure your performance in the sixth form? Can the same criteria be used to measure workforce performance? 3.5.3 Human resources

3.5.3 Human resources In this topic you will learn about Calculate and interpret the following to help make business decisions: labour productivity labour turnover and retention absenteeism Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism: financial rewards employee share ownership consultation strategies empowerment strategies

Human resource data Human resource data is quantifiable information that can be used to measure workforce performance This will help inform decision making e.g. is corrective action needed, should bonuses be paid, are staff motivated? Human resource data includes: Labour productivity Labour turnover and retention Absenteeism

How significant is the UK’s productivity gap? Labour productivity Labour productivity is a measure of workforce performance that looks at output per worker Calculated as: Total output Number of workers Example: A car firm produces 100 000 cars per year It has a labour force of 1 000 workers What is the labour productivity of the company? 100 000 = 100 cars per worker 1 000 Labour productivity is normally shown over a period of 1 year How significant is the UK’s productivity gap? What factors do you think are influencing labour productivity in the UK? http://www.theguardian.com/business/2014/feb/20/britain-productivity-gap-widens UK productivity gap with developed nations now widest for 20 years

Labour productivity In year 1 Laptops4u had 100 workers who produced 10 000 laptops. In order to try and reduce costs at the end of year 1 they laid off 20 workers. In year 2, with 80 workers, they produced 9 000 laptops. On average an employee is paid an annual salary of £17 000 What was the labour productivity in year 1 and year 2? What was the percentage change in labour productivity? What is the relationship between labour productivity and labour cost per unit? 5

Labour turnover Labour turnover is the rate of change in a firm’s labour force Calculated as: Number of staff leaving x 100 Average number of staff Example: A car firm has 1 000 full time employees in 1 year Of these, 50 employees leave the company What is the labour turnover for the company? 50 x 100 = 5% 1 000 Labour turnover is normally shown over a period of 1 year What are the advantages of labour turnover? What are the disadvantages

Labour turnover Staff turnover costs Britain £4.1bn Staff turnover costs Britain £4.13bn a year, according to a report by Oxford Economics and the insurer Unum. It costs an average of £30,614 to replace a departing employee. That is £5,433 for agency fees, advertising and interviewing, plus £25,182 over the time that new hires take to hit full productivity. Source: http://www.independent.co.uk/ July 2015 http://www.compensationforce.com/2015/03/2014-turnover-rates-by-industry.html Why do you think labour turnover rates vary between industries? Use the data provided to justify your response.

Labour turnover In year 1 Laptops4u had 100 workers who produced 10 000 laptops. In order to try and reduce costs at the end of year 1 they laid off 20 workers. In year 2, with 80 workers, they produced 9 000 laptops. What is the labour turnover between year 1 and year 2? Make a list of six factors that might lead to high labour turnover in a business. Choose two of these factors and explain what a business could do to reduce labour turnover in these circumstances. 8

Retention rates Retention rates are a measure of a firm’s ability to keep its workforce within the business normally for more than one year Calculated as: number of employees serving for more than 1 year x 100 average number of staff Low retention rates may present a threat to a business: High recruitment, selection and training costs Risk of loss of important information (secrets) Loss of talent Why do Brompton Bikes want to retain their engineers? http://www.bbc.co.uk/news/business-11464261 Resigning staff 'costing firms £42bn a year‘ http://www.telegraph.co.uk/finance/good-news/9482147/Why-Brompton-is-built-in-Britain.html What are the costs to a business of resigning employees?

Absenteeism Absenteeism can be defined as the number of staff who miss work as a proportion of the total number of staff Calculated as: Number of staff absent per time period x 100 Total number of staff days worked per time period We would normally look at absenteeism over a period of time e.g. 1 month Worked example: A car firm has 1000 full time employees Of these, 40 employees did not turn up for work on a Friday What is the absenteeism rate for that Friday 40 x 100 = 4% 1000

Absenteeism At Laptops4u absenteeism was seen as a problem. In 2016 there were 100 workers who worked an average of 225 days each a year. Altogether, the workforce took 4500 days off. What was the absenteeism rate for 2016? In small groups think of 3 different ways to reduce the absenteeism rate. How will these methods reduce absenteeism? What are the costs to a business of absenteeism: In the short term? In the long term? 11

Activity – Light flights Light Flights took over a light aircraft manufacturer in 2015 and immediately invested in factors of production at the company. New capital equipment in the form of machinery and new methods of training were brought into the firm. The result was an increase in labour productivity but, at the same time, a rise in labour turnover (2016 = 6%). Company information 2015 2016 No. of workers 1000 900 Aircrafts produced 200 225 Days workers absent 1500 2000 Total no. of days available for work 20000 18000 Comment on the workforce performance at Light Flights between 2015 and 2016. 12

Recap year 1 financial incentives. Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism Recap year 1 financial incentives. Financial rewards are the variety of methods that have a money value and are used to reward the workforce and influence their behaviours at work Financial methods of motivation include: Piece rate is when payment is based on the number of items (pieces) produced by an employee Commission is when payment is based on the number of units sold Bonus is an additional, lump sum, one off payment to an employee for meeting individual, team or company targets Profit share is when a proportion of employee pay varies with the profits of the company Performance related pay (PRP) is when employees receive a bonus based on the performance of the employee measured against a pre agreed range of criteria https://www.theguardian.com/business/2015/mar/12/john-lewis-cuts-staff-bonus-to-lowest-level-for-12-years Staff bonuses at JLP lowest for 12 years – but is it still a motivator?

4 minutes - Test yourself How many non-financial techniques to improve performance can you list? End

An introduction to employee share ownership. Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism . Employee share ownership Giving employees shares or the option to buy shares in the company The employee therefore directly benefits from the success of the company Dividends received Increased share value An introduction to employee share ownership. http://www.esopcentre.com/employee-share-ownership-an-introduction/

What is meant by a soft HR strategy? Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism What is meant by a soft HR strategy? . Consultation strategies Seeking the thoughts and opinions of employees prior to making decisions Involving employees in decision making Increases feeling of worth and involvement Easier to implement change as staff feel involved in the decision making process Employees have valuable input as they are often the ones working within functions and understanding key issues e.g. production problems of customer service

Empowerment strategies Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism Empowerment strategies Delegating greater responsibility to employees Allowing them to use their abilities and to have a greater say in the decision making process Consultation and empowerment strategies can be achieved through: Matrix structure Employee/employer groups e.g. works councils or trade unions Open, two way communication channels Meetings and forums .

3.5.3 Human resources In this topic you have learnt about Calculate and interpret the following to help make business decisions: labour productivity labour turnover and retention absenteeism Human resource strategies to increase productivity and retention and to reduce turnover and absenteeism: financial rewards employee share ownership consultation strategies empowerment strategies