Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2 The Financial Impact of Human Resource Management Activities

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Behavior Costing Approach  A dollar amount is assigned to specific behaviors, such as  Absenteeism  Turnover  Job Performance  Employee value is not measured, but rather the economic consequences of employees’ behavior is measured

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Controllable and Uncontrollable Costs  Controllable costs are those a firm can alter and decrease  Employee turnover due to the following is controllable:  Moving to another company for promotion opportunities  Moving to another company for higher pay  Moving to another company for career development  Employee turnover due to the following is uncontrollable:  Death  Poor-health conditions  Spouse transfer

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Costing Employee Absenteeism  Absenteeism is the failure of an employee to report to or remain at work as scheduled, regardless of reason  Statistical breakdown of employee absenteeism  Most employee absences are family related  Sickness accounts for only approximately 1 in 5 cases  Stress accounts for approximately 1 in 6 cases  Entitlement mentality also accounts for about 1 in 6 cases

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Costing Employee Turnover  Three components of employee turnover costs:  Separation Costs  Replacement Costs  Training Costs

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Separation Costs  The four components of separation costs are as follows:  Exit Interview  Interviewer’s time  Termination time  Administrative Functions Related to Termination  Removal of employee from payroll  Termination of employee benefits  Turn-in of company equipment  Separation Pay  Severance packages  Increase in Unemployment Tax

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Replacement Costs  Replacement costs consist of eight components:  Communication of job availability  Pre-employment administrative functions  Entrance interviews  Testing  Staff meetings  Travel and moving expenses  Post-employment acquisition and dissemination of information  Medical examination

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Training Costs  There are three elements of training costs  Informational literature  Employee handbooks  Instruction in a formal training program  Instruction by employee assignment  O.J.T

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Effects of Employee Attitudes  An attitude is defined as an internal state that focuses on particular aspects of an object in the environment  Attitudes include three main elements  Cognition  Emotion  Action tendency

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Effects of Work-Life Programs  Work-Life programs are company programs like the following:  Child and dependent-care benefits  Child and elder care  Flexible working conditions  Flextime, job sharing, telework  Leave options  Maternity, paternity, adoption leave  Information services and HR policies  Parenting classes, cafeteria benefits, health issues  Organizational Cultural Issues  Supports the non-work lives of employees

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Costing the Effects of Training Activities  Two types of measures of training outcomes exist:  Indirect Measures  Improvements in job performance, decreases in errors, time to break even  More common than direct measures of economic outcomes ($ gained or saved)  Direct Measures  Indirect measures can often be converted to economic outcomes through utility analysis  When direct measures are available, as in sales training or statistical process control, standard valuation methods are appropriate to determine the value of outcomes in dollars

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Impact of High-Performance Work Practices  Employees are given information, skills, responsibility, and incentives to make important decisions  These practices require the following components:  Reliance on front-line employees  Treatment of workers as assets to be developed rather than costs to be cut  Worker-management cooperation to break down adversarial barriers  Use of technology to assist human beings and not vice versa

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. The Link Between Productivity and Profitability  The Gallup Organization found that four management behaviors seem to underlie productive work places:  Select for talent  Define the right outcomes  Focus on strengths  Find the right fit