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  Absenteeism  Turnover  Job Performance  Employee value is not measured, but rather the economic consequences of his or her behavior

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 high pay  Moving to another company for career development  Employee turnover doe the the following is uncontrollable  Employee death  Employee health  Employee’s 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  Mental entitlement is also around 1 in 6 cases

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Costing Employee Turnover  3 components of costing employee turnover  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  Interviewers 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 as follows:  Communication of job availability  Pre-employment administrative functions  Entrance Interviews  Testing  Staff meetings  Travel and moving expenses  Post employement 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 dependant-care benefits  Child and elder care  Flexible working conditions  Flextime and job sharing, etc.  Leave options  Maternity, adoption leave, etc.  Information services and HR policies  Parenting classes, cafeteria services, etc  Organizational Cultural Issues  Supports the non-work life of employees

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Costing the Effects of Training Activities  Two types of costing training activities exist  Indirect Measure  More common due to difficulties in achieving accurate results  Direct Measure  Even when reasonably accurate results are achieved, standard valuation methods are appropriate

Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Financial Impact of High-Performance Work Practices  Employees are given information responsibility, skills, and incentives to make decisions  These practices require the following components:  reliance on front-line employees  Treatment of workers as assets rather than cost liabilities  Attempts to breakdown 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  Four management beliefs that trigger 12 worker beliefs  Select for talent  Define the right outcomes  Focus on strengths  Find the right fit