1. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Individual Performance and HR Metrics February 2, 2010

2. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 What Matters about the Employee Key Outcomes: Performance Turnover Important Characteristics Withdrawal behaviors Job satisfaction Organizational commitment Perceived organizational support

3. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 What is Performance? Task performance Organizational citizenship behaviors – helping behaviors – not specifically part of the job but beyond the scope of the job but beneficial to the job (such as extra customer services when it is not your job) – how much your people contribute beyond their job description. Counterproductive performance – deals with tardiness, gossiping, stealing, violence at work, showing up late… all issues that you want to eliminate Overall Ratings – generally capture all aspect of the above three.

4. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Job Performance MotivationAbilityOpportunity Incentives Personality Job Design Attitudes Intelligence Personality Experience Constraints Rules and & Regulations Resources Culture

5. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Medium Complexity Complexity and the Prediction of Performance Low Complexity Motivation or Ability Job Complexity High Complexity Motivation + Ability Motivation x Ability

6. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 What is the Role of Job Satisfaction? How well does it predict job performance? How much does job satisfaction cause job performance? What else is related to job satisfaction? Dissatisfied people are more likely to quit than satisfied people. Why is it important to increase job satisfaction? Other ways to manage employees: Clear instructions lead correlation to occur between performing and employee satisfaction because people understand the instructions better

7. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 How Does HR Affect Employee Job Performance? 1.)Increase the performance levels of current employees Training Compensation Empowerment, feedback (employees don’t know when they’re not performing well because no one is telling them), etc. 2.)Selectively choose better performers Selection Turnover

8. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Better Performance Through Selectivity Must be able to be “picky” You must be able to choose Without the ability to choose, you cannot add value Must have validity Must be able to predict (have to be able to predict people’s performance) Without prediction, you also cannot add value

9. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Net Increases to Performance Improve employees’ current skills Give employees new skills Increase employees’ motivation – (incentives) Give employees the opportunity to perform better

10. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 How Much Does Employee Performance Matter? What can a bad employee do? What can a great employee do? Essentially can make other employees perform better. They can be simply more efficient What is a great employee worth to you compared to an average employee? Equality isn’t necessarily fair. Giving people who perform differently the same isn’t fair. In HR you should invest your money where the performance is going to have the highest return to the firm.

11. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 The Workforce Contribution Model Mindset and culture Competencies Behaviors & Performance Workforce Success Organizational Performance Leading Workforce Indicators Lagging Workforce Indicators

12. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Why Consider HR Metrics and Analytics? If employee behaviors can add value… … to what extent is that happening? The extent to which employee performance is occurring If HR decisions can add strategic value…... how do you see how well it is doing? – how well HR decisions are occurring (such as implementing new training and measure if decisions are adding value) If you are developing your leaders… … is it affecting the followers? If you implement systems to improve customer satisfaction… … are they working? If you want to maximize value from your investments… … shouldn’t you measure where over 50% of your money goes?

13. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 The Challenges of Successful Workforce Measurement and Management The Perspective Challenge How do you think about the workforce? What you should be observing and how you will measure it. The Metrics Challenge What data do you collect? Not only collecting what’s easy. The Execution Challenge Do you use to data to monitor your progress and change your behaviors? Change the way you manage HR so that it does indeed add value

14. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Develop a New Perspective The purpose of strategy – what is HR strategy. Has to match the company strategy. How HR can help the company achieve that? The purpose of employee performance The purpose of HR Systems – how do HR systems make that happen? The purpose of HR Metrics – how can I measure that or are there any Matrix that exist that will allow me to get that information?

15. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Types of HR Metrics Efficiency – easy matrix to collect – can help point out problems if you are aware of it. Outcomes ÷ Time Frequency of event (turnover rate, time to fill a position that is open)… tells you how efficient you are but doesn’t tell you how well you’re doing. Effectiveness – not how long it takes me to fill a position but what percentage of the people pass the probationary period… I need to look for better capable period… those that will actually pass the probation period. Outcomes ÷ Inputs Accuracy Change in performance Outcomes – IDEAL – how much am I changing… how much employees are contributing to the bottom line. In many cases it’s impossible. You want to know how HR contributes to value. Change ÷ Inputs Improvement in accuracy Change in business outcomes

16. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 HR Analytics = Using HR metrics to make human resource decisions Requires an understanding of how a company’s human resources contribute Requires you to understand what job performance really is: What do you mean by job performance What are its implications What are its antecedents (what causes it) How can you affect those antecedents (how you can affect those causes)

17. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Returning to this Idea of Job Performance: What is a GREAT performer worth? Housekeeper – clean more rooms faster and better… means you employee fewer people and therefore you increase profitability Front desk clerk - General manager

18. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Introducing the Metric of SDy: Estimating the $ Value of Employee Performance Definition The dollar value of an employee who performs one standard deviation above average on a given job Method of calculating (estimating) SDy Based on output Based on efficiency Based on job analysis and performance ratings Based on salary

19. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Calculating SDy Based on Output Amount Sold Number of Employees $10,000$35,000$60,000$85,000$110,000

20. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Calculating SDy Based on Efficiency

21. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Calculating SDy Based on Job Analysis and Performance Evaluation 1.Identify principle activities 2.Rate each activities’ frequency and importance 3. Multiple frequency x importance for each principle activity 4.Assign dollar values to each principle activity 5.Rate each employee (from 0 – 200) on each principle activity (with 100 being average) 6.Multiply the rating by the activity’s value 7.Compute each person’s economic value 8.Compute the SD of performance

22. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Compute SDy Based on Salary Low complexity jobs: Bus person, cashier housekeeper, cashier, front desk clerk SDy = 40% of salary Moderate complexity jobs: Housekeeping supervisor, room service supervisor, concierge SDy = 60% of salary High complexity jobs: General manager, restaurant manager SDy => 100% of salary

23. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Does this all matter? Does it work? Research suggests yes! Firms that diagnosed and evaluated the linkages between non-financial performance measures and strategic outcomes had an ROA that was 3% points greater, and an ROE that was 5% points greater Sears included Workforce Metrics as part of its dramatic turnaround, and can document how changes in employee attitudes leads to increases in revenues Other success stories of implementing Workforce Metrics at IBM, Verizon, LEGO, Dell, Prudential,

24. HA 7712: Human Resource ManagementProfessor Sturman, Spring 2010 Why is SDy Important? Types of questions you can answer if you know SDy: A structured interview costs $10,000 to design, will cost $400 per interview to conduct, but has a high validity (r =.40). Should you invest in it? A training program costs $3,000 per employee and has a moderate effect on job performance (d t = 0.30). Should you invest in it? A pay-for-performance plan will cost $2500 per employee. It will help retain high performers, but likely increase turnover of poor performers. Should you invest in it?