1. HR Metrics: Speaking the Language of Your CFO
HR.com Presentation
December 12, 2011
Presented by: Robert J. Buckley, MBA RO Buckley Consulting

2. Agenda Why Are We Here? Characteristics of High Credibility HR Metrics
Generic Examples
Case Studies
Recruiting Metrics
Benefits Metrics
The Future of HR Metrics
Q&A
Compensation Tie-In

3. Why Are We Here Today?
We are here to learn ways to communicate better with our CFO’s
Communication courses for HR Professionals
Finance is the language of business
HR needs to step up and be a business partner ?
GAAP
Finance HR
HR Metrics: The HR “dialect” to communicate in Finance

4. Characteristics of Quality HR Metrics
Accurate
Consistently engineered
There are no GAAP or FASB Rules for HR Metrics
Fully integrated into the business
Driven by business strategy
Impact measured in $dollars (Finance)
Enabled by technology
The level of HR metric used is driven by the needs of both client and provider

5. HR Metrics Orientation
HR Service Provider
Corporate/
Business
Manager
Metrics which track transactions
Time To Fill
Number of Positions Filled
EEOC Applicant
Tracking

6. HR Metrics Orientation
HR Business Partner
Business
Leader
(Major Business)
Metrics which have $dollar Impact
% Increases in Health Care
HR Expense Ratio
Turnover Costs per Employee

7. HR Metrics Orientation
HR Trusted Advisor
Enterprise Leader
CEO
Board
Metrics having $dollar impact on
Income Statement
Revenue & Net Income by FTE
Salaries as Percentage of Operating Expenses
Turnover Costs

8. Generic Examples COST PER HIRE HEALTHCARE COSTS PER EMPLOYEE
Advertising + Agency Fee + Employee Referrals + Travel Costs (applicants & staff) + Relocation Costs +Recruiter Compensation and Benefits ÷
Number of Hires
$25,000 + $50,000 + $10,000 + $5,000 +
$20,000 + $150,000 = $260,000
100 Hires = $2600 per hire
HEALTHCARE COSTS PER EMPLOYEE
Total Costs of Healthcare
Total Number of Employees
$15,000,000
1000 employees =
$!5,000 per employee

9. Generic Examples REVENUE PER EMPLOYEE (or FTE’s) TIME TO FILL Revenue÷
Total Number of Employees (or FTE’s)
$120,000,000
1000 (1037) = $120,000
TIME TO FILL
Total Days Elapsed to Fill Requisition
Number of Employees Hired
3347
100 = (Average number of days to fill a requisition)

10. Generic Examples TRAINING INVESTMENT PER EMPLOYEE TURNOVER RATE
Total Training Costs + (Opportunity Costs) ÷
Headcount
$6,000,000 + ($50,000,000/220 working days = $227,273 daily payroll costs X 5 days of training) $1,136,365 = $7,136,365
1000 employees = $7,136 Training Investment per Employee
TURNOVER RATE
Number of separations during month
Number of employees on payroll during the month X100
167
1000 employees = 16.7% Turnover Rate

11. Generic Examples TURNOVER COSTS PER EMPLOYEE
Total cost of separation + replacement costs + training costs + vacancy costs (contingency worker costs - wages and benefits not paid because of vacancy) ÷
Number of employees
$8,800,000
1000 = $88,000 Turnover costs per employee

12. Recruiting Metrics
Case Study

13. Company Situation Cost per Hire is too High Time to fill is too long
28% of base salary
Industry benchmark: 17% of base salary
Time to fill is too long
57 Days
Industry benchmark: 44 days
Hiring managers upset
Hiring costs are soaring
Extensive opportunity costs
Increased workload for existing staff

14. Intervention Hiring Past Practices New Hiring Strategy
65% - Agencies (retained and contingent)
35% - Other (internet, referrals, university)
New Hiring Strategy
Leverage Internet (46%)
Targeted: Specialized skills and Director + positions
General: All other positions
Company website/internet, Monster.com, HotJobs.com, etc.
Enhance Employee Referral Program (11%)
Increase bonus from $500 to $3,000
Increase university sourcing (15%)
Agencies used only for C-level of niche positions (25%)

15. Results Cost per Hire decreased* Time to Fill decreased
16% of base salary
$7,296 less per hire
Time to Fill decreased
19 day decrease (54 to 35)
6 days less than benchmark (44 days)
Vacancy Costs decreased
Saved over $1.3M
Better able to capitalize on new business opportunities
Total savings over $2.3M per year
Includes cost of 1 additional recruiter

16. Formulas
Cost per Hire = (Advertising + Agency fees + Referral fees + Travel costs + Relocation costs + Recruiter pay/benefits, etc.) ÷ Number of Hires
Time to Fill = Total days elapsed to fill requisitions +Number Hired
Vacancy Costs = Contingency worker costs + OT for employees + Lost opportunities - Vacancy salary and benefits

17. Financial Impact

18. Impact on Income Statement Recruiting Metrics

19. Benefits Metrics
Case Study

20. Company Situation 2009 Employee benefits skyrocketed 32%
Average US medical benefit increased 9.2% for same year*
Rising benefit costs undermine product cost competitiveness
Competitive pressure from China
Competitor sells product for 75% less
Market share decreased 40% as a result
*Source:

21. Intervention Decrease Costs
Join a consortium to increase buying power and reduce fees
Transition from fully-insured to self-insured
Redeploy Headcount
Move manufacturing team offshore to increase product cost competitiveness by lowering benefits costs
Decrease Administrative Costs
Implement an employee self-service system
Decrease benefit administrator headcount

22. Results Decrease key benefits costs Redeploy headcount
US: Monthly benefit cost per head
Before: $255/head; After: $214/head
Redeploy headcount
US: (decrease headcount) Benefit savings = $36M-$10M=$26M decrease
Asia: (increase headcount) benefit costs = $42M inc. $46M=$4M increase.
US benefit savings ($26M)-Asian Benefit Cost ($4M) = ($22) Total Benefit savings (increased cash in balance sheet)
Decrease administrative costs
Previous salaries 400K-New Salaries 50K = $350K savings
New self service cost 200K - Previous IT cost 52K = 148K IT cost
350K-148K = 202K Total Savings

23. Formulas Savings Cost Increase Benefit Savings:
US benefit cost per head X Benefit Savings per head = Reduced benefit cost per head
Headcount Reduction:
US: The average cost per head X Decrease in headcount* = Total Savings (Comp & Benefits)
* Includes the 7 Ben Admin RIFs
Headcount Increase:
Asia: The average benefit cost per Asian local national X Increase in headcount = Benefit costs
Employee Self Service:
Cost of self service administrative service (IT costs)

24. Financial Impact

25. Impact on Income Statement Benefits Metrics

26. Compensation Tie-in
Compensation is the alignment mechanism that is most effective in an organization…

27. Return on Training Expense
TRAINING INVESTMENT PER EMPLOYEE
Total Training Costs + (Opportunity Costs) ÷
Headcount
$6,000,000 + ($50,000,000/220 working days = $227,273 daily payroll costs X 5 ΔΔΔdays of training) $1,136,365 = $7,136,365
1000 employees = $7,136 Training Investment per Employee
ROTE= Avg. Training Investment per EE ÷ Δ in Group Revenue (at a time interval) X Δ in Group Revenue (at a time interval) ÷ Avg Dept Wage
7136 ÷ 20,000,000 X 20,000,000 ÷ 75,000 = 9.5%
ROI = 9.5%
If the WACC is 7% < 9.5
Training is making the company money. Your CFO will approve this EVERY TIME.
Change in Revenue/Target EE 90, 180, 360 days)
_________________________________________
Avg Revenue per Target EE + Training Cost per EE

28. The Future of HR Metrics Business Intelligence
PREDICTING THE PRESENT
Harrah’s Entertainment, Citibank, CVS and Dunkin’ Donuts are almost there with an approximately 6 week lag in their business intelligence systems
Real-time Opportunity reporting + real-time risk detection reporting = real-time enterprise reporting THE ABILITY TO REACT.
Business intelligence technology firms are currently embedding HR Metrics into their Business Intelligence Dashboards for CEO’s and “C” level execitives (SAP/Business Objects, IBM/Cognos, Oracle/Hyperion)

29. The Future of HR Metrics Business Intelligence
Do you really want to have technology and finance experts construct the metrics that HR will be judged by?- The time to become involved in HR Metrics is NOW!
Success stories for HR Metrics
William Clay Ford (Ford) includes the success rate of HR in recruiting and retaining high performing salespeople as an HR metric in his BI Dashboard
Jeff Immelt (GE) includes the ratings of the developmental experiences of his high potentials as an HR metric in his BI Dashboard

30. One of the Most Important HR Metrics Adding Value to Your Personal Bottom Line
What is the value of today’s discussion of HR Metrics for you?
Formula (Very Conservative)
Annual Compensation X Percentage Productivity Increase - ($Dollar Cost + Opportunity Costs*) = Net Value
Financial Impact Impact
$75,000 X .005 (.5%) - ($0 + $42.61*) = $332.39
Net Value to You As a Participant
*opportunity cost ($75,000/220 working days/8 per day = $42.61)

31. Summary Some Final Thoughts
HR Metrics are formula-driven and easy to use
HR Metrics and BI are fast becoming “the way we do things around here” - so catch the wave now! Early adoption is over…
If you become an HR Metrics user-both you and your HR organization will gain increased respect from CEOs, CFOs and senior managers
If you don’t use HR Metrics someone who isn’t HR (Finance or IT) will use them and may even imbed them in a BI Dashboard for the CEO or Board - “and the fault will lie not in our stars but in ourselves” (Shakespeare)

32. Contact Information
Robert J. Buckley
President
RO Buckley Consulting
Phone:
Mobile: