By Rich Burton, MBA, PHR
AVP, Human Capital Management, WSFS Bank
“When you were born, you cried and
the world rejoiced. Live your life so
that when you die, the world cries
and you rejoice”
- Cherokee Expression

Some negative perceptions about HR.

What does HR boil down to?

Why is it hard to quantify HR’s impact?

Suggested methods to educate people about the
“hard” value HR can add.

The mindset to get into as you search for
opportunities to do this.

“at best, a necessary evil”

“a dark bureaucratic force that blindly enforces nonsensical rules,
resists creativity, and impedes constructive change.”

"Most human-resources managers aren't particularly interested in,
or equipped for, doing business.”

“When HR professionals were asked about the worth of various
academic courses toward a "successful career in HR," 83% said that
classes in interpersonal communications skills had "extremely high
value." Employment law and business ethics followed, at 71% and
66%, respectively. Where was change management? At 35%.
Strategic management? 32%. Finance? Um, that was just 2%.”

“can
readily provide the number of people it hired, the percentage of
performance evaluations completed, and the extent to which
employees are satisfied or not with their benefits. But only rarely
does it link any of those metrics to business performance.”

“ no point of view about the future and how organizations are going
to change.”

“discovers things about the business through the lens of people and
talent. That's an opportunity for competitive advantage. In most
companies, that opportunity is utterly wasted.”

“HR execs should be making the most of our,
well, human resources -- finding the best hires,
nurturing the stars, fostering a productive work
environment …….HR should be joined to
business strategy at the hip.”
 Compare HR outcomes to meaningful things (non-HR)
 Realize that executives and managers are not going to
have “aha” moments about HR on their own, we have
to provide them!
Source: Strategic Human Resource Management, Third Edition, Jeffrey A. Mello
Finance
Controller’s
Accounting
Line Units
Marketing
Operations
Information
Systems
Human
Resources

“ designing management systems to ensure that human talent is used
effectively and efficiently to accomplish organizational goals”.
Mathis, Jackson, Human Resource Management (13th Edition), McGraw Hill.

“effective and efficient use of human talent to accomplish organizational
goals.”
SHRM Learning System 2008.

Wikipedia (on HRM): “....management of an organization's most valued assets
- the people working there who individually and collectively contribute to
the achievement of the objectives of the business.”

Policies, practices, and systems that influence employee’s behavior,
attitudes, and performance.
Noe, Hollenbeck, Gerhart, Wright, Human Resource Management (Gaining a
Competitive Advantage), 5th edition, McGraw Hill.
 Much of what HR does is to eliminate
obstacles to performance.
 Creating a better work environment to do
what? Prevent turnover.








Employee/Labor Relations
Benefits
Payroll/Compensation
Recruiting and Staffing
Training and Development
Safety
Employee Engagement
Idea programs
Tangible opportunity - HR is about increasing performance
and decreasing turnover!

We have to show how increased performance and
decreased (voluntary) turnover is worth something!
 Track performance and turnover over time and relate it to
other (non-HR) things
 We need to correlate them to the company’s definition of
success (often portrayed through financial terms).
Source: Strategic Human Resource Management, Third Edition, Jeffrey A. Mello
Finance
is a tool
we can
use!

Asset - Resources of the firm expected to yield some
future benefit for the company. Can be financial,
physical, and intangible properties.

Cost (i.e. labor cost) – anything directly tied to the
production of a product or service

Expense – anything with a dotted line to a product or
service

Efficiency Ratio = generally speaking cost and expenses
as they related to income (or sales) – express as a %

ROA – Net Income/Total Assets = how effective our
assets are being used to produce revenue – expressed %

ROS – Net Income/Total Sales = How much profit is
being produced per dollar of sales – expressed %

ROE – NET Income/Total Equity = How much profit is
generated per shareholder dollar – expressed %

HR is definitely an expense.
 Justify the expense!
 Compare it to other positive things and make the argument for its impact!
 Quantify the impact of HR through numbers that others are more used to
hearing!

Keep performance of human assets high and (voluntary)
turnover low. Doing this will:




Maximize ROA
Decrease costs and expenses on the income statement.
Increase accounts receivable on the balance sheet.
Ensure that assets are utilized better.
 Drive sales (hence accounts receivable)

Income Statement
 A financial statement that measures a company's financial
performance over a specific accounting period.
 Sales – COGS – Expenses – Taxes = bottom line.
Balance Sheet
Summarizes company
assets, liabilities
and shareholders'
equity at a specific point
in time.
Give investors an idea as to
what the company owns
and owes, as well as the
amount invested by the
shareholders.

Payroll (total of all salaries, wages) compared to total company
assets
 Assets get off balance sheet (over time)

Payroll as a % of total company operating expenses
 Expenses get off income statement (over time)

HR budget as a % of total company operating budget
 Obtain from CFO, Controller’s, Treasury (over time)

FTEs per HR Associate and Benefit cost as a % of payroll
 Both measures of efficiency (over time)

Assets per FTE over time
 measure of efficiency (work with managers to control
staffing levels)

Profit per FTE over time
 measure of efficiency (control staffing levels)

Voluntary turnover as a % of total turnover over time
 making a difference (drive engagement)

Operating Profit as a % of sales
 Efficiency (i.e. $180,000/2,000,000) = 9%

Compare ROA, ROE, ROS (i.e. red) to:
 Payroll as a % of operating expenses (decreasing is a
good thing) – orange
 HCM budget as a % of total operating budget
(decreasing is a good thing) – orange
 Voluntary turnover as a % of total turnover
(decreasing is a good thing) – orange

Measure the before and after state of things (i.e.
major new initiatives):
 Has ROA, ROE, or ROS increased or decreased (i.e. after the rollout of
a new training initiative)
 Has efficiency (aka ROA, ROE, ROS) increased or decreased (i.e. after
the rollout of a new performance management initiative)
 Have sales of products or services increased or decreased (i.e. after a
new policy was put into place)
Associate Engagement Survey
Vol. Turnover as % of Total Turnover
Training program sales, ROA,
ROE, ROS impact
Making a
difference!
HCM Budget as % of Total Budget
FTEs per HR Associate
Payroll % of total company assets
More with
less!
Avg. Performance per unit
Making a
difference!
Fiscal Measures
Finance
ROA, ROE, ROS
Sales
Net Income
Costs and Expenses
IS
Line
Marketing
Connecting
it all!

We must constantly show why performance and
voluntary turnover are so critical in organizations

Relate performance and turnover to cost,
efficiencies, ROA, ROS, ROE, net income ,
efficiencies, etc. on your HR scorecard

Look for positive and negative financial correlations
with HR initiatives over time.

Doing this will create more “aha” moments for nonHR decision makers
“When you were born, you cried and
the world rejoiced. Live your life so
that when you die, the world cries
and you rejoice”
- Cherokee Expression