M

MEASUR
RING HR
H
Measuring HR
M R performance e is an increasingly importaant concern for
f HR professionals, senio or line
m
managers, d CEOs. The challenge off HR measure
and ement becom mes particularlly salient whe
en the
C
CEO and senior managem ment team assks HR to jusstify its contrribution to the e organizatioon. To
re
espond to thiss challenge, HR professio onals have rooutinely relied on benchma arked comparrisons
off cost and otther efficiencyy based perfformance outtcomes assocciated with activities of th he HR
fu
unction. The difficulty in doing
d this lie ng the right combination of approach
es in selectin hes to
deevelop an adeequate evalua ation system..

HR Performan
H nce measure es:
Twwo factors shhould be con nsidered when selecting measures
m to evaluate the impact of th
he HR
unction on orrganizational effectivenesss: cost and in
fu nvestment. Certain
C param
meters used ini HR
peerformance evaluation
e are
e:
HR Expenses
Absence Rate
Turn
nover Rate
Job satisfaction
Organizational Commitment
C

The following are

a certain me
ethods for the
e HR perform
mance measurrement.

SURVEYS:
Several organnizations use
e attitude of climate survveys to evaluate the efffectiveness of
o HR
de
epartment. Bu
ut the method e validity of the questionna
d can flaw the aire.

HR REPUTAT
H TION:
Effectiveness ofo the HR fun nction can alsso be judged by the feedba ack from thosse it is design
ned to
se
erve i.e., connstituents or clients.
c It beccomes a valu ue judgment where someo one has to decide
d
w
what level is effective
e and what not. Ho owever there is little conccrete evidence of a relatio onship
be
etween levels s of satisfactio
on among con nstituencies and
a overall orrganizational performance..

HR ACCOUNT
H TING:
This concept attempts
a to pllace a value on
o employeess as assets ana to measuree improvements or
chhanges in theese values ussing standard accounting principles.
p HR
RA can be deffined as proce
ess of
id
dentifying, me easuring andd communica ating informaation about human resources to faccilitate
efffective management witthin the org ganization. HRA
H can serrve an impo
ortant purposse of
coontributing to management plan and co ontrol the use of human ressources.

There are conttroversies surrrounding thre

ee questions:
are human being gs assets?
whaat costs should be capitalizzed and
whaat methods area most appropriate for establishing
e a value for employees witth the
eventuual allocation of such valuee to the expen
nse.

HRA does nott focus on the performancce of the HR

H R function butt instead refle
ects the value
e and
co
ontribution of all employee
es.

HR AUDITING
H G:
The human resources auditt is an investigative, analyytical and com
mparative process that atte
empts
to
o reflect the effectiveness
e of the HR fu
unction. It un
ndertakes a systematic
s earch that gathers,
se
ompiles, and analyses data in depth fo
co or an extendeed period, fre
equently a ye
ear, instead of
o with
da
aily formal an
nd informal reeports. There e can be vario
ous HR auditting categorie es like Deparrtment
M
Mission, Depaartment Perso onnel, Labor Relations, Re ecruitment & Selection, HR Planning, Equal
Employment Opportunity
O Doocumentation n, etc.
he auditing iss that there is little direct connection between the audit
The major diffficulty with th
eport and the overall organ
re nizational effe
ectiveness.

HR CASE STU
H UDIES:
This is an app proach to exaamine the su uccess of individual progra
ams, policiess, or practicess and
re
eport the resuults of these successes to o the selecte
ed audience. For example e, a companyy may
deescribe a succcessful laboor-manageme ent participatio
on program in a booklet for all emplo oyees.
In
nterviews cou upled with acctual results create very convincing case studiess. But it doe es not
re
epresent the balance of thhe performancce of the HR function. It in
nstead provides some evid dence
th
hat certain pro
ograms are su uccessful.

HR COST MONITORING:
H
This approach h develops HRH costs and d uses them in compariso on with cost standards. Some
S
co
ommon HR costsc include training costss per employyee, benefit co osts as a perrcentage of payroll
p
annd compensa ation costs. The method�s weakness lies l in the facct that tracking
g costs alone
e is no
asssurance of any ormance and also the standard HR cost data
a direct linkk with organizzational perfo
arre not yet ava
ailable.

COMPETITIVE
C E BENCHMA ARKING:
The organizatiions can devvelop key mea asures that represent
r the output of the
e HR function n and
co
ompare them
m with other organizations
o that are rega
arded as havving the best industry pracctices.
The phases off a benchmarkking process are:
1. Deterrmining what to t Benchmarkk
2. Building the Benchhmarking team m
3. Identifying Benchm mark partners
4. Colleccting Benchm marking Data
5. Analyyzing the dataa
6. Distribbuting informaation to Bencchmarking parrtners
7. Initiatting improvem
ment from ben nchmarking

KEY INDICAT
K TORS:
The key measures are deve eloped that reeflect the majo
or efforts of HR
H function. This
T method uses
u a
se
et of quantitaative measure es such as thet accident frequency ra ate, absentee
eism rate, turrnover
ra
ate, and ave erage time to o fill requisitiions. Few measures
m reflecting the HR
H Departme ent�s
co
ontribution are:
Prodductivity as re
eflected in cosst
Quaality as reflectted in repair ra
ates
Emp ployee relatio
ons as reflecte ed in absenteeism and sug ggestions
This is an approach which needs additional suppo ort, research and study.

SELECTED KEY INDICATO

ORS USED IN HR EVALU
UATION:

EMP
PLOYMENT
Average dayys taken to fill open requisittions
Ratio of offerrs made to nu
umber of applicants

EQU
UAL EMPLOY YMENT OPP PORTUNITY
Ratio of EEOO grievances to
t employee population
p
Minority repre
esentation of EEO categorries
 TRA
AINING
Percentage of
o employees completing training progra
ams per job category
c
Training hours per employyee

EMP
PLOYEE APP PRAISAL AN ND DEVELOP PMENT
Distribution of
o performancce appraisal ra
atings
Reliability of appraisal ratiings

CAR
REERS
Ratio of prom
motions to num
mber of emplo
oyees
Average years/months be etween promootion

SAL
LARY ADMIN NISTRATION
Percentage ofo overtime ho ours in straigh
ht time
Ratio of averrage salary to
o midpoint by grade level

BEN
NEFITS
Percentage of
o sick leave tot total pay
Average leng
gth of time takken to processs claims

WORK ENVIRON NMENT/SAFETY

Frequency/se
everity ratio of
o accidents
Ratio of OSH
HA citations to
o ratio of emp
ployees

LAB
BOR RELATIONS
Percentage of
o grievances settled
Average leng
gth of time to settle grievan
nces

OVE
ERALL EFFE ECTIVENESS
S
Turnover rate
e
Absenteeismm rate

HR EFFECTIV
H VENESS INDE EX:
H performan
HR nce is reflectted by manyy variables ana hence a statistical
s com
mbination of such
va
ariables wou uld best indicate the un nderlying rellationship beetween HR performance e and
orrganizational effectivenesss. Thus an in
ndex is calcuulated. There are four potential uses ofo HRI
arre:
1. indexx would allow for comparisoons with previous performaance
2. it helpps in HR goal setting
3. if normms are formed it helps com
mparison withh other organizzations in the
e same industtry
4. helpss comparison with differentt industry organizations

The most comprehensive sttudy in HR Efffectiveness Index involving 71 organiza

ations identifie
ed 6
m
measures for HR
H department performancce.
HR Expense / Total Opera ating Expensee
Total Compe ensation / Tota al Operating expense
e
Total Cost off Benefits / To
otal Operating
g Expenses
Training and Developmen nt Expenses / Total Employyees
Absence ratee
Turnover Ratte

Significant co
orrelations were
w develop
ped with revvenue/employyees, assetss/employee costs,
c
op
perating incom
me/employeee costs and op
perating incom
me/stockholder�s equity (ROE).
An index is appealing because it is simple to compute and easy to understand.

HR MANAGEMENT BY OBJECTVES:
Based on assumption that the major emphasis of human resources should be to improve
performance on certain measures, an evaluation process of measuring progress toward the
objectives gained popularity. The objectives are based on what management wants
accomplished or what is perceived to be necessary to achieve an adequate level of performance.

HR PROFIT CENTRES:
Increase in the investment in HR, through additional staff, programs, and resources are expected
to improve the performance of the organization. This is an important shift in the perception of the
HR function.
With the Profit Centre arrangement, the HR department operates as a profit centre and charges
the organization for the services and programs it offers at competitive rates. In some cases
outside firms may also compete with internal HR services. The underlying premise of this
approach is that user departments such as production, sales, operations and engineering are
charged for the services of the HR department and can also exercise the option of using external
services. The profit gained by the HR department represents a financial return on the investment
allocated to the HR function. Adoption of this approach requires the HR department to become
client-oriented and quality conscious in delivering services and programs.

RETURN ON INVESTMENT:
ROI is found out by comparing the cost of HR programs to the benefits derived by them.
Calculating the cost is not the difficult part as compared to calculating the program benefits. For
intangible benefits subjective input is used to assign the monetary values to benefits derived from
the programs. This method works well for individual programs but it is difficult to evaluate the
entire HR function with this method.

COMPARISON OF APPROACHES TO MEASURE THE HR CONTRIBUTION:

APPROACH MEASUREMENT FOCUS REALTIVE COST RELATIVE VALUE

OF INFORMATION
Surveys Attitudes/Perceptions Moderate Moderate
HR Reputation Attitudes/Perceptions Moderate Moderate
HR Accounting Value of skills/Capabilities High Moderate
HR Auditing Efficiency/Existence of Low Low
Practices
HR Case studies Qualitative description with Low Low
data
HR Cost Program/Function/Behavior Low Low
Monitoring costs
Competitive Performance measures/ High High
Benchmarking practices
HR Key Indicators Program/ Function/ Moderate Moderate
Performance measures
HR Effectiveness Multiple Key Indicators High High
Index
HR Management Goal Setting for HR Low Moderate
by Objectives performance measures
HR Profit Centres Profit Contribution of High High
Programs/ services
ROI Benefits vs. Costs High High

HR SCORECARD:
The purpose of HR Scorecard lies in two things:
1. manage HR as a strategic asset
2. demonstrate HR�s contribution to your firm�s financial assets

The four major issues that should be depicted in a HR Scorecard are: the key human resource
deliverables that will leverage HR�s role in the firm�s overall strategy, the high-performance
work system, the extent to which that system is aligned with firm strategy and the efficiency with
which those variables are generated.
The phases in developing an HR measurement system;
1. Identifying HR deliverables
2. Identify and measure the foundational High-Performance Work system elements that
�� help to generate those variables
3. Identifying HR Alignment System
4. Identifying HR efficiency Measures
This approach reflects a balance between the twin imperatives of cost control and value creation.
Cost control comes through measuring HR efficiency. Value creation comes through measuring
HR deliverables, external HR System Alignment, and the High-Performance Work System. The
last three essential elements of the HR architecture trace a value chain from function to systems
to employee behavior.

HR Scorecard for HiTech�s R&D Function

B
Benefits of HR
R Scorecard:

It reinforces the distinction

d bettween HR doa ables and HR R deliverabless
It ennables you to control costss and create value
v
It measures leading indicatorss
It acccesses HR� �s contribution to strategy implementation and to the e �bottom-lin
ne�
It letts HR professsionals effectiively manage
e their strategiic responsibilities
It enncourages flexibility and ch
hange

Change Chec
C ck-list Guiding Ques
stions for Change Su
uggested Guuidelines for
item Sponsors Im
mplementatio
on
1. Leading Cha
ange W is the cha
Who arge of the efffort? 1. Need two sponsorss (line
W sponsors?
Who ? manag ger, head of HR)
H
 Who champions? 2. Require someone
specializing in HR
measurement
3. Need advisory team to
supervise work
2. Creating a shared Why do the HR Scorecard? 1. Create Business case
need How does it fit with our business? for HR and for HR
measurement
2. Share this case with line
management and HR
3. Shaping a vision What is the desired outcome of the 1. Define desired
scorecard? outcomes of the HR
scorecard
2. Prepare the key
measures that will be
tracked and monitored
3. Define decisions that
will be made using these
measures.
4. Mobilizing Who needs to support the project? 1. Identify key players
commitment whose support the
project requires
2. Figure out how to
engage these key
players so they will
support