Linking Human Capital Measurements to ROI – Part 1

Fifth Entry in the Metrics and Analytics Series

While looking for ideas for this week’s post and podcast, I came across a very interesting essay in The New HR Analytics book by Jac Fitz-Enz that I feel is very important in understanding how human capital measurements should be made in terms of linking them to an organization’s return on investment (ROI).

The essay is by Kirk Hallowell titled “Roberta Versus the Inventory Control System: A Case Study in Human Capital Return on Investment”.  I’m not going to discuss the actual case study presented in the essay but I want to review the key concepts in the essay as I think they make a great deal of sense in how we should change the way we think about human capital metrics and ROI.

The concepts he discusses identify ways to link an organization’s investments in human capital to their financial returns in the same manner they apply to depreciating or appreciating their tangible assets. Hallowell suggests, and I agree, that accounting metrics and rules need to be modified in order to change the way we think about how we invest in people.

Human Resource costs – recruiting, payroll, benefits, training & development, etc. can typically be a full 70% of an organization’s budget. The fact that most companies don’t have a reliable and consistent method of measuring this much of a company’s budget is concerning to say the least. In addition, human capital costs are always expensed rather than depreciated. This prevents the organization’s leadership from effectively managing and maximizing their human capital return on investment the same way they do with their other tangible asset investments.

When a company invests in their tangible and people assets, they do so with the goal of achieving the same business results but the way the company processes the accounting for each investment is completely different.  Human capital costs are expensed and immediately impact the company’s balance sheet while investments in tangible assets (physical plants, equipment, etc.) are listed as assets and depreciated for up to 30 years.

The result? The tangible assets, which are typically a much greater investment, are recognized as a significantly lower expense on the company’s balance sheet than an initial investment in human capital expenses.

As tangible assets age, they decrease in value and within a certain period of time, they lose all of their value and will need to be replaced. These tangible assets will require maintenance and utility costs to keep them from deteriorating too quickly.

Unlike tangible assets, human capital assets actually increases in value over time. Employees gain experience, expertise, and knowledge becoming more efficient through their work and training. Effective training and management will make the company’s operations more efficient and employees will increase their ability to add value to the organization’s operations. This will happen while the company’s investment in salary, benefits, administration, and training remains more or less consistent.

The return on investment for organizations is always driven by their people but the investment is listed as a nondepreciated expense. Crazy. We have our most valuable asset, our people. We invest in finding the best people we can, train and develop them, and as a result the value of that asset actually increases!  But we treat it simply as an expense rather than an actual appreciating asset!

Hallowell’s solution is to introduce four human capital metrics that will track the return on investment in both the tangible and human capital assets. The four metrics are designed to be event driven, clear and easy to understand, and focus on the highest points of leverage for gain or loss of ROI.

I will explore these four human capital metrics in next week’s post and podcast. This post is a little shorter than usual but if I include the four metrics, it becomes too large of a post so I decided to split this topic into two parts.

Please take this week’s survey, located at the top of the sidebar, about this week’s subject of linking human capital measurements to ROI!

Week Seven of the PA Cycle: Deadline Week for Final PAs and Objectives

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Image courtesy of mapichai at FreeDigitalPhotos.net

Here we are at the final week of the PA cycle. Whew! It’s been a lot of hard work but also very rewarding because you’re almost done with this very important project for the company.

Although this is the final week, there is still a lot of work to be done. Dangit!

This final week is when your managers are finishing up delivering the PAs to their direct reports and finalizing their Objectives. Frankly, they should be done but in reality, there will be some managers that haven’t even started delivering their PAs.

Again, I make Wednesday the deadline day. You’ll get approx 85% of the final PAs and Objectives back in by Wednesday and you’ll need to send out a gentle reminder reminding everybody that the deadline was Wednesday. This will spur several managers to get theirs in but your chronic procrastinators, more than likely the same procrastinators from the earlier deadline week will need to be reminded several times.

Here’s a copy of the email I send out on Thursday, the day after the deadline:

Subject Line: Missing PAs and Objectives

Hi Managers,

Thank you to all who got their final PAs and Objectives turned in by the deadline of February 24! I appreciate your efforts getting them in on time.

I still have a number of missing PAs and Objectives and would appreciate getting those completed by the end of the week.

Thanks,
Rich

This is the first post-deadline reminder email and it thanks those who got their final PAs and Objectives turned in on time and subtly reminds the procrastinators that the deadline has passed and you need their completed forms turned in.

This week is also when it’s particularly critical for you to be organized and keeping the PA and Objective Checklist updated as soon as the final forms are turned in to you. If you don’t stay organized as they are turned in, you’ll lose track and misplace documents and emails making you look bad to everybody in the company. You’ve put in a lot of work throughout the cycle so don’t let it fall apart in the end.

Forms will be turned in to you during the week as you are doing other work and you’ll have the tendency to put them aside until later when you have time. Instead of doing that, schedule several times a day where you stop doing what your doing  and get your filing done so that you don’t fall behind or you’ll end up with a huge stack to go through later in the month. You will need to know who’s turned their forms in and who hasn’t so  you can remind those who haven’t, and remind them, and remind them until they get them turned in. The only way to know is to have the Checklist updated and current and the forms properly filed.

This, of course, is the second Deadline Week in the cycle and it’s much more work intensive than the previous Deadline Week (week three) because you have a lot more moving parts.  You are having hard copies of the PA and Objectives turned in to you which need to be scanned and saved to the appropriate electronic files we set up during week three.  Remember that in week three, we established electronic files for each manager. Under each manager’s file, file the final PAs in folder named Final and the final objectives in the folder named Objectives.

Once you are done with the scanning and electronic filing, the paper copies need to be filed into the employees personnel file, if you use paper files.  If your personnel files are electronic, you’ll file them electronically.

It’s also very important to formally thank everybody for all the work they did during the cycle. Your managers dislike this process and if your organization is typical, people are never thanked enough and a sincere thank you will go a long way.

I usually send out the thank you email sometime the week after the deadline week and thank the entire management team for their work and efforts on the cycle. The email I sent out and described earlier in this post thanked them for making the deadline and reminded those that didn’t to get their forms turned in by the end of the week. This one is thanking them for their work and efforts and provides another opportunity to remind the procrastinators they are late.

Here is a copy of the email I send out:

Subject Line: Thank you and closing out the 2015 PA and Objective Setting Cycle

Managers,

I want to thank everybody for their excellent efforts in successfully delivering the 20XX PA and Objective Setting Cycle! I know it’s a lot of hard work and something very few people look forward to doing. But it’s an important part of our jobs as we take the time to formally discuss and evaluate the asset that makes everything else work in our organization, our human capital.

Thank you to all those who completed and turned in your PAs and Objectives by the due date of 2/24 (or shortly thereafter!).

I will be sending out emails this morning to those managers who’s PAs and/or objectives I’m still missing. I would appreciate getting those completed and turned in to me ASAP so I can close out this year’s cycle.

Thanks again,
Rich

This email gives you a chance to remind everybody that you understand that nobody likes doing PAs and Objectives but that it’s a very important part of their jobs. It also reminds senior management of the importance of their Human Capital and that without the people in the organization, there is no organization. And, finally, the last sentence  reminds the super procrastinators to get their completed forms turned in and that I’ll be sending them a personal email with what they have missing.

I recommend that you email the procrastinators so you have documentation that you’ve communicated their tardiness. Although I prefer face to face or phone conversations, I’ve found the emails are more effective and provide cover if you are ever questioned why there are missing forms in the future – you will occasionally have those who never get this done no matter how hard you try.

Well crew, we are finished with the PA Cycle series. There are seven weeks to the cycle and I hope I did a decent job of explaining the mechanics of each week.

In future posts, I will go into detail of how to write an effective PA and how to establish employee objectives. I touched on some of this in the Training Week post and when I explained  the PA and Objective Setting forms but I need to go into more detail to properly tie out the PA cycle.

The Mommy Track Bias

In a recent article over at SHRM, they discussed the bias against women and men (but mostly women) trying to re-enter the workforce after taking time off from their careers to stay home and raise their kids.  Most hiring managers and HR tend to think these women have lost their edge in their industry and are, therefore, not strong candidates. They are passed over during the hiring process for candidates who have not taken the time off to raise their kids.  I think this bias is wrong and have first hand experience that supports my belief.

I’m pleased that the article is supportive of these women and discuses the positive attributes and skills that stay-at-home parents acquire during their time raising their kids.

…some HR experts argue that stay-at-home parenting actually imparts skills that prove valuable in the workplace, such as patience, persistence, creativity and reliability.

“Careers for men and women, parents or not, are no longer linear, and an accomplished woman who took a career detour to devote herself to motherhood can still be an incredibly valuable hire,” said Marisa Thalberg, founder of executivemoms.com, a networking site for working mothers.

Matt Brosseau, chief technology officer and head recruiter at Instant Alliance, an HR staffing and consulting firm, noted that “there’s a level of patience and creative problem-solving you can gain only from dealing with a toddler.”

“When parenting, you are often forced to negotiate with someone who may not be reasonable, and that’s a good skill when dealing with unreasonable clients and others,” he said.

In my time as a store manager at Macys, I hired many women who had taken several years off to raise their kids.  The article does claim the retail industry is easier to assimilate than industries such as law, medicine, and IT.  I can easily say almost all of the return-to-work moms turned out to be fantastic hires and very valuable employees.  Many of them ended up being managers for me who have since gone on to very successful careers.  One in particular, is a regional director for a large specialty retail chain store who has thanked me many times for giving her a chance when she was re-entering the workforce.  Several others are now business owners or are in mid to high level management positions within their organizations.

I completely agree with the experts quoted above who emphasize the positive attributes gained by those who raise their kids. In addition to what they say,  stay-at-home parents learn how to juggle multiple priorities while being constantly distracted.  They have strong interpersonal skills in being able to negotiate and deal with difficult people.  They have learned how to manage difficult situations while instilling a sense of fair play.  They have learned how to motivate people to be their best.  And having and raising kids matures and humbles people.

These are all attributes and skills that are valuable in any workplace!

I want to include my wife who recently re-entered the workforce, in retail, after many years of staying home and raising our kids.  Its interesting to note that there were significant changes in technology that she had to deal with and learn but the core basics of retail are still the same.  It took her a little time to catch on the the technology changes but she did.  Along with her outstanding leadership ability, her selling skills, great customer service, and credit production, she is now a very valuable and highly desirable employee.  Her boss has tried to promote her several times but she isn’t quite ready to take that step yet but I know she eventually will and will be very successful.

Bottom line, hiring people who took time off to raise their kids is not as risky as most people think.  Any parent who has raised or is raising their kids should know how difficult the job is and the skills that are developed while doing so.  Sure, there will be a learning curve at first but there is with all new hires.

The bias against people who are trying to re-enter the workforce after raising their kids should end.  Employers are missing out on very skilled, motivated, and dedicated employees by passing them over.

Merry Christmas and Happy Holidays

I have not been able to do any posting or podcasting for the past couple of weeks.  I was actually cramming for the SPHR-CA certification test I scheduled for December 15.

Yes, I passed!  And that feels fantastic.

But the last couple weeks of highly concentrated study before and after work left me exhausted and not willing to spend the time needed to work on HHHR.

In addition, my wife and I are now preparing to go on vacation and spend the Holiday week with my kids, all of whom now live east of the Mississippi.

I plan on posting and podcasting about my decision to take the SPHR-CA.  I live and work in Colorado and Wyoming but I have some good reasons and opinions about the California certification that I want to share.

So, I’m hoping now that I have accomplished another grueling certification, I will have more time to spend on HHHR the first of 2015!

Until then, I wish everybody a very Merry Christmas and a Happy Holiday!

I will see you again in January.

Three Keys to Being a Good Boss

I came across this blog post over at TLNT, written by Derek Irvine, a few weeks back that really resonated with me.  The post was actually first published in October of 2012 and has been republished a couple times since due to it’s popularity.

I love the simplicity of what Derek sees as the three keys to being a good boss.

Those three keys are Presence, Praise, and Promise.

I’m going to be lazy and simply quote all three of these keys as Derek wrote them in his post.

    1. Presence – You not only “manage by walking around,” you show up to meetings on time to signal that you value the work your employees are doing. When you’re meeting with an employee, you shut off or totally ignore your email, IM, texts and any other interruptions to give your full attention to the employee. If employees need your support to push a key decision forward, you lend your visible presence and direct support.
    2. Praise – You make it a point to give your employees the frequent, timely and specific feedback they need to stay on track and move their projects forward appropriately. You recognize and appreciate them and their efforts that are especially in line with the company’s core values and strategic objectives. Because you are diligent about “catching employees doing something good,” you also help employees receive constructive feedback more readily as they know the feedback is intended to help them advance.
    3. Promise – You help your employees see the future they have with the organization and in their career. You don’t make undue or unwarranted promises of course, but you are committed to helping your team members grow and develop – and they know it. You seek out training and development opportunities for them and encourage them to go. You give them realistic “stretch” goals to help them develop skills.

When I read through these three keys I see one very clear attribute.  Respect.  The boss’s respect for their direct report.

In the Presence Key, the boss is respecting the employee’s time.  Showing up for meetings on time shows respect for the time of those in the meeting.  Giving full and undivided attention to an employee when meeting them one on one shows respect for their time.

In the Praise Key, the boss is respecting the employee’s work and effort.  Giving employees regular feedback and recognizing them for their accomplishments.

In the Promise Key, the boss is respecting the employee’s career.  Helping employees by being honest and committed to helping them grow and develop by delegating important tasks and getting them the training they need.

Showing your direct report the respect they deserve is, in my opinion, one of the most motivating factors in the workplace.  It makes people want to work harder and more effectively.  It makes the employee more loyal to their boss and gives them the sense that they are valued and an important part of the boss’s team.

You Must Take Control of Your Career

I read a post over at TLNT a while back that reminded me of my experience with my previous career at Macy’s (formally The Bon Marche).  It’s about workplace loyalty and how it can work in the job market today.

A point she made personally resonated with me:

If you’re an employee and believe that your loyalty will be remembered by your employer when it’s time for the tough decisions, my question to you is, “why on earth would you place your career decisions entirely in the hands of someone else?” Not only will working at one place for too long make you stale, you’re giving up the control of managing your own career.

What if your manager retires, transfers or gets a new gig outside of the company? So much for all of those years of loyalty. Do you think your manager is going to present a succession plan for you on their way out the door? Avoid being naive and recognize the excess of “dog eat dog” attitudes in Corporate America.

I spent 22 years working for The Bon Marche’/Macy’s.  Twenty of those years  for The Bon Marche’ which was reorganized and converted to Macy’s where I remained for two years.  I worked my way steadily up the ranks during my twenty years at The Bon Marche’ where there was a core group of executive and regional management who I knew well and who knew me and what I was capable of accomplishing.

We had a long and positive professional history that I was proud to have developed and count on when it came to my performance and career decisions.

When the company reorganized and converted to Macy’s, they closed the Seattle corporate office and laid off all the executive management.  They also restructured the regions and brought in “new blood” and expanded the regional management staff.

My entire 20 year history of accomplishments, skills, and knowledge was immediately wiped out and meant nothing to the newly reorganized company.

Rather than being relied on and trusted to run and operate my store as I was trained to do – and was very good at – I was being told how to run my store by group of people who never ran a store.  I gave it my best but eventually realized I was no longer a good fit in the reorganized company.

I was miserable and dreaded going to work every day. My experience, knowledge, skills, abilities, and creativity were no longer valued or even considered.  I had to leave and move on.

I made the mistake of thinking my work history, accomplishments, and loyalty to the company would benefit and help my continued career with newly organized Macy’s.  It didn’t.

So, I left and took my KSA’s to Denver and am loving my current job as Director of HR, IR/PR  at a uranium mining company.

I learned a valuable life lesson.

You need to have complete control over your career. It is your responsibility, not your employer’s.   Network in your profession and in your industry.  Network outside of your profession and industry.  Develop relationships with recruiters.  Grow your knowledge in your profession and industry.  Periodically look at job openings to see what is out there and what they are paying.

You’re not being disloyal to your company, you are being responsible and taking control of yourself, your family, and your career.

As the author of the blog post I linked to above says:

Do you think your loyalty will be reciprocated when your company is facing tough times and has to review numbers and headcount for a reduction in force?

Feeling Good About Your Work

Here is a Ted Talk I enjoyed listening to today.  It is Dan Ariely who talks about what makes us feel good about our work.

I enjoyed hearing about the various experiments he conducted and especially related to the example of the large computer software firm in Seattle.

In the story, the CEO unexpectedly announced the cancellation of a big project that involved a large number of employees.  There was no recognition or acknowledgement of the work they had done – it was just cancelled with all their work becoming meaningless.

In a meeting, the employees were asked how many now come to work a little later and leave work a little earlier than they did before.  Most raised their hands.  They were also asked how many now fudge on their expense reports since the announcement and while nobody admitted it at the meeting, they did confirm they do later at a more private get together.

This goes to show you that, despite the fact that these people were still employed and making the same income as before, they became disgruntled employees because their hard work was relegated to the trash can with no acknowledgement that what they were doing and toiling away at was important.

They lost their motivation to give 100% at work and are now even working against the company to a degree.

Our workforce regularly needs that ‘pat on the back’ and the recognition that we are doing a good job and contributing to the company – even when what we have been working on has been cancelled or ended.

Simple regular recognition and acknowledgement can make a huge difference in a workforce’s effectiveness and motivation.