Evaluating HR Through a CEO’s Eyes

Most HR measurements miss the boat!

Many HR departments say they are a “business partner,” but few can provide any real evidence that they are having a strategic business impact. After years of studying CEO expectations of HR I’ve compiled a list of the kind of questions CEO’s might want answered about how their “human resources” give them a measurable competitive advantage over their competitors.

These questions are based on the “captain of the ship ” approach , where HR assumes responsibility for all corporate “people” performance even though HR does not have direct control over all aspects of it.

A – Does having great employees really make a difference in our industry?

1. Does HR have evidence that having “the best” employees is a Critical Success Factor (CSF) in our industry because the most profitable firms have a high proportion of “quality” employees and the less successful firms have lower proportion of “quality” employees?
2. Has HR identified the jobs/ functional areas where having great people is essential for Corporate Success, a CSF?
3. Does adding more or higher quality HR resources make a difference?
4. Is the Return on Investment in Human Resources higher than the ROI on Capital or for plant and equipment?
5. Do the best firms in our industry have great HR departments and do the mediocre ones have mediocre HR?
6. Does improving the HR department impact a firms competitive position?

B – Are the people we have the most productive in the industry?

1. What is our productivity (output) per dollar of people costs spent? (People Costs include: sal, benefits, training, & HR Dept. costs.) Can HR show the trend (over several years and project future years) and compare it to our chief competitors.
2. What is our “People Profit” (the number of dollars of “people” costs we must incur in order to generate a dollar of profit)?
3. What is the trend and how does it compare to our chief competitors?
4. What is our “Revenue per employee”? Is it higher than our competitors?

C – Do we have the right number of people in our organization?

1. Does HR have a metric / system for ensuring we are not over-staffed?
2. Do we compare our head count per unit of production / sales to that of our direct competitors to ensure we don’t have head count “fat”?
3. Are we under-staffed in areas, where if we added people in key areas, we would increase our profitability?

D – Are we over paying our employees for the output they produce?

1. Can HR show the impact of pay increases? What is the % increase in employee performance as the result of every 1% increase in pay.
2. Does paying top dollar matter? Do the employees paid in the top quartile of the salary range produce proportionally more output than those paid in the middle quartile?
3. Demonstrate that we have tied a higher proportion of our total compensation to productivity and company performance than our competitors. How much differently do we treat (pay) our top contributors from our average contributors?
4. Who are we over/ under paying? Demonstrate we have an effective system for identifying and forecasting whether we are under or over paying our employees.
5. Is there evidence that our benefits programs really attract or keep people?

E – Do we improve the people we have? (Make them more skilled and productive)

1. Is Training a Critical Success Factor? Is there a correlation in our industry between the % of all people costs spent on training/ OD and firm profitability?
2. Does Training make a difference in performance? What is the percent increase in performance as a result of every $1,000 spent on training?

F – Do we attract and HIRE the very best people we can afford?

1. Did we hire better people this year (more productive per dollar spent in salary) than last?
2. Demonstrate that we are hiring people with competencies and skills that give us a competitive advantage over our competitors.
3. When we compete head to head with our competitors for top tier talent, show we get a higher percentage than our competitors.
4. Show that you have made our firm the Employer of Choice in our industry.

G – Do we retain our key / most productive people at a higher rate than our best competitors?

1. Show that our voluntary turnover rate is lower than our competitors for:
   • Key executives
   • Top performers
   • Individuals with “key” competencies and
   • All individuals in hard to hire positions

H – Do we “fix” our “problem employees” rapidly or get rid of them if they are too expensive to”fix”?

1. What percentage of “poor” performers become “very good” performers within a year, as a result of our employee relations efforts?
2. Show we get rid of our poor performers that can’t be “fixed” at a rate faster than our competitors.
3. Is there evidence HR identifies and effectively “fixes” “bad” managers?

I – Is there evidence HR is a major contributor (among overhead functions) to our corporate success/ profitability?

1. Do we survey our managers and ask them to force rank all overhead functions on how they contributed to departmental and divisional profitability? Does HR rank toward the top?
2. Does HR provide evidence it contributes to increasing our shared vision and the strengthening of our corporate culture?
3. In our employee pulse survey do employees rate HR as a contributor or a barrier to productivity?
4. Does HR give managers multi-options and do it’s programs allow managers to “adjust” corporate policies to fit “local” needs?

J – Do we forecast and prevent people problems better than the best in the industry?

1. Have HR’s “smoke detectors” and forecasts given top management sufficient warning of possible “people problems”?
2. Has it allowed us to effectively mitigate their impact upon the business?

K – Is our HR department efficient and does it continually improve?

1. Is there evidence that HR continually improves it’s programs? Drops it’s ineffective ones?
2. Is there evidence that putting more HR resources in an area dramatically impacts that areas productivity and profitability?
3. What percent of all corporate spending goes to HR? How does it compare to last year and our best competitors.
4. Are our costs per unit of HR service below those of our best competitors given an equal quality of service?
5. Do key depts. and products get the most Human Resources help?

L – Are our employees “satisfied”?

1. Do employees report they are more satisfied this year with the way they are treated? (compared to last year?).
2. Does HR have evidence of the impact of employee satisfaction on our employees productivity and retention?

M – Do we rapidly redeploy our people resources from areas of low return in the corporation to areas of high return?

1. What % of our work force moves internally each year between business units?
2. What % of our work force have we had to “layoff this year?
3. Is there evidence that we get the most from our talent?

N – Is our over-all HR strategy aligned with our business strategy

1. What is our over-all HR strategy?
2. Is there evidence it adequately shifts as our business needs change?
3. Has HR done a competitive analysis (over-all and by function) to see where we need to shift our efforts in order to beat our competitors in every HR category?

O – Is there evidence that HR has significantly added to our shareholders value?

1. Has our stock options program added to or diluted our share’s value?
2. Demonstrate what HR has done to increase our over-all corporate capabilities, competencies and capacity to beat our competitors. (Since, on average, over 60% of all corporate dollars are spent on people costs).