It is no secret that the human resource department is non-income generating. We don’t sell software, negotiate new service contracts, or build widgets. And yet our department is often responsible for compensation of the entire organization, merit increases, and often the evaluation and employee talent process.
The Compensation Quandry. How HR Asks for a Raise.
Most senior leaders of an organization do not fully understand the responsibilities of their own human resources team. And chances are the HR department where you work goes above and beyond the roles and responsibilities of the HR department even 4 years ago. Our profession touches almost every part of the organization from compensation to OD to IT even to the effectiveness of your sales team.
So how exactly does HR ask for a raise?
The key is in the analytics. Human resource teams who develop a strong HR reporting process and scorecard that demonstrates their reach throughout the organization are more likely to be compensated for their results and efforts. Here are three foundation concepts to build your HR analytics and reporting that are a must to justify an increase for your HR team.
- Economic Value-Added. These are financial numbers expected of the executive.
- Customer Value-Added. CVA is defined as meeting customer-service goals.
- People Value-Added. These are defined as meeting employee expectations.
The above concepts are the foundation for a balanced scorecard approach that focuses on serving multiple stakeholders. This key is determining what your HR department should be reporting. And because each company is different, your HR team’s mission and analytics should fit into the picture of your entire organization’s goals as well as company culture. The question an HR leader must ask either directly or indirectly of their senior leaders is, “What keeps your executive team up at night?”
Ask your executive team this question and you have a starting point in developing your reporting case for your human resource department. Consider your current programs, which they affect, and how they impact your organization. Using this balanced scorecard approach, you may consider including some of the following analytics when making the case for HR.
- Monthly Turnover Rate = (number of separations during month / average number of employees during month) x 100).
- Revenue per Employee = total revenue / total number of employees.
- Yield Ratio = percentage of applicants for a recruitment source that make it to a determined stage of the application process.
- Human Capital Cost = Pay + Benefits + Contingent Labor Cost / Full Time Equivalents.
- Human Capital ROI = (Gross Revenue) (Non-employee Related Expenses) / Total Compensation for Full Time Equivalents and Contingent Workforce.
When making the case of a compensation increase for HR, it’s important to go beyond the people and straight to the numbers considering how the different reporting formulas correlate with one another. Can you demonstrate a direct correlation between your HR team’s new employee benefits package with the increased employee satisfaction and reduction in turnover? Is this trend verifiable over a specific and defined period of time? If so, you’ve made a case for “The Compensation Quandary and How HR Ask for a Raise.”
Maybe next time, we’ll tackle exactly how that conversation should go . . .