- Blog post
Strategic HR? Three key metrics your C-suite wants to know
It’s been the focus of umpteen sessions of professional bodies like SHRM, and the subject of a train load of books: Strategic HR. In other words, the kind of HR that gets its practitioners favorably noticed by the CEO, invited into the boardroom for an attentive hearing (or three), and eventually rewarded with rich raises and promotion – maybe to VP for HR.
Well, there’s some bad news – and some good news – about that noble vision.
That elusive seat at the table
No matter how many strategy books you read, you’re not going to win a permanent seat at the top table if your company persists in regarding HR as mainly tactical – the place where employment tests are given, personnel files kept, and compliance training scheduled.
And a lot of organizations are still like that today. But there is something strategic the upwardly mobile HR person can reasonably hope to achieve, even in such a climate:
Earn a reputation among senior executives as someone who can explain how HR’s activities connect with bottom-line goals.
To win this reputation, you must know what people-related business measures your key execs will be interested in. These will vary from organization to organization, but according to skills-development expert Marla Bradley, there are several that a wide range of executives consider important. Here are three of them:
1. Revenue (or operating income) per FTE
Top execs are eager to know the relationship between the number of people they employ – one of a business’s biggest costs – and the money the business brings in. This ratio is expressed as revenue or operating profit (earnings minus operating expenses) per full-time employee equivalent, or FTE.
To calculate FTE, take full-time employees plus the full-time equivalent of hours put in by part-timers. The ratio tells you little by itself, but it can tell you – and your C-suite – quite a lot if you stack it up against competitors, or against your own organization’s historical performance. A very high relative FTE/revenue ratio may indicate, for instance, that your employees have a higher skill level, or are more productive. A low ratio may mean you are overstaffed, or your employees need training. Whatever HR action is suggested by this analysis – additional training, a reduction in force, new hiring practices – you can be sure your top execs will pay attention to your proposals.
2. Comparative pay rates
If you haven’t already done so, calculate your organization’s average hourly pay rate. Depending on what you want to look at, you may want to create one lump figure including all categories of employee – executive, exempt, nonexempt – or come up with separate figures for each category. (Include not only base pay but also overtime, merit pay, incentives and bonuses, and value of benefits.) Then compare your hourly figure(s) with competitors or other businesses in your geographic area.
Next, analyze your comparisons. If you’re paying above the market, do your results (i.e., revenue per FTE) justify it? On the other hand, if you’re below the market, are you losing revenue and profit that the business could generate if you could attract more skilled people with higher pay? Top execs will listen to data-based arguments like these.
3. Hiring efficiency
Sometimes, like during a recession, you may want to have jobs stand vacant for a while. But in a growing economy, top management certainly would not want important positions to go unfilled, with consequent losses in productivity, orders, and revenue.
So if you don’t already know, track how long it takes you, on average, to fill a position. What’s your response time to the resumes that come in once you advertise a job? How long does it take to get candidates in for their interviews with line managers? What step in the process takes the longest, and how can you reduce that time?
Again, data like this can give you leverage if, for example, you want to ask top management for additional recruiting/hiring resources.
photo credit: Lars Plougmann