6.2 - Analysing human resource performance

• A business needs to measure the effectiveness of every resource used, and that includes its employees
• People don't always like the idea of having their performance measured, but it's good for the business
• Human Resource Data is Analysed before making Decisions

  1. Labour productivity

  2. Labour turnover

  3. Absenteeism

  4. Labour retention
• HR use this data to make plans for the human resource flow in the future
• They will also compare these figures to their competitors' to see who is utilising their human resources better and if they need to improve in certain areas
• If labour retention rates are higher in a competitor's business


  HR need to look at why employees don't want to stay at their company
• HR needs to look at trends in labour productivity figures before making decisions on training, recruitment and pay
• HR can have a positive impact on labour productivity


  • Employing a diverse workforce
  • Making sure all employees feel engaged and motivated
  • Making sure the right people are in the right roles
  • Reducing absenteeism
• If labour productivity is increasing


  HR might choose to reward employees with bonuses and increased salaries
• If labour productivity is decreasing


  HR might choose to retrain staff, offer bigger incentives or, in extreme cases, offer redundancies and replace employees with more skilled labour
• HR will compare their labour productivity data to their competitors' and see if they need to improve, or if they are already ahead of the game
• Two other important statistics that will affect HR decisions are labour cost per unit and employee costs as a percentage of turnover
• Labour cost per unit


  How much money the business has to pay employees to make one unit of output
• Labour cost per unit can be reduced


  1. Reducing labour costs

  2. Increasing labour productivity
• Employee costs as a percentage of turnover

  What percentage of the money made is spent on employees
• Controlling employee costs is a main objective of the HR department
• If HR recruit more employees


  Employee costs will increase
• HR will try to avoid reducing wages and benefits as it could result in a demotivated workforce which could actually make the problem worse
• HR also needs to think about the ethics of the business when making decisions
• Labour Turnover


  Measures the Proportion of Staff who Leave each year
• The higher the figure, the larger the proportion of workers leaving the firm each year
• External causes of high labour turnover

  • Changes in regional unemployment levels
  • Growth of other local firms using staff with similar skills
• Internal causes of high labour turnover


  • Poor motivation of staff
  • Low wages
  • Lack of opportunities for promotion
  • Staff will join other firms to increase their pay and job responsibilities
• A poor recruitment process which selects incompetent candidates will also increase labour turnover
• Ways to reduce employee turnover


  • Increased delegation
  • Job enrichment
  • Higher wages
  • Better training
• Businesses need some labour turnover to bring new ideas in. Labour turnover of 0% means no one ever leaves
• Benefits of high staff turnover


  • Constant stream of new ideas through new staff
  • Firm can recruit staff who've already been trained by competitors-saves money
  • If sales fall, firm can reduce workforce through natural wastage rather than costly redundancy
  • Enthusiasm of new staff influences other workers
• Disadvantages of high staff turnover


  • Lack of loyal and experienced staff who know the business
  • Firm loses staff it has trained, often to direct competitors
  • Training costs money and productivity drops while new staff get trained
  • Recruitment costs are high
• Labour Retention


  Measures a Company's Ability to keep its Employees
• Labour retention is closely related to labour turnover. The higher the turnover, the lower the retention rate
• A low retention rate means that the company only keeps a small proportion of its employees
• HR could deal with a low retention rate by


  • Improving the induction process
  • Highlighting the opportunities available to all employees
  • Reinforcing the values and goals of the business so that employees feel included and valued