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Investing in People: Financial Impact of Human Resource Initiatives

Book Description

A Logical, Proven Framework for Understanding the Economic Value of Human Resources Investments

  • How to choose Human Resources investments that deliver optimal strategic value—and eliminate those that don’t

  • Best-practice metrics and analysis techniques for talent management, performance management, health and wellness programs, and much more

Investing in People introduces a breakthrough approach to Human Resources (HR) measurement that systematically aligns HR investments with organizational goals and helps make HR the true strategic partner it needs to be. Wayne F. Cascio and John W. Boudreau show exactly how to choose, implement, and use metrics to improve decision-making, optimize organizational effectiveness, and maximize the value of HR investments.

You’ll master crucial foundational principles such as risk, return, and economies of scale—and use them to evaluate investments objectively in everything from work/life programs to training. Cascio and Boudreau also introduce powerful ways to integrate HR with enterprise strategy and budgeting and for gaining commitment from business leaders outside the HR function.

If you truly want “a seat at the table”—or if you want to keep the one you have—you’ll find this book utterly indispensable.

Free software available online

You don’t need to be a math wizard to get results from Investing in People! Visit www.shrm.org/publications/books to access software that automates virtually all of this book’s key formulas and calculations.

Foreword xi

Acknowledgments xiii

About the Authors xiv

Preface xv

Plan for the Book xvii

Chapter 1: Making HR Measurement Strategic 1

Chapter 2: Analytical Foundations of HR Measurement 21

Chapter 3: The Hidden Costs of Absenteeism 43

Chapter 4: The High Cost of Employee Separations 67

Chapter 5: Employee Health, Wellness, and Welfare 99

Chapter 6: Employee Attitudes and Engagement 125

Chapter 7: Financial Effects of Work-Life Programs 151

Chapter 8: Staffing Utility: The Concept and Its Measurement 171

Chapter 9: The Economic Value of Job Performance 195

Chapter 10: The Payoff from Enhanced Selection 223

Chapter 11: Costs and Benefits of HR Development Programs 245

Chapter 12: Talent-Investment Analysis: Catalyst for Change 271

Appendix A: The Taylor-Russell Tables 285

Appendix B: The Naylor-Shine Table for Determining the Increase in Mean Criterion Score Obtained by Using a Selection Device 297

Index 309

Table of Contents

  1. Copyright
    1. Dedication
  2. Foreword
  3. Acknowledgments
  4. About the Authors
  5. Preface
  6. Plan for the Book
  7. 1. Making HR Measurement Strategic
    1. How a Decision Science Influences HR Measurement
      1. Decision Frameworks
      2. Data, Measurement, and Analysis
    2. Connecting Measures and Organization Effectiveness[2]
      1. Hitting the “Wall” in HR Measurement
    3. The “LAMP” Framework
      1. Logic: What Are the Vital Connections?
      2. Measures: Getting the Numbers Right
      3. Analytics: Finding Answers in the Data
      4. Process: Making Insights Motivating and Actionable
    4. Today’s HR Measurement Approaches[6]
      1. HRM Operations...Measuring Efficiency
      2. Measuring Effectiveness...Demonstrating the Effects of HR Practices
      3. HR Scorecards
      4. Causal Chains
    5. Conclusion
    6. Software to Accompany Chapters 3–11
    7. References
  8. 2. Analytical Foundations of HR Measurement
    1. Traditional Versus Contemporary HR Measures
    2. Fundamental Analytical Concepts from Statistics and Research Design
      1. Generalizing from Sample Data
      2. Drawing Conclusions about Correlation and Causality
      3. Eliminating Alternative Explanations Through Experiments and Quasi-Experiments
      4. Quasi-Experimental Designs
    3. Fundamental Analytical Concepts from Economics and Finance
      1. Fixed, Variable, and Opportunity Costs/Savings
      2. The Time Value of Money—Compounding, Discounting, and Present Value[25]
      3. Present Value and Discounting
      4. Estimating the Value of Employee Time Using Total Pay
      5. Cost-Benefit and Cost-Effectiveness Analyses
      6. Utility as a Weighted Sum of Utility Attributes
      7. Sensitivity and Break-Even Analysis
    4. Conclusion
    5. References
  9. 3. The Hidden Costs of Absenteeism
    1. What Is Employee Absenteeism?
    2. The Logic of Absenteeism—How Absenteeism Creates Costs
      1. Direct Costs and the Incidence of Employee Absenteeism
      2. Causes
      3. Consequences
      4. Categories of Costs
    3. Analytics and Measures for Employee Absenteeism
      1. Estimating the Cost of Employee Absenteeism
        1. Step 1: Total Hours Lost to Absence
        2. Step 2: Compensation for Absent Employees’ Time
        3. Step 3: Benefits for Absent Employees’ Time
        4. Step 4: Total Compensation for Absent Employees’ Time
        5. Step 5: Total Compensation Cost for All Absent Employees
        6. Step 6: Supervisory Time Spent on Absence Management
        7. Step 7: Pay Level for Supervisors
        8. Step 8: Total Supervisor Paid Time Spent On Absence
        9. Step 9: Costs of Substitute Employees
        10. Step 10: Costs of Reduced Quantity or Quality of Work Outputs
        11. Step 11: Total Absenteeism Costs
        12. Step 12: Total Costs per Employee per Year
        13. Total Estimated Cost of Employee Absenteeism (Presto Electric)
      2. Process—Interpreting Absenteeism Costs
    4. Case Study: From High Absenteeism Costs to an Actionable Strategy
    5. Other Ways to Reduce Absence
      1. Controlling Absenteeism Through Positive Incentives
      2. Paid Time Off
      3. Summary Comments on Absence-Control Policies
      4. Applying the Tools to Low Productivity Due to Illness
    6. Exercises
    7. References
  10. 4. The High Cost of Employee Separations
    1. Turnover as Distinct from Separations and Acquisitions
      1. Voluntary Versus Involuntary Turnover
      2. Functional Versus Dysfunctional Turnover
      3. Pivotal Talent Pools with High Rates of Voluntary Turnover
    2. Computation of Turnover Rates
      1. Logical Costs to Include When Considering Turnover Implications
    3. Analytics
      1. Separation Costs
      2. Replacement Costs
        1. Job Availability (R1)
        2. Pre-Employment Administrative Functions (R2)
        3. Entrance Interview (R3)
        4. Testing (R4)
        5. Staff Meeting (R5)
        6. Travel/Moving Expenses (R6)
        7. Post-Employment Acquisition and Dissemination of Information (R7)
        8. Pre-Employment Medical Examination (R8 and R9)
      3. Training Costs
        1. Informational Literature and New-Employee Orientation (T1)
        2. Instruction in a Formal Training Program (T2)
        3. Instruction by Employee Assignment (T3)
      4. Performance Differences Between Leavers and Their Replacements
    4. The Costs of Lost Productivity and Lost Business
      1. Process
    5. Exercises
    6. Worksheet
      1. Separation Costs
      2. Replacement Costs
      3. Training Costs
    7. References
  11. 5. Employee Health, Wellness, and Welfare
    1. Health, Wellness, and Worksite Health-Promotion (WHP)—What Are They?
    2. Skyrocketing Health-Care Costs Brought Attention to Employee Health
    3. Two Broad Strategies to Control Health Care Costs
    4. Logic: How Changes in Employee Health Affect Financial Outcomes
    5. The Typical Logic of Workplace Health Programs
    6. Legal Considerations and Incentives to Modify Lifestyles
    7. Analytics for Decisions about WHP Programs
    8. Measures: Cost Effectiveness, Cost-Benefit, and Return-on-Investment Analysis
      1. Cost-Effectiveness Analysis
      2. Cost-Benefit and Return-on-Investment Analysis
      3. Conclusions Regarding Cost-Effectiveness, Cost-Benefit, and ROI Analyses
    9. Solving the Analysis and Measurement Dilemmas to Improve Decisions about WHP Programs
      1. Process—Communicating Effects to Decision Makers
        1. Chronic Conditions
        2. Smoking
        3. Regular Exercise
        4. Lifestyle Choices
      2. ROI Analyses of WHP Programs
    10. Improving Employee Welfare at Work: Employee Assistance Programs (EAPs)
      1. The Logic of EAPs
      2. Costs and Reported Benefits of EAPs
      3. Enhanced Analytical Considerations in EAPs
      4. A Template for Measuring the Effects of EAPs
        1. Productivity
        2. Costs of Employee Turnover in EAPs
        3. Unemployment Compensation in EAPs
        4. Savings in Supervisors’ Time in EAPs
    11. Future of Lifestyle Modification, WHP, and EAPs
    12. Exercises
    13. References
  12. 6. Employee Attitudes and Engagement
    1. Attitudes Include Satisfaction, Commitment, and Engagement
    2. The Logic Connecting Employee Attitudes, Behaviors, and Financial Outcomes
    3. Employee Engagement and Service Climate
    4. Measures of Employee Attitudes
    5. Analytical Principles: Time Lags, Levels of Analysis, and Causal Ordering
      1. Time Lags
      2. Levels of Analysis
      3. Causal Ordering
    6. Estimating the Financial Impact of Employee Attitudes: The Behavior-Costing Approach
      1. Behavior Costing at Sears: The Employee-Customer-Profit Chain
        1. The Logic of the Three “Compellings”
        2. Metrics, Data, and the Analytical Causal Model
        3. Matching a Compelling Process to the Compelling Model
      2. Behavior Costing at SYSCO—The Value-Profit Chain
        1. Logic: The Causal Model
        2. Analytics: Connecting the Model to Management Behaviors
        3. Measures
        4. Analytics Combined with Process: The SYSCO Web Portal for Managers
        5. Translating the Analysis into Dollar Values
        6. Integrating the Attitude-Analysis System into Organizational Systems
    7. A Final Word
    8. Exercises
    9. References
  13. 7. Financial Effects of Work-Life Programs
    1. “Extreme” Jobs
    2. Special Issues that Parents Face
    3. Work-Life Programs: What Are They?
    4. Logical Framework
      1. Impact of Work-Life Strains on Job Performance
      2. Work-Life Programs and Professional Employees
      3. Opting Out
      4. The Toll on Those Who Don’t Opt Out
      5. Enhancing Success Through Implementation
    5. Analytics and Measures: Connecting Work-Life Programs to Outcomes
      1. Childcare
      2. Flexible Work Arrangements
        1. Talent Management
        2. Human-Capital Outcomes—Employee Commitment
        3. Financial Performance, Operational and Business Outcomes—Client Service
      3. Work-Life Policies and Firm Performance
        1. Work-Life Practices in Singapore
        2. Overall Summary of Results
    6. Are Companies That Are Good to Their Employees Also Good to Their Investors?
    7. Process
    8. Exercises
    9. References
  14. 8. Staffing Utility: The Concept and Its Measurement
    1. A Decision-Based Framework for Staffing Measurement
    2. Framing Human Capital Decisions Through the Lens of Utility Analysis
    3. Overview—The Logic of Utility Analysis
    4. Utility Models and Staffing Decisions
      1. The Taylor-Russell Model
        1. Analytics
      2. The Naylor-Shine Model
      3. The Brogden-Cronbach-Gleser Model
        1. Step 1: Express the predictor-criterion relationship as a formula for a straight line
        2. Step 2: Standardize x
        3. Step 3: Express the equations in terms of the validity coefficient
        4. Step 4: Subtract the costs of the selection process
    5. Conclusion
    6. Exercises
    7. References
  15. 9. The Economic Value of Job Performance
    1. Pivotal Talent at Disney Theme Parks
    2. Logic: Why Does Performance Vary Across Jobs?
    3. Analytics: The Role of SDy in Selection-Utility Analysis
    4. Measures: Estimating the Monetary Value of Variations in Job Performance (SDy)
      1. Cost-Accounting Approach
        1. The Estimate of SDy
      2. The 40 Percent Rule
      3. Global Estimation
      4. An Example of Global SDy Estimates for Computer Programmers
        1. Modifications to the Global-Estimation Procedure
      5. The Cascio-Ramos Estimate of Performance in Dollars (CREPID)
      6. Average Salary as a Proxy for the Economic Value of Output
      7. System-Effectiveness Technique
        1. Measures
      8. Superior-Equivalents Technique
        1. Measures
    5. Process: How Accurate Are SDy Estimates, and How Much Does It Matter?
    6. Exercises
    7. References
  16. 10. The Payoff from Enhanced Selection
    1. The Logic of Investment Value from Utility Analysis
      1. Measuring the Utility Components
      2. Analytics: Results of the Utility Calculation
      3. Making Utility Analysis Estimates More Comparable to Financial Estimates
    2. Analyzing “Compound Interest” Through Talent: Effects of Employee Flows on Utility Estimates
      1. Logic of Employee Flows
      2. Measures: Calculating How Employee Flows Affect Specific Situations
    3. Logic: The Effects of a Probationary Period
    4. Logic: The Effect of Multiple Selection Devices
    5. Logic: Effects of Job-Offer Rejections
    6. Process: It Matters How Staffing Processes Are Used
      1. Cumulative Effects of Adjustments
    7. Dealing with Risk and Uncertainty in Utility Analysis
      1. Break-Even Analysis
      2. Monte Carlo Analysis
      3. Confidence Intervals
    8. Process: Communicating the Impact of Utility Analyses to Decision Makers
    9. Exercises
    10. References
  17. 11. Costs and Benefits of HR Development Programs
    1. The Value of Structured Versus Unstructured Training in Basic Skills
      1. A Field Experiment Comparing Structured and Unstructured Training
        1. Production Quantity and Quality
        2. Competency Outcomes
        3. Costs
        4. Worker Reactions and Attitudes
        5. Collecting and Recording the Data
        6. Study Results
      2. The Logic of the Training Cost-Benefit Model
        1. Training Costs
        2. Trainee Quality and Performance
        3. Analyses of Training Quality and Performance
        4. Evaluation
    2. Utility-Analysis Approach to Decisions about HRD Programs
      1. Modifying the Brogden-Cronbach-Gleser Model to Apply to Training
      2. Issues in Estimating dt
      3. Issues in Assessing Effect Sizes
    3. Break-Even Analysis Applied to Proposed HRD Programs
      1. Duration of the Effects of an HRD Program
      2. Economic Considerations and Employee Flows Applied to HRD Programs
      3. Example: Skills Training for Bankers
    4. Costs: Off-Site Versus Web-Based Meetings
    5. Process: Enhancing Acceptance of Training Cost and Benefit Analyses
    6. Conclusion
    7. Exercises
    8. References
  18. 12. Talent-Investment Analysis: Catalyst for Change
    1. Introduction
    2. Better Answers to Fundamental Questions
      1. Absence Means More Than Just Getting the Work Done
      2. Layoffs Cut More Than Costs, and Turnover Is Not Always a Bad Thing
      3. When Everyone Is Reducing Employee-Health Investments, Is It Smart to Invest More?
      4. Why Positive Employee Attitudes Are Not Simply “Soft” and Nice to Have
      5. Work-Life Balance Is Not Just a “Generational” Thing
      6. The Staffing Supply Chain Can Be as Powerful as the Traditional Supply Chain
      7. Taking HR Development Beyond Training to Learning and Work Force Enhancement
    3. Intangible Does Not Mean “Unmeasurable”
      1. The HC BRidge Framework as a Meta Model
    4. Lighting the LAMP of Organization Change
    5. References
  19. A. The Taylor-Russell Tables
    1. Proportion of Employees Considered Satisfactory = 0.05
    2. Proportion of Employees Considered Satisfactory = 0.10
    3. Proportion of Employees Considered Satisfactory = 0.20
    4. Proportion of Employees Considered Satisfactory = 0.30
    5. Proportion of Employees Considered Satisfactory = 0.40
    6. Proportion of Employees Considered Satisfactory = 0.50
    7. Proportion of Employees Considered Satisfactory = 0.60
    8. Proportion of Employees Considered Satisfactory = 0.70
    9. Proportion of Employees Considered Satisfactory = 0.80
    10. Proportion of Employees Considered Satisfactory = 0.90
  20. B. The Naylor-Shine Table for Determining the Increase in Mean Criterion Score Obtained by Using a Selection Device
    1. Using the Table
  21. Financial Times Press