How to measure the performance of a HR director

The work of any department can be estimated in monetary terms. HR-s can be considered a rare exception, although often it is their actions that are especially sensitive to the company. Several criteria to help identify HR value.

“People decide everything” – this common phrase defines the position of the current HR directors quite high in the hierarchy of the company. Indeed, so much has been said and written about the fact that employees are an important strategic resource for the company, that they need to be nurtured and nurtured in order for the business to flourish. It is for human resource management that entire services and departments are created, the only goal of which is to correctly use this most important resource to achieve the company’s global strategic goals. In order for the human resource to be used efficiently, many tools and techniques have been invented that are used by HR specialists.

Every self-respecting HR director, entering the labor market in search of a job, by all means lists in his resume all the tools and techniques that he knows how to use. Very often the cost of such a specialist in the labor market is determined by the number of modern techniques that the HR director owns. This state of affairs is understandable, since the employer wants to acquire a professional HR specialist who has in his arsenal the greatest number of different approaches to solving his problems. An advanced employer determines the quality and value of a HR director not only by the number of technologies and techniques he owns, but also by the effectiveness of his past activities. And this is where the problems begin. How to evaluate the results of the past or current activities of an HR specialist? What are the criteria and criteria? What exactly is a successful and effective HR director?

Usually I am asked in interviews to talk about success in past jobs. Of course, I talk in detail about what has been done in this or that company. But I have never heard a question about what economic effect my projects have brought to business.

And if you analyze and evaluate the work in monetary units? Do you think it’s difficult? It is not so difficult. Of course, situations are different. Sometimes the economic effect is obvious, for example, when introducing International Financial Reporting Standards (IFRS), the HR Director, together with financiers, must organize training in these standards so that employees can work with new types of reporting. It will be much cheaper to train an established team in the methods of working with IFRS than to disband the entire accounting department and hire new employees with the necessary skills. The cost of training is known, the cost of recruiting is easy to calculate, the cost of losses from lack of staff can also be calculated. We add up the cost of recruiting and losses from the lack of personnel,

But, if your HR director has decided to implement a new remuneration system, how to calculate the effect of implementation? Before approving this project, you need to get answers to the questions:

  1. Why is the current remuneration system bad, which is planned to be replaced with a new one?
  2. How will the new remuneration system affect business results?
  3. Will it be less expensive?
  4. Can it become a stimulator for the growth of labor productivity and professional level of employees?
  5. How much will the implementation cost, and will it pay off?

Having received answers to the questions, we will be able to decide whether we should do it, and what we will get in the end. Among other things, we will be able to calculate whether this remuneration system will affect the financial result of the company.

Apart from this, we can also understand the purpose of the HR director. Does he change the pay system for the sake of the change process itself, or does he do it to solve business problems (for example, so that the new pay system affects productivity growth or sales growth). If he only demonstrated his skill, then, of course, he gained additional experience and increased his value in the labor market. But the business didn’t gain anything, and it’s good if it didn’t lose anything. In this case, it is quite reasonable to think about why the company needs such a professional who is expensive (this is a fact!), But does not affect the company’s financial results? Why are all these newfangled HR technologies needed?

So, the HR director is successful and effective when he knows how to do three things well:

  1. Manage numbers.
  2. Manage personnel costs.
  3. Manage competencies.

And he does these three things for a reason, but in order for the business to be effective, that is, to bring such income as was planned, and not as it turned out; developed or remained stable depending on the wishes of the owner.

Headcount management

The effect of completing headcount management tasks, I think, is obvious: the fewer personnel produce the required amount of product / services, and the like, the more efficiently your HR director has built the work. In this situation, the employer and the HR director need to agree only on the criteria for assessing the effectiveness of his work.

You can focus on the performance of competitors who, in your opinion, have achieved the best results in terms of numbers. And if there are none, you can concentrate on improving the performance was / was within the company.

A lot has been written and said about ways to reduce the number. The range of methods ranges from reducing unnecessary jobs and optimizing business processes, to changing technological processes and increasing the efficiency of using production facilities. The task of the HR director is to choose the best technologies suitable for your business and optimize the headcount in accordance with the set goals.

Personnel cost management

The effectiveness of solving problems in this area is also quite obvious: the lower the costs per person, the better. You just need to treat this without fanaticism. It is unlikely that your HR director will be happy if you force him to reduce costs indefinitely. Most of us are well aware that the cost of personnel is affected by the state of the labor market, the growth of wages in business neighbors, inflationary processes in the country, and the like. It is possible to reduce costs, but only if they are not optimal from an objective point of view.

In this case, the following should be analyzed:

  • Cost structure. Everything is simple here, you need to understand which cost items do not motivate staff and are not mandatory from the point of view of labor legislation, as well as those that are rarely used – all of them can be minimized. For example, a common benefit is voluntary health insurance. How many employees use VHI policies? In one of the companies in which I happened to work, this percentage was no higher than 10. Why spend money on a benefit that employees don’t enjoy. It can be removed or replaced with another benefit that will make employees more attractive.
  • Wage structure. Here you can waive extra payments for overtime work, work on weekends, etc., which are known to be paid at higher rates. How to do it within the law and painlessly for employees is the art of the HR director.

In addition, there is such a part of the salary as a bonus, which should be paid for specific results of work, and not be unconditionally paid part of the employee’s earnings.

If the HR director has managed to ensure that the bonus is really a bonus, and employees do not commit voluntary “labor feats” for double pay, then personnel costs are optimized.

If you think that personnel costs are optimal, then you shouldn’t relax anyway. In this case, it is necessary to talk about high-quality planning of these costs (budget): the less cost overruns happened in the financial year, the better, the more predictable the company’s financial result is. And this is also a good indicator.

Competency management

It is possible that the results from the fulfillment of tasks for the management of competencies are not so unambiguous in terms of calculating the economic effect, however, it is necessary to manage competencies and assess the effectiveness of this process in rubles.

So, the greater the number of competencies required to perform business tasks an employee has, and the higher the level of their development, the better. If business does not need competence, you should not evaluate it from the point of view of development, and even more so develop it (well, unless you decide to do charity work).

When we take on such a difficult task, the HR director must first of all make sure that he has an approved list of those competencies that are necessary in a particular position to perform tasks with the best quality. After that, it is necessary to assess the availability of competencies and the level of their development among specific employees in specific positions. And only with these two documents, the employer and the HR director can begin to agree on tasks within the framework of competency management and performance evaluation criteria.

Of course, at the discussion stage, it will be necessary to decide: which of the employees is not necessary to develop, because everything is in order with them, who will have to be fired as hopeless; someone to teach something. But these are already the methods that the HR director will use to achieve the goal. It is worth assessing the effectiveness of the fulfillment of the assigned tasks by comparison: it was at the beginning of the period / it was at the end of it. If we have a list of competencies and the level of their development for a specific employee in a specific position, we can easily evaluate the result of working with an employee on the development of competencies in numbers, which is much more indicative than a qualitative assessment.

By and large, when assessing the effect of competency management, I see only one difficulty – we cannot in all cases immediately and unambiguously calculate what economic effect the development of a specific competence in a particular employee will bring. This applies, above all, to managerial competencies. However, when a company decides to develop this particular block of competencies, it must understand why it is doing it. If the goal is clear, then it is possible to translate all this into rubles. A trivial example: meeting efficiency. If your company is spending too much time on them, teach your employees to conduct effective meetings, thereby reducing their time, and possibly their number. The cost of one meeting is easy to calculate: you need to add up all the salaries of the participants, divide them by the monthly rate of hours and multiply by the number of hours spent in the meeting. For the sake of completeness, you can add the cost of depreciation of equipment used in the meeting, payroll taxes, and the like. If less time was spent on one meeting or they began to be held less often, then we began to spend less money on this function – this is the economic effect of competency management.

Thus, if your HR director shows positive dynamics in all three areas described in this article, rest assured that you are the owner of a truly professional specialist, and your business will only benefit from this. The article was prepared by the service