Tentamenstof Financial & economic HRM

FINANCIAL AND ECONOMIC HRM - HC


Hoorcollege 1: why numbers matter to HRM
1 course information
Financial HRM (lecture 1 t/m 4)
- Insights in the financial aspects (of the most important HR decisions)

Economic HRM/Personnel Economics (lecture 5 t/m 8)
- Application of economic theory and principles to firms’ human resource
problems

Slides and notes = most important

Timetable

,FINANCIAL AND ECONOMIC HRM - HC

2 Evaluating HR decisions
2.1 Tensions between people and profit




HR perspective: People First
- Tends to see employees as the organization’s most important asset
- Prioritize employee well-being, recruitment, retention, training and development

Accountancy perspective: Cost Control
- Prioritizes financial performance and the organization’s financial sustainability
- View HR-related activities as expenses that needs to be contained (delayed
results)

→ collaboration is key!

All HR decisions have financial implications
- Recruitment and selection
- Compensation and benefits
- Performance management
- Sickness and absence
- Learning and development
- Restructuring

Speak the language: where are people on the balance sheet?
- “The biggest lie told by most organizations is ‘people are our most important
assets” (WSJ, 1995)
- Assets = anything company owns with monetary value
- Liabilities = obligation that sacrifices future economic benefits
- People are not owned (exceptions), hence people costs are liabilities.
- Influences how organizations deal with such costs.

,FINANCIAL AND ECONOMIC HRM - HC




ROI methodology
1) Align HR program with the business
2) Measure and evaluate




1) Align HR program with the business (why?)
- Payoff needs: opportunities for the organization to create profit or reduce/avoid
costs (i.e. desired outcomes and expected returns)
- Business needs: what are the organizational goals/priorities impacted by the
program?
- Performance needs: what is the behavior you want to influence? What are
specific key performance indicators (KPIs) linked to the program?
o Hard: e.g. units produced, overhead costs, accidents, …
o Soft: employee engagement, turnover intention, client satisfaction

, FINANCIAL AND ECONOMIC HRM - HC

1) Align HR program with the business (optional)
- Learning needs: does everybody have the required skills for the program? What
has to be learned?
- Preference needs: what are the different expectations of stakeholders, like
employees and clients? What is the best solution?

2) Measure and evaluate (five levels)
- (re)action: participant reaction/satisfaction (e.g.
feedback, survey) → preference needs
- Outcomes: changes in knowledge and skills
(e.g. tests, assessment) → learning needs
- Application: changes in behavior (employee-
level) → performance needs
- Impact: changes in business measures
(organizational level) → business needs
- Comparison of monetary benefits and costs
(e.g. ROI, BCR and PP) → payoff needs

2.2 Comparison of monetary benefits and costs
1. Historical costs
2. Standard or average values
3. Participants’ wages
4. Essential vs. non-essential costs
- Fixed vs. variables costs
- Direct vs. indirect costs

1. Historical costs: values in prior financial statements, annual reports,
industry reports or company surveys.

- Examples (Heineken 2021 annual report):
o Revenue (omzet): €26,583 million
o Training expenses: €24 million
o Personnel expenses €3,485 million
o FTE: 40,828

Examples (!):
- Revenue per employee (FTE): €651,200 per FTE
- Expenses per employee (FTE): €85,358 per FTE
- Training expenses per employee (FTE): €588 per FTE

2. Standard or average values: available for some output and quality measures
- Examples
o Employee turnover = 1/3 of annual salary (work institute, 2017)
o Absenteeism = €1,600-€3,300 per employee/year (CDC, 2015;
Circadian, 2005)
o Cost per hire = €3,000 - €5,000 (Zippia, 2023)
- Beware: context matters (benchmarking)