6.2 analysing HR performance Flashcards
What data is available to managers to assess the performance of their employees?
- Labour productivity - output per worker
- Unit labour costs
- Employees as a % of revenue
- Labour turnover and retention
Labour Productivity: (formula)
- Perhaps most fundamental indicator of performance.
- Improvement leads to increase in profit margins or reduction in prices.
- Interpreting: The higher the better.
Labour productivity = total output per time period
Number of employees at work
What affects labour productivity?
- Amount of equipment (capital)
- Quality of equipment (capital)
- Motivation of the workforce
Increasing labour productivity:
- Represents an improvement in efficiency
- Reducing labour costs
- Labour costs account for around 2/3rds of production costs in UK
- This results in major benefits for businesses
Things to consider when analysing data…
- Which part of the business is included in the data?
- Labour productivity data ignores wage rates
- Overall productivity depends on many factors (capital etc)
- What is the labour productivity for a direct competitor?
what are Unit Labour Costs?
- Measures the labour cost per unit of output produced
- Based on total labour costs including non wage employment costs (national insurance /pensions)
- These are the best indicator of labour costs faced by a business
- Represents the amount of capital needed for employees to make one unit of output
It is determined by..
1. The cost of employing workers
- A rise in labour productivity can control labour unit costs
- When productivity is rising, managers will be more willing to pay higher salaries etc
- Especially when % increase in pay is less than % increase in productivity
- Useful to look at over a period time
- Could increase in the short term due to heavy investment in training
- This is until increasing labour productivity reduces labour costs
- Labour costs are only one type of costs, if other costs are high they will not be price competitive
What type of relationship is present between labour productivity and labour unit costs?
Inverse relationship
Employee cost as a % of revenue
Especially important measure for businesses that supply services where employee costs are a high % of total costs (healthcare)
What factors will influence employees cost as a % of revenue?
- Productivity rates of workforce
- Wage rates
- Non-wage employment costs - generous pension schemes and benefits can increase costs without increasing revenue
- The management of capacity - if a business doesn’t utilise its HR efficiently it may be paying for employees who are not contributing to sales and revenue
Labour Turnover: (formula)
- Measures proportion of employees leaving the business in a given period (usually a year)
Labour turnover = number of staff leaving during year x 100
average number of staff
Which factors could cause poor labour turnover?
- Low wages
- Inadequate training
- Low morale / motivation
- Ineffective recruitment leading to unsuitable staff
- Redundancies
- Retirement
Labour Retention: (formula)
This measures the extent to which businesses keep their employees.
number of employees employed for a year or more x 100
average number of staff
Why do businesses concern themselves with keeping hold of their employees?
- Recruitment costs
- Unsettling for staff / teams
- Dissatisfied customers (dealing with multiple different people)
- Time lag to recruit
What type of businesses might be less concerned with labour turnover and retention?
- Lower skilled
- Easier to replace
- Part time
- Seasonal
- Lower wages
- Low cost of training and recruitment
examples:
- > theme parks.
- > supermarkets.
What data might be used for HR decision making? (internal)
- Corporate objectives
- Unit labor costs
- Labour productivity
- Skills
- Labour turnover
- Size of workforce
- Age profile of workforce
