Hidden Costs of HR

CFO.com
May 6, 2009 | COMMENTS

According to a recent article by David McCann on www.cfo.com, HR departments often struggle with providing the necessary analytics for making workforce decisions that strengthen their companies and build economic value.

Citing employee surveys conducted at IBM and other companies, which found little relationship between job satisfaction and performance ratings, Rutgers University professor Richard Beatty maintains many HR initiatives don't contribute to the success of the organization. "HR people try to perpetuate the idea that job satisfaction is critical," Beatty said. "But there is no evidence that engaging employees impacts financial returns."

Beatty presented data from a Gallup survey on the performance of about 4,500 customer service employees at an unnamed major financial firm. The results showed that the employees who scored in the top quartile had a positive effect on 61 percent of the people they talked to. The next two quartiles registered 40 percent and 27 percent positive responses, respectively, but there were enough neutral responses that the employees' net performance was positive. The lowest quartile, however, scored a net 2 percent negative impact.

"You'd be better off had you paid these people not to come to work," Beatty said. "You'd be a lot better off if you paid them to work for your competitor." The financial firm paid about $30 million in salaries and benefits to the employees in the lowest quartile, whose performance cost the firm as much as $50 million worth of business.

Beatty maintains one of the biggest mistakes HR makes is trying to treat every employee the same. HR departments typically study why their top performers are successful and then try to make the underachievers do the same thing. That, according to Beatty, may not be effective—some workers are fully capable of doing what is expected of them, but simply refuse to do it.

"HR spends considerable time trying to defend or fix poor performers, taking on the St. Bernard role," said Beatty. "Low turnover isn't necessarily a good thing. Think about where you might want to disinvest."

This summary is condensed from an article by David McCann published at www.cfo.com entitled “Memo to CFOs: Don't Trust HR.” Read the complete article online here.