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Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy
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Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy
by Steven Director, Bashker D. Biswas, Ben Waber, James C. Sesil, John Boudreau, Wa
The Definitive Guide to HR Management Tools (Collection)
About This eBook
Title Page
Copyright Page
Contents
The Definitive Guide to HR Communication: Engaging Employees in Benefits, Pay, and Performance
Copyright Page
Praise for The Definitive Guide to HR Communication
Dedication Page
Acknowledgments
About the Authors
Introduction
Effective HR Communication: How to Get Employees to Pay Attention, Understand What’s Changing, and Take Action
“Help!” Cry HR Managers
Why Don’t Employees Pay Attention?
What’s Wrong with This Picture?
A Fresh Approach
How This Book Can Help
Doing It Right Means a Better Bottom Line
Part I. Taking a New Approach
1. Know Your Employees
What Demographics Can Reveal About Employees
What You Can Learn from Demographics
Learning from Key Facts
Four Key Demographics to Explore
The 401(k) Challenge
A Detailed Profile
Use Focus Groups to Explore Needs and Preferences
Executive Compensation
Checklist for Knowing Your Employees
2. Treat Your Employees Like Customers
How to Sell Employees on the Value of Working for Your Company
How Marketers Begin: By Knowing Their Customers
Employees at a Financial Company
Profile
What’s the One Thing You Would Change?
Protect Your Pay
Checklist for Treating Your Employees as Customers
3. Plan and Manage Communication
Start Each Communication Project by Asking Great Questions
Use the Answers to These Questions to Establish a Goal and Objectives
What’s the Difference Between a Goal and an Objective?
Questioning Helps Identify Personal Agendas, Too
Is It an E-mail or a Video? Or Is It Another Solution Desperately Seeking a Problem to Solve?
Manage HR Communication Projects Effectively
Create Award-Winning Communications and Communication Plans
Describe Your Communication Project Succinctly
Establish an Appropriate Budget
The Truth About Killing Trees
And When There Is No Money . . . Sigh
Checklist to Manage Your Communication Project Effectively
4. Frame Your Message
“Go Hollywood” to Create a High Concept
Long-Term Disability Gets the “High Concept” Treatment
Use the Inverted Pyramid to Organize Your Message
An Inverted Pyramid for Long-Term Disability
Leverage the 1-3-9-27 Formula to Structure Content
Filling in the Blanks
Checklist for Framing Your Message
5. Write Simply and Clearly
Earn Points for Doing It Well
A Few Good Ws (and an H)
Create a Checklist to Guide Employees Through a Process
Define Terms in a Sidebar for Easy Reference
A Short Story
Checklist for Writing Simply
6. Leverage Visuals
Visuals Persuade
Visuals Explain
Take Text to the Next Level
Put Simple Graphics to Work
Take a Picture
Create Shortcuts Using Icons
Make Complex Concepts Simple Through Infographics
When You Don’t Have Money for Graphic Designers
Checklist for Leveraging Visuals
7. Use the Right Tool for the Job
A Thought About Tools
Review the Tools in Your Tool Kit
Deciding on the Best Tool
Celebrating Your New and Improved Dental Plan
Using Each Tool Effectively
To the Point
Another Thought About Tools
Still Another Thought About Tools
What’s the Fastest-Growing Advertising Venue?
Location, Location, Location
Everybody into the Pool!
A Final Thought About Tools
Summing Up: Put Every Tool to Work
Checklist for Choosing the Right Tool for the Job
8. Make Meetings Meaningful—and Support Managers
First, the Bad News
Our Mission for Meetings
Come Together
What About Web Meetings?
Support Your Local Manager
The Five-Minute Manager
Try a Meeting in a Box
Helping Managers Understand a New Compensation Plan
Checklist for Making Meetings Meaningful (and Helping Managers)
9. Measure Effectiveness
Defining Effectiveness
Survey Essentials
Creating a Research Report
A Benefits Survey
Checklist for Measuring Communication Effectiveness
Part II. Communicating in Key Situations
10. Recruiting
“We Want Only the Best and Brightest”
Keys to Successful Recruiting Communications
What It Costs to Bring in a Bad Fit
Google, Our Role Model
John Deere Profiles
The J.M. Smucker Company
Using Video Clips to Acquire Hard-to-Get Talent
Checklist for Recruiting Talent
11. Orientation
Welcome Aboard!
Before You Begin
“My First Week”
Set Up Managers for Success
“What Should We Be Doing?”
Translate the Manager’s Role into Action
That Special Day: The Orientation Program
A New Format for Your Orientation Program
Fun Facts
Example: ZS Associates Invests in New Employees
Positive Feedback for NEO
Checklist for Giving New Employees What They Need to Be Successful
12. Policies
Here’s What I Expect from You and What You Can Expect from Me
Policies: The Short Form
Here’s Your Friendly Handbook. Don’t Be Frightened. It Won’t Bite
Our Happy Handbook
Do Your Homework Before Producing Your Handbook
Financial Services Firm
Desperately Seeking Information
Keep the Language Conversational—Please, No Legalese
About ID Cards
Encourage Employees to Use the Handbook as a Resource
Put a Title on Your Work
Measure Results
Bring Policies to Life
Communicate Life Events When Policies, Programs, and Benefits Intersect
Checklist for Making the Most of All That Your Company Offers
13. Benefits
“My Head Hurts”
Is Eight Your Lucky Number?
What You Can Learn by Asking
How Walnut Keeps It Simple
Walnut Says, “Print It”
Keeping Track
Walnut Measures Success
Checklist for Helping Employees Understand Their Benefits So That They Know What to Do
14. Compensation
Beware the Black Box
Money Does Not Equal Motivation
The Magic Number Is 5
Checklist for Getting Value from Your Substantial Investment in Compensation
15. Performance Management
It’s Report Card Time!
What Is Performance Management?
What Do Employees Want?
Begin with Company Goals
How We Articulate Our Goals
Connecting the Dots if Your Company Is Large
Does Everyone Understand Your Performance Management System?
Lorraine’s Performance Management Plan
What if Your System Is Complicated?
The Big Picture
Teaching Managers to Fish
Help Managers Know What Really Improves Performance
Checklist for Communicating Performance Management
16. Saving for Retirement
Hey, Can We Get Some Help Over Here?
Not Algebra, But . . .
Stock Options 101
How to Get Smarter and Richer
How to Give Advice When You Can’t Give Advice
“Tell Me How You Got to Be So Rich”
More Stories
When You’re Announcing a New Plan, Write Your Own Story
The Beauty and Art of Illustrations
Personalize to Make a Point
Checklist for Helping Employees Achieve Their Financial Goals
17. Leaving the Company
“You Say Good-bye, and I Say Hello”
“Good News: I’m Resigning”
We Regret to Inform You . . .
Communication Principles
The Worst Day Ever: Layoffs
A Good Layoff
When a Reorganization Leads to a Layoff
Hundreds of Questions, and Their Answers
Checklist for Communicating as Employees Leave the Company
Endnotes
Index
FT Press
Investing in People: Financial Impact of Human Resource Initiatives, Second Edition
Copyright Page
Dedication Page
Acknowledgments
About the Authors
Preface
Plan for the Book
1. Making HR Measurement Strategic
How a Decision Science Influences HR Measurement
Hitting the “Wall” in HR Measurement
The LAMP Framework
Conclusion
Software to Accompany Chapters 3–11
References
2. Analytical Foundations of HR Measurement
Traditional Versus Contemporary HR Measures
Fundamental Analytical Concepts from Statistics and Research Design
Fundamental Analytical Concepts from Economics and Finance
Conclusion
References
3. The Hidden Costs of Absenteeism
What Is Employee Absenteeism?
The Logic of Absenteeism: How Absenteeism Creates Costs
Analytics and Measures for Employee Absenteeism
Case Study: From High Absenteeism Costs to an Actionable Strategy
Other Ways to Reduce Absence
Exercises
References
4. The High Cost of Employee Separations
The Logic of Employee Turnover: Separations, Acquisitions, Cost, and Inventory
Pivotal Talent Pools with High Rates of Voluntary Turnover
Voluntary Turnover, Involuntary Turnover, For-Cause Dismissals, and Layoffs
How to Compute Turnover Rates
Example: Separation Costs for Wee Care Children’s Hospital
Training Costs
Performance Differences Between Leavers and Their Replacements
The Costs of Lost Productivity and Lost Business
Process
Exercise
References
5. Employee Health, Wellness, and Welfare
Health, Wellness, and Worksite Health Promotion
Skyrocketing Health-Care Costs Brought Attention to Employee Health
Two Broad Strategies to Control Health-Care Costs
Logic: How Changes in Employee Health Affect Financial Outcomes
The Typical Logic of Workplace Health Programs
Legal Considerations and Incentives to Modify Lifestyles
Analytics for Decisions about WHP Programs
Measures: Cost Effectiveness, Cost-Benefit, and Return-on-Investment Analysis
Solving the Analysis and Measurement Dilemmas to Improve Decisions about WHP Programs
Improving Employee Welfare at Work: Employee Assistance Programs (EAPs)
Future of Lifestyle Modification, WHP, and EAPs
Exercises
References
6. Employee Attitudes and Engagement
Attitudes Include Satisfaction, Commitment, and Engagement
Satisfaction, Commitment, and Engagement as Job Outcomes
The Logic Connecting Employee Attitudes, Behaviors, and Financial Outcomes
Employee Engagement and Competitive Advantage
Employee Engagement and Service Climate
Measures of Employee Attitudes
Analytical Principles: Time Lags, Levels of Analysis, and Causal Ordering
Estimating the Financial Impact of Employee Attitudes: The Behavior-Costing Approach
A Final Word
Exercises
References
7. Financial Effects of Work-Life Programs
“Remixing” Rewards
Special Issues Parents Face
Work-Life Programs: What Are They?
Logical Framework
Analytics and Measures: Connecting Work-Life Programs to Outcomes
Stock Market Reactions to Work-Life Initiatives
Process
Exercises
References
8. Staffing Utility: The Concept and Its Measurement
A Decision-Based Framework for Staffing Measurement
Framing Human Capital Decisions Through the Lens of Utility Analysis
Overview: The Logic of Utility Analysis
Utility Models and Staffing Decisions
Process: Supply-Chain Analysis and Staffing Utility
Conclusion
Exercises
References
9. The Economic Value of Job Performance
Pivotal Talent at Disney Theme Parks
Logic: Why Does Performance Vary Across Jobs?
Analytics: The Role of SD
Measures: Estimating the Monetary Value of Variations in Job Performance (SD
The Estimate of SD
Process: How Accurate Are SD
Exercises
References
10. The Payoff from Enhanced Selection
The Logic of Investment Value Calculated Using Utility Analysis
Measuring the Utility Components
Analytics: Results of the Utility Calculation
Process: Making Utility Analysis Estimates More Comparable to Financial Estimates
How Talent Creates “Compound Interest:” Effects of Employee Flows on Utility Estimates
Analytics: Calculating How Employee Flows Affect Specific Situations
Logic: The Effects of a Probationary Period
Logic: Effects of Job Offer Rejections
Logic: The Effect of Multiple Selection Devices
Process: It Matters How Staffing Processes Are Used
Cumulative Effects of Adjustments
Dealing with Risk and Uncertainty in Utility Analysis
Process: Communicating the Impact of Utility Analyses to Decision Makers
Employee Selection and the Talent Supply Chain
Exercises
References
11. Costs and Benefits of HR Development Programs
The Relationship Between Training Expenditures and Stock Prices
Utility Analysis Approach to Decisions about HRD Programs
Break-Even Analysis Applied to Proposed HRD Programs
Costs: Off-Site Versus Web-Based Meetings
Process: Enhancing Acceptance of Training Cost and Benefit Analyses
Conclusion
Exercises
References
12. Talent Investment Analysis: Catalyst for Change
Better Answers to Fundamental Questions
Intangible Does Not Mean “Unmeasurable”
The HC BRidge Framework as a Meta Model
Lighting the LAMP of Organization Change
References
Appendix A. The Taylor-Russell Tables
Appendix B. The Naylor-Shine Table for Determining the Increase in Mean Criterion Score Obtained by Using a Selection Device
Using the Table
FT Press
Index
Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy
Copyright Page
Dedication Page
Acknowledgments
About the Author
1. Business Strategy, Financial Strategy, and HR Strategy
Is HR Weakest in the Most Critical Areas?
You Don’t Need to Be a Quant to Make Good Business Decisions
Which HR Decisions Are Important?
What This Book Attempts to Do
2. The Income Statement: Do We Care About More Than the Bottom Line?
Income Statements
Profit Can Be Measured at Various Levels
Seeing the Big Picture
The Bottom Line
3. The Balance Sheet: If Your People Are Your Most Important Asset, Where Do They Show Up on the Balance Sheet?
Assets on the Balance Sheet
Liabilities on the Balance Sheet
Which Numbers on a Balance Sheet Can You Believe?
Use Caution When Using Published Financial Ratios
4. Cash Flows: Timing Is Everything
Cash Flow Information from the Income Statement
Cash Flow Information from the Balance Sheet
5. Financial Statements as a Window into Business Strategy
Common Size Financial Statements
Connecting the Dots
Return on Equity
Differential Impact of Financial Leverage
The Big Picture
The Link Between HR Strategy and Business Strategy
6. Stocks, Bonds, and the Weighted Average Cost of Capital
Why Is the Cost of Capital Important to HR Managers?
Where Does the Money Come From?
Is Your Company of Above Average or Below Average Risk?
Capital Costs in 2012
7. Capital Budgeting and Discounted Cash Flow Analysis
Calculating Present Values
Do the Future Benefits Justify the Upfront Costs?
Using DCF on the Job
HR Applications
Money Has Time Value Because of Interest Rates, Not Because of Inflation
8. Financial Analysis of Human Resource Initiatives
Decisions Involving Cash Flow That Occur at Different Points in Time
Allocating Budgets When There Are a Larger Number of Alternatives
Calculating NPV of Specific HR Initiatives
Determining Program Impacts Using Pre-Post Changes
Determining Program Impacts Using Comparison Groups
What Is Your Firm’s HR Budget?
Is Your HR Budget Allocation Optimal?
Maximizing the ROI on Your Analysis Efforts
9. Financial Analysis of a Corporation’s Strategic Initiatives
Estimating the NPV of a Strategic Initiative Such as a New Product Introduction
Using the Spreadsheet to Structure the Deal
Using Monte Carlo Simulations to Model Risk and Uncertainty
10. Equity-Based Compensation: Stock and Stock Options
How Do Stock Options Work?
What Is the Intrinsic Value of an Option? What’s the Time Value of an Option?
Are Options High-Risk Investments?
Do Employees Prefer Options or Stock?
Understanding the Inputs to the Black-Scholes Model
Firms Must Disclose the Methods and the Assumptions They Use to Cost Stock Options
Using Monte Carlo Simulation to Determine the Value of Employee Stock Options
Dilution, Overhang, and Run Rates
Equity Compensation Is One Tool for Aligning Executive and Shareholder Interests
11. Financial Aspects of Pension and Retirement Programs
Defined Benefit (DB) Plans
Defined Contribution (DC) Plans
Hybrid Plans
The Shift from DB Plans to DC Plans
Pension Accounting
Why Base Costs on the Expected Rather Than the Actual Return on Plan Assets?
How Do Firms Select the Appropriate Discount Rate?
DB Plans Encourage Retirement
The Future?
12. Creating Value and Rewarding Value Creation
Aligning Pay with Performance
Managing EPS Expectations
Putting It All Together
Appendix A: A Sample of Financial Measures Currently in Use
Bibliography
Endnotes
Chapter 1
Chapter 2
Chapter 3
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Index
FT Press
Applying Advanced Analytics to HR Management Decisions: Methods for Selection, Developing Incentives, and Improving Collaboration
Copyright Page
Dedication Page
Acknowledgments
About the Author
Preface
Introduction
The New Human Science and HCM Decisions
1. Challenges and Opportunities with Optimal Decision Making and How Advanced Analytics Can Help
1.1. How We Make Decisions and What Gets in the Way
1.2. Rise of the Machines: Advanced Analytics and Decision Making
1.3. Human and Machine: The Ideal Decision-Making Team
2. Collaboration, Cooperation, and Reciprocity
2.1. Human Nature and Human Science
2.2. The Power of Collaboration: The Scandinavian Model
2.3. Advanced Analytics and Collaborative Decision Making
3. Value Creation and Advanced Analytics
3.1. The Wealth of Organizations and What Advanced Analytics Can Do
3.2. Value and How to Create It: Intangible Capital
3.3. Strategic Choice and Advanced Analytics
3.4. Software Applications, Analytics, and HR Decisions
4. Human Science and Selection Decisions
4.1. Optimizing Selection and Promotion Decisions
4.2. Workforce Planning, Talent Acquisition, and Decision Analytics
4.3. Human Science and Selection and Promotions Decisions
4.4. Applications of Human Science to Selection Decisions
5. Human Science and Incentives
5.1. Human Science and Incentives
5.2. Human Science and Motivation
5.3. Performance Management
5.4. Applying Human Science to Incentive Contracts
5.5. Application of Human Science to Specific Incentive Issues
Conclusion
Garbage In...
Our Argumentative Natures
Advanced Analytics and Diagnosis of HCM Issues
The Science (and Art) of Prediction
The Challenges with Being Empirically Declarative
Decision-Making Authority and Cooperation
Sharing Control and Return Rights
Individualization
A. Definitions
Endnotes
Introduction
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Appendix A
Index
Compensation and Benefit Design: Applying Finance and Accounting Principles to Global Human Resource Management Systems
Copyright Page
Dedication Page
Foreword
Acknowledgments
About the Author
Preface
Part I
1. Introduction: Setting the Stage
The Cost Versus Expense Conundrum
CAPEX Versus OPEX
The Current HR Cost-Classification Structure
The Current Accounting for Compensation and Benefit Cost Elements
Key Concepts in This Chapter
Appendix: The Terms
2. Business, Financial, and Human Resource Planning
The Overall Planning Framework
HR Planning
HR Programs
Key Concepts in This Chapter
Appendix
3. Projecting Base Compensation Costs
Base Salary Costs
Key Concepts in This Chapter
Appendix: Cash Flow Impact of Salary Increases
4. Incentive Compensation
An Introduction to Incentive Compensation Programs
Accounting for Annual Cash Incentive Plans
Key Incentive Compensation Metrics
Free Cash Flow as an Incentive Plan Metric
Economic Value Added as an Incentive Plan Metric
Residual Income as an Incentive Compensation Plan Metric
The Balanced Scorecard and Incentive Compensation
Balanced Scorecard and Compensation
Key Concepts in This Chapter
5. Share-Based Compensation Plans
Stock Award Plans
Stock Option Plans
Stock Option Expensing
The Accounting for Stock Options
Tax Implications of Stock Plans
International Tax Implications of Share-Based Employee Compensation Plans
Employee Share Purchase Plans
Stock Appreciation Rights
Key Concepts in This Chapter
Appendix: Stock Options and Earnings per Share
6. International and Expatriate Compensation
The Background to International and Expatriate Compensation
The Balance Sheet System
Expatriate Taxes
The Cost-Differential Allowance
Global Payroll Systems
International Pensions
Global Stock Option Plans
Key Concepts in This Chapter
7. Sales Compensation Accounting
General Accounting Practices
Sales Compensation Plans
Accounting Control and Audit Issues
Other Salient Elements of a Sales Compensation Plan
Travel Allowances
Commission Accounting
Key Concepts in This Chapter
8. Employee Benefit Accounting
The Standards Framework
Defined Contribution Versus Defined Benefit Plans
Section 965 Explained
Calculating Plan Benefit Obligations
Claims Incurred but Not Reported (IBNR)
Other Benefit Obligations
Additional Obligations for Postretirement Health Plans
Self-Funding of Health Benefits
International Financial Reporting Standards and Employee Health and Welfare Plans
The Financial Reporting of Employee Benefit Plans
Key Concepts in This Chapter
9. Healthcare Benefits Cost Management
The Background
The Reasons for the Rising Costs
Cost Containment Alternatives
Forecasting Healthcare Benefit Costs
Key Concepts in This Chapter
10. The Accounting and Financing of Retirement Plans
The Background
The Accounting of the Plans
The Pension Benefit Obligation
Pension Plan Assets
The Pension Expense
The Accounting Record-Keeping
Accounting Standards Affecting Pension Plans
Key Concepts in This Chapter
Part II
11. Human Resource Analytics
The Background for the Use of HR Analytics
The Need for HR Analytics
Measuring the Effectiveness of HR Investments
Total Compensation Effectiveness Metrics
A Changed Paradigm
Key Concepts in This Chapter
12. Human Resource Accounting
The Background
The Debate
HR Accounting Methods
Key Concepts in This Chapter
Appendix: No Long-Term Savings from Workforce Reductions
Conclusion
An HR Finance and Accounting Audit
References
Articles
Books
Websites
Index
People Analytics: How Social Sensing Technology Will Transform Business and What It Tells Us about the Future of Work
Copyright Page
Praise for People Analytics
Dedication Page
Contents at a Glance
Acknowledgments
About the Author
Preface
1. Sensible Organizations: Sensors, Big Data, and Quantifying the Unquantifiable
Telescopes, Microscopes, and “Socioscopes”
Unbiased?
Digital Breadcrumbs
“Socioscope”
Enter the Badge
Big Data = Big Brother?
Trust and Transparency
2. Evolution, History, and Social Behavior: Our Wandering Road to the Modern Corporation
Back to the Future
In the Shadow of Man
You Say “Groups,” I Say “Organizations”
Individual < Tribe < City-State
Do as the Romans Do
Talkin’ ‘Bout a Revolution
New Information, New Communication
The Organization of Today
(In)formal Processes
Informally Important
The Social Network
Organizing the Path Ahead
3. The Water Cooler Effect: Why a Friendly Chat Is the Most Important Part of the Work Day
Talk Your Ear Off
Cohesion versus Diversity
Blue-Collar versus White-Collar Water Coolers
Banking on Change
Peanut Butter Jelly Time
Break Value
4. The Death of Distance?: Measuring the Power of Proximity
So, Should I Stay at Home and Work in My Pajamas?
Co-Located Offices: The Gold Standard?
More Than a Tape Measure
Distance Makes the Heart Grow Fonder?
Long Table, Short Table
So, Where Should I Sit?
5. I’m the Expert: Why Connections Are More Important Than Test Scores
The (Electric) General
The IT Firm Study
IT Firm Study Results
Expert Puzzle
Being an Expert Expert
6. You Look Like the Creative Type: Da Vinci versus the Hackathon
Cartoon Wars
Lessons from South Park: The Roots of Creativity
7. Tough It Out versus Stay at Home: Modeling Disease Spread Through Face-to-Face Conversations
Corporate Epidemiology
8. Why We Waste $1,200,000,000,000 a Year: Mergers and Acquisitions, Corporate Culture, and Communication
I’ll Call, and Raise
Fixing the Problem
9. Attach Bolt “A” to Plank “Q”: Matching Formal Dependencies with Informal Networks
Big Projects, Big Problems
Congruence, Distance, and Software
Don’t Fall into the Gap
Keeping in Contact
10. The Future of Organizations: How People Analytics Will Transform Work
Badges, Badges Everywhere?
Moving Toward the People Analytics System
Augmented Social Reality
All Around the World
The Next Big Thing
11. Where We Go from Here: Of Face-to-Face Interaction, New Collaboration Tools, and Going Back to the Future
Back to the Future 2
Endnotes
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Index
FT Press
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Financial Analysis for HR Managers
Tools for Linking HR Strategy to Business Strategy
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