CFOs Talk

What HR metrics are CFOs looking for?
|Canadian HR Reporter|Last Updated: 11/06/2012

Measurements connected to HR activities are becoming increasingly sophisticated. We spoke to 5 heads of finance across the country to find out their preferences.

Kathy Watts, vice-president of finance and CFO,
Hamilton Health Sciences

The organization has 6 hospitals and 1 cancer centre, with 11,000 employees

Kathy Watts has been at Hamilton Health Sciences for nearly 25 years, serving six of those as vice-president of finance and CFO. The organization has six hospitals and one cancer centre, with 11,000 employees.

In her time there, Watts has seen a change when it comes to priorities around HR metrics, she says. There have been the basics hospitals have always measured — such as full-time equivalencies, absenteeism rates, overtime rates, training and orientation dollars spent and hours per patient day (a productivity measure).

“You can get (all) these quite easily and trend them. And, actually, if you start seeing increases, very quickly you can zero in, like the manager, as far as what’s happening and what control we may have to be able to, if it’s absenteeism or overtime rates, do something about what’s driving the increase. So these are metrics that internally we do look at, minimally monthly, to be able to control.”

But some of the newer metrics that have been gaining prominence include employee benefits, such as the rate increase and what’s driving that rate, and the utilization of drug plans and different benefits.

“Year over year, when hospitals may get zero per cent or one per cent in funding, it’s pretty contained. And you have benefit costs going up at 10 and 15 per cent — you know, huge. So that’s one that’s really come on our radar screen, as well as (workers’ compensation) surcharges.”

Workplace injuries can add up to a pretty big cost, she says, and with an aging workforce and the demands of the health-care environment — with most employees at the front line bending and lifting — those are some pretty significant costs.

“We may not be able to control the costs today but it’s the kind of thing if you invest in… you may start seeing some kind of payback.”

Vacation liability is another area of interest, she says, as the hospital allows two weeks’ carryover.

“If we’re not ensuring that staff do take the time off that they should be taking, with the pressures of work and everything, then vacation just accumulates. And we do have policies in place that you really want people to take their vacation,” says Watts.

“We really have to make an effort to keep an eye on that because at the end of the year, again, if you’re not watching it, that would be a huge cost to accrue on the books.”

At least 75 per cent of the expenses at hospitals are HR- or people-related, says Watts. It’s a huge chunk and something CFOs are very interested in.

“Within my portfolio, we have decision support services. So we actually do the data mining of all the data within the hospital, be it clinical (or) HR-related. So most of the reporting or creation of the metrics and the scorecards and that do fall under my portfolio,” she says.

“We do believe, since it is such a cost driver in our organization, we need to have a lot of processes and tools in place so people are accountable and can live within their budget allocations, so they need to have information to help guide them.”

As for frequency, Watts likes to see metrics at least monthly, but the HR department puts together a comprehensive annual report that looks at issues such as the age of the workforce and workforce planning in different groups.

“They do an annual report that really tells the story, and that’s really good. But from operating metrics, that gives us really the clues from a financial perspective.”

HR definitely has the expertise to compile and convey the metrics to the CFO, says Watts. Years ago, it was largely a transactional kind of service, processing payroll or collecting applications. But the hospital has invested a lot to have a pretty strategic HR department, she says.

And in the interest of trying to keep costs down, Hamilton Health Sciences tries to be as transparent as possible, she says. For example, HR metrics — such as absenteeism and overtime levels — are often agenda items during staff meetings.

“Because we’re government-funded, we look to staff members to say, in balancing the budget… ‘If we could get our absenteeism down by X, that overall in the organization would save us millions of dollars,’” she says. “Those are costs avoidances that will all help. And at a unit level, it may not seem like a lot. But across six hospitals, it makes a big difference.”

Robert MacDougall, vice-president of finance and administration

The Vancouver-based national centre for excellence focused on wireless innovation has 30 employees

Some of the largest expenses at an organization are around compensation and people, so if an employer is looking to manage costs, it needs to focus on HR metrics because they will drive those costs — or at least have an impact on them, according to Robert MacDougall, vice-president of finance and administration at Wavefront in Vancouver, a national centre for excellence focused on wireless innovation.

Employers are also interested in any information around productivity, so that means evaluating, in a number of different ways, whether you are getting the value from individuals that is expected, such as revenue per head count, expense per head count or average wages, he says.

But human resources is difficult because it deals with individuals and everything’s connected unlike, for example, looking at a simple piece of machinery and average maintenance, says MacDougall.

The lion’s share of HR’s responsibility is around compensation, but another significant part, maybe 40 per cent, is around the behaviour of people over time, he says.

At a previous organization with multiple locations, MacDougall was interested in tracking relative levels of education and training at each location, along with average attendance records.

“Attendance is not a financial metric but it gives a good idea of whether things are working well in that location, from a human resources point of view, in terms of morale, culture.”

When it comes to the frequency of reporting the metrics, it varies depending on the organization, says MacDougall.

“Frankly, a change from month to month or quarter to quarter is not large enough to act on.”

However, major changes in attendance or vacations can be noticed on a monthly basis and investigated, he says, while turnover can be measured quarterly.

“I don’t want to go a full year before paying attention to how that’s behaving.”

For the most part, the metrics are done automatically but there is a manual component when raw data has to be manipulated into a report, says MacDougall.

Some HR systems can track the information, such as compensation, attendance and turnover, relatively easily.

However, MacDougall says he has yet to see a dashboard approach with HR metrics, as seen in accounting or sales, where you press a button and canned results come forward.

“A lot of what I see is tied back to recruiting — that seems to be the first tool HR looks for is a recruiting tool and there are many and they’re good — but extending that to continual management of those staff over time, I haven’t seen a lot of tools for that sort of work.”

And the more metrics, the better, says MacDougall.

“One of the challenges, typically, is benchmarking, especially on the HR side, because it’s hard to find standards, it’s hard to find information that’s specific enough to, say, your size of the organization, your part of the world, your particular industry. So, having a greater external transparency would be of great value.”

And while he’s a big fan of transparency, MacDougall says a lot of companies would prefer sometimes not to distribute that information, in order to protect their intellectual property or not to draw attention to or give away trade secrets.

“The challenge is finding a way to have that information become more available yet, at the same time, dealing with those concerns internally for the business, plus the cost, of course, of generating information and making it public.”

Through the years, MacDougall has seen HR people turn a greater level of attention to generating metrics because they were being asked for the data.

“As well, from their own perspective as participants in a management team where other people are producing metrics, it worked for them to be able to participate in a similar manner.”

While MacDougall says it is of great value to have additional human resources metrics available, there can be a downside if HR loses touch or stops paying attention to how people are feeling and what the company stands for.

“The only thing that’s a bit of a detriment is a focus on metrics takes away from very important activities HR could do around overall culture,” he says. “So, I think metrics are great, a great addition, as long as it’s not sacrificing general attention on ‘Who are we and how do we behave?’”

Ken Zaba, CFO
Calgary Zoo

The zoo has 450 full-time employees

When it comes to metrics, Ken Zaba, CFO at the Calgary Zoo, is a big believer in the balanced scorecard methodology around strategy development. That includes a focus on four perspectives: people and knowledge; internal processes; customers, guests and partners; and financial outcomes.

“It gets folks to think about all the different aspects of strategy execution, in that it’s more than just purely dollars and cents, and actually think from a people standpoint. There’s sort of a foundation and they play a significant role in the execution of that strategy,” he says. “For me, metrics are the basis upon assessing the performance of an organization in terms of how it is doing in achieving its long-term strategic objectives, whether they be HR metrics or otherwise.”

For an organization to succeed, employees need to: know what to do (how their goal plans are aligned with the organization’s strategy); be able to do it (with the right capabilities and opportunities); be equipped to do it (with the necessary tools to succeed within the organization’s financial means); and want to do it (be engaged), says Zaba.

To assess these areas, he tends to focus on retention, engagement, vacancies, employee performance and employee capability development.

“That’s why, when I look at areas and metrics per se, I think about it in those contexts. I’ll think about retention and engagement and employee capability development and performance… as opposed to pure dollars and cents. Those are obviously important as well, because we have budgets that we need to steward to and make sure the organization is financially viable, etcetera.”

Metrics such as retention rates or performance scores are of particular interest, says Zaba, citing HR scorecards at previous organizations where he has worked, including Suncor. The 450-employee Calgary Zoo is also working on developing HR metrics and building a scorecard, possibly with HR metrics.

“The challenge is to get the right ones — we don’t want to burden people with too many metrics,” he says.

Some groups at the zoo have tracked the percentage of preferred candidates hired when they were in a hiring blitz, along with the number of days from when they first advertised the positions to when they had the preferred candidate in place.

As for greater transparency around HR investments — as proposed by the Society for Human Resource Management (SHRM) in the United States through a voluntary reporting standard — Zaba says the concept sounds good, but it’ll be interesting to see how it unfolds.

“It’s a tricky issue,” he says, adding areas such as health and safety metrics, overseen by HR, are also being weaved into scorecards.

Human resources is more than capable to handle the role, says Zaba.

“I’ve been fortunate to have worked with and continue to work with some very strong HR professionals that use metrics to assess performance related to HR matters. They were and are effective at compiling and interpreting the metrics.”

Jean-Sebastien Couillard, CFO
Toronto Hydro and Toronto Hydro Energy Services

The holding company has 1,600 employees

Jean-Sebastien Couillard has been CFO of Toronto Hydro and one of its principal subsidiaries, Toronto Hydro Energy Services, since 2005. And of late, post-employment benefits and future costs such as pensions are of particular interest to him.

“I look a lot at those, especially with current interest rates. They’re so low, it puts significant pressure on those future costs because you’ve got to value liability on the future,” he says.

“In the past, when I joined the company, or just before, when they were doing labour negotiations, for example, with the union, I’m not sure they were paying as much attention to future costs as far as those things being negotiated.”

CFOs are interested in everything that relates to financial results, and HR metrics have a direct impact on financial results for a company such as Toronto Hydro, whether it’s the number of employees or contractors, or salaries or benefits, says Couillard.

“There’s definitely more data available (today) and there’s also costs that we hadn’t seen before as far as the costs of health insurance, the pension costs, are higher than they’ve ever been,” he says. “So, when in the past, it was kind of a different type of preoccupation.”

Being in the business of electricity distribution, Toronto Hydro’s rates are under a lot of scrutiny, says Couillard.

“We try to keep rates low so if you have rising salaries and payroll-related costs, then it’s important for us to have good visibility.”

Head count, full-time equivalents for unionized versus management and attendance and safety are also important metrics, along with more traditional areas such as compensation and incentives, he says.

As far as head count, the numbers are looked at every month to see where the company is, what’s in the hopper and what’s committed versus plan, says Couillard.

And the human resources department at Toronto Hydro has evolved in the last five years, he says.

“We’ve brought in people that have a better understanding of the link between finance and HR. We’ve built a pretty solid partnership, especially when budget time comes along.”

Victor Holysh, CFO
Clevest Solutions

The 100-employee software company is based in Vancouver and primarily serves the utilities sector

Victor Holysh has only been the CFO at software company Clevest Solutions in Vancouver for three months, but he’s more than familiar with HR metrics — or any metrics, for that matter.

There are very few business activities that aren’t measured these days, so metrics are increasingly a feature of the landscape at organizations, he says.

“Most companies and particularly our sector, software and services, the people investment is the largest one by far. So it’s only natural to expect CFOs or organizations to more broadly measure the impact that HR has on that investment.”

All HR activities have some sort of financial impact, says Holysh. It can be positive — such as increasing productivity through better employee engagement, training or mentoring — or it can be preventative, such as avoiding costs around churn, recruitment and legal costs.

As for which specific metrics should be looked at, it varies a bit by organization, he says. There are the easy metrics — such as direct costs and spend. But the harder metrics assess the indirect impact of HR activities, focusing on opportunity costs such as cost savings, says Holysh.

If you bring something in-house versus externally, for example, what are the measurable savings?

“Employee satisfaction, obviously organizations are very keen on that metric. Again, it’s easy to measure in a sense, through surveys — still quite qualitative as opposed to purely quantitative — but the more difficult one is then trying to assess what’s the impact of an improving engagement score or decreasing employee engagement score?” he says.

“A lot of metrics in HR, particularly sort of indirect ones, still will require a certain amount of estimation and qualitative attribute as opposed to purely quantitative.”

When it comes to the optimal frequency of the metrics, such as monthly, quarterly or longer, it depends. But, in some ways, looking at the overall trends might be more important in HR metrics, he says.

For example, if you’re looking at the cost to fill a position or time to fill a position, it’s about figuring out whether six weeks is good, bad or indifferent.

“You benchmark it and say, ‘Now we’re investing in additional resources in recruiting or whatever, how has that changed?’”

And it’s possible to do too much, says Holysh.

“You can over-engineer and overcomplicate everyone’s life by requiring metrics on too high a frequency.”

HR metrics have changed through the years and become more complex, he says. They used to be more direct costs, more head count-focused, and now they’re more cost-centred-type metrics looking at spend.

“Now, people are looking to evaluate the business impact of these things so, by definition, they’re more complicated because HR activities by their nature don’t act in isolation,” says Holysh.

“So it’s difficult to say, ‘Just because we did that, here’s the cost-effect relationship.’ So that absolutely makes it more complex to deal with some of these more modern expectations.”

As for HR’s role, the key issue is the partnership between finance and human resources, he says.

“Finance is generally viewed as accountable for data gathering and reporting and HR obviously are domain experts in trying to have an impact on the organization through the people-centric activities. So between them it should be possible to define what HR is trying to achieve and what the organization is expecting from that investment.”

And it’s important that HR management believes in the importance of compiling and communicating the metrics if they are to be used to change the course of a business or influence decision-makers to do something differently, says Holysh.

“You have to be able to not only report the metrics but explain what the implications of them are and why some sort of action might be required.”

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