Accountants are increasingly analyzing clients’ Human Resource (HR) data to provide valuable advice. This is not surprising… given the critical role of employees in any business and management’s desire to improve productivity, motivation and performance.
Which HR data can be useful? How can the data form the basis of advice? Let’s look at some examples.
Employee Costs: How much is the client spending on personnel?
An obvious place to start… Employees are generally considered an expense, including the cost of salaries, benefits, hiring, and firing. This is relatively easy to quantify on an individual basis or by division, by location, by subsidiary etc.
|A growing insurance broker||Data analysis showed very low investment in marketing personnel (compared to sales) and a poorly performing marketing function||Increase the budget for dedicated marketing personnel to improve marketing performance, lead generation and revenue|
Employee Costs Relative to Industry Benchmarks
Publicly available information on salary ranges for employees in certain industries can guide management on what the market is paying for a certain role.
|An engineering firm||A potential project at a client required hiring 3 software developers. But at what cost? Is the project feasible?||Look at average part-time and full-time market rates for comparable positions to cost the project and establish feasibility|
Employee Retention Rates
Inevitably, a percentage of employees will leave an organization each year. What is the trend in retention? High employee churn (low retention) could signal a weak HR organization.
|A hospitality business||Customer service was declining along with revenue. Data also revealed low (and declining) employee retention||Hire a dedicated Human Resource Manager to analyze and improve employee retention|
The Costs of Employee Turnover (Hiring)
Accountants can help management better understand:
- Balances payable to departing employees such as Paid Time-Off (PTO), which can come as a ‘surprise’ and adversely affect cash flow
- Recruiting costs spent on agencies and advertising
- Time (and the associated costs) spent on screening and interviewing applicants, processing applications, reference checks and drug tests
- The financial advantages of hiring internally (i.e. existing employees) versus externally
The Costs of Employee Turnover (Onboarding, Training)
Accountants can help clients monitor the Return on Investment on training and onboarding including any gains in productivity.
Data on Costs of Employee Turnover (Productivity Losses)
Some businesses, like those in professional services, may lose clients when employees leave. It is useful to quantify the costs and the effect on productivity as management gets involved, team members become distracted, morale suffers and information / knowledge is lost.
What are some attributes of a well-run HR function?
Accountants can build credibility as advisors and offer useful advice by examining how the client’s business is run, especially in critical HR areas. Here are some questions to ask of management which will reveal organizational strengths and weaknesses:
|Is there Clarity on Company Vision?||Employees should be working to execute the Company Vision. If that’s not crystal clear, it’s difficult to accurately measure employee effectiveness.||The vision of a medical device business is to achieve market leadership (15% market share) in a three-year period. This vision is stated in all meetings to remind the team. Incentives are paid as milestones are met.|
|Is there Clarity on the Business Plan?||Clarity on specific financial goals and plans help in target setting, against which employee performance can be measured.||A seller of CRM software set specific sales goals for a new product launch. The required number of leads, meetings, proposals and closed deals were clearly specified. Members of the sales team were measured and incentivized to achieve these numbers.|
|Are the Hiring Strategies suited to the Organization?||The organizational chart and job descriptions provide guidance on hiring needs. Defining the ‘Target Employee’ is also important. What do they value? What career do they want? Do they value learning?||A consulting firm learned that two of the four partners would retire in the next 18 months and they faced a leadership void. A hiring plan was developed to train and promote one employee and to attract a senior partner from a rival firm.|
|What is the Return on Investment from training?||Learning increases productivity but also keeps team members energized. It can be formal or informal, driven internally or by external providers and relate directly to the job or other activities.||A large law firm surveyed employees to learn that they greatly valued professional development opportunities. This led to additional investment in training programs and increased employee retention.|
|Does the Compensation Approach maximize retention and productivity?||Incentive compensation should be linked to results, not activity. ‘Non-salaried’ compensation, such as education, time-off, flexible working conditions and recognition can have a great impact on employee retention.||A car dealership recognizes an ‘Employee of the Month’ with various company-wide announcements and a gift package. This generates positive discussion among employees leading to greater collaboration and employee retention.|
The above factors combine to influence the culture of a business. Culture is difficult to define and quantify but measuring Employee Satisfaction can help. Surveys should be short and frequent with feedback taken on board and actioned where appropriate.
The Opportunity for Accountants
Accountants who help clients improve in these areas will be highly valued. They can develop specialist expertise, differentiation from competitors and recurring revenue at high margins.
Building credibility is a starting point. Then the accountant’s expertise should be resolved into a ‘product’ so the client can easily understand the benefits. The final step is to market and promote effectively so clients become aware of the impact their accountant can have.