Ceridian Executive Summary

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Concern over skill shortages has forced the development of human resources up the management agenda but over two thirds of businesses still do not have an HR director on the board, according to research conducted by the Financial Times Research Centre.

The in-depth interviews with 50 financial and HR directors of medium and large companies, employing between 500 and 4000 staff, revealed that 8 per cent of businesses did not have an HR director at all while 62 per cent did not value them highly enough to give them a seat at the top table.

Executives were also struggling to find the best ways of measuring the effectiveness of their investment in human capital. This was despite the fact that two thirds of financial and HR directors reported that human capital issues were top of the agenda for management.

But increasing difficulties faced by employers firstly in finding the right people with the right skills, and then persuading them to stay, only partly explains this preoccupation.

Asked to rank human capital issues in order of importance, more than half of directors classed "recruiting the best people and integrating them into the organisation" as their most important task. This was followed by "keeping the right people in the business and encouraging them to progress." Almost bottom of the list was "making the most of the money you spend on payroll and benefits."

One financial director explained: "We’re a people business. Key for us is that we can keep our people. There are very low entry barriers in our market place, so it’s imperative that we retain and attract good people. It’s our key business driver."

Another, asked why human capital issues had moved to the top of the management agenda, replied "Our business is only as good as the people in it. Although there are other important aspects such as product design, development and buying, all these functions are dependent on the quality of the people."

It has become commonplace for executives to assert that ‘our people are our greatest asset.’ But the tightness of the labour market and difficulties in attracting skilled staff has given an added edge to this response. One HR director, more honest than most, replied: "The past nature of our company is such that these sorts of issues were ignored. It left us with a shortage of talent and no framework where we could motivate people to produce their best results."

While recruitment and staff retention were generally recognised to be an increasingly important goal, employers revealed a variety of different methods for tackling this thorny issue. Extra money, although important, was only one option. Other recent surveys have suggested that companies are more reluctant to increase pay rates to attract staff, preferring instead to offer other benefits.

Flexible working and career development opportunities have become more important for potential employees as they seek to balance work and family responsibilities.

Incentives offered by companies questioned by the FT Research Centre include share option schemes, bonuses, health schemes, childcare vouchers and flexible working. "We have got to keep our staff and to do that we have to offer extras over and above a competitive salary. We are the number one player in the market and we intend to stay

there. Good people who are the face of the company, cost more than average people – and we are prepared to pay," said one financial director.

Employers, anxious to improve competitiveness were looking beyond simple recruitment and staff retention to improve employee performance. Mentoring, succession planning, talent spotting and performance reviews featured among HR strategies.

One company explained how it had developed a broadly based mentoring system to nurture and promote existing talent within the workforce. Individual managers were expected to "mentor three young stars of the future and not just in finance," said its financial director.

Another business reported that it had developed a "talent map" to aid succession planning and performance reviews. It said: "In terms of reward it’s a fairly hot topic, in particular in America, to try and get reward structures aligned with what we want people to do…one of the things that we have observed is that some of our areas where we’ve been weaker are really attributable to not having the right sort of people there."

Companies also recognised that organisations needed to be refreshed. While staff retention was a priority, there was also a natural rhythm to a business, with employees leaving and being replaced.

"Recruiting externally, if you bring good people in, it raises the bar. The more capable people internally react accordingly, because it brings about a benchmark. And, the more ambitious people sit up and look and take notice," said one financial director. Another responded: "It’s a natural process, we bring two or three people in at the bottom and, on average, one will be left in five years time."

The relationship between corporate success and motivated workforce staff was generally recognised. This was best expressed by one HR director who said: "We’ve done a fair amount of research looking at the correlation between those companies making the most profits and those which have the higher employee engagement and commitment … we believe that if we look after the engagement of our employees and get the motivation and retention correct … this will seep through to the way our customers will be dealt with, the way our products are sold and this will have a direct effect on our bottom line."

The importance of staff development was reflected by the fact that 62 per cent of financial and HR directors reported that investment in human resources, excluding wages, was higher (16 per cent) or the same (46 per cent) as in other departments.

Employers have found it more difficult to devise ways of measuring the effectiveness of this investment. Directors were asked how finance departments measured productivity gains and returns on investment in human capital. Most responses suggested that either investment returns were not measured or calculated against sales.

"We do not even try to measure productivity or returns. We have not got there yet," said one financial director. Another, asked how HR departments measured their success, said: "We in finance measure staff turnover and sickness. HR try to control it."

The findings suggest that businesses have become much more aware of the need to invest in their human capital but that the role of HR director is still not regarded as a main boardroom function and that more work needs to be done to measure the effectiveness of investment in human capital.

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