Human Resources

This section explains human resources covering, how to calculate and interpret labour productivity and human resource strategies to increase productivity and retention, and to reduce staff turnover and absenteeism. 

Human resources play a critical role in the competitiveness of a business. The effective management of a company’s workforce can drive productivity, improve employee satisfaction, and reduce costs associated with turnover and absenteeism. By calculating and interpreting key human resource metrics, businesses can make informed decisions to improve workforce efficiency and retention. This section covers essential human resource metrics, followed by strategies businesses can implement to increase productivity and retention, and reduce turnover and absenteeism.

Calculate and Interpret the Following to Help Make Business Decisions

Labour Productivity

Labour productivity measures the output of goods and services per worker within a specific period. It is an important indicator of efficiency and can directly affect a company’s profitability and competitiveness. By increasing labour productivity, a company can produce more with the same or fewer resources, which can enhance its competitive edge.

Formula to Calculate Labour Productivity:

$$\text{Labour Productivity} = \frac{\text{Output (e.g., sales or units produced)}}{\text{Number of Employees}}$$ 

Where:

• Output: The total value of goods or services produced by the business (e.g., sales revenue or total units produced).
• Number of Employees: The number of employees directly involved in production or providing services.

Example:
If a company produces £1,000,000 worth of goods and has 100 employees, the labour productivity is:

$$\text{Labour Productivity} = \frac{1,000,000}{100} = £10,000 \text{ per employee}$$ 

Interpreting Labour Productivity:

High Productivity: Indicates efficient use of human resources. A company can meet demand more effectively and at lower costs, improving profitability.

• Business Decision: A company with high labour productivity may choose to focus on increasing production, expanding market share, or improving product quality without increasing labour costs.

Low Productivity: Suggests inefficiencies or underperformance. This could result from poor training, outdated technology, or a lack of motivation among employees.

• Business Decision: A company with low labour productivity should consider investing in training, technology, or incentive schemes to improve efficiency and competitiveness.

Labour Turnover and Retention

Labour turnover refers to the rate at which employees leave an organisation, while retention refers to the company’s ability to keep its employees over time. High turnover can be costly for businesses, involving recruitment, training, and lost productivity. High retention, on the other hand, suggests employee satisfaction and a stable workforce.

Formula to Calculate Labour Turnover:

$$\text{Labour Turnover Rate} = \frac{\text{Number of Employees Leaving in Period}}{\text{Average Number of Employees}} \times 100$$ 

Where:

• Number of Employees Leaving: The total number of employees who leave the company during the specified period.
• Average Number of Employees: The average number of employees employed by the company during the same period.

Example:
If 20 employees leave in a year, and the company has an average workforce of 200 employees, the labour turnover rate is:

$$\text{Labour Turnover Rate} = \frac{20}{200} \times 100 = 10\%$$ 

Interpreting Labour Turnover:

High Turnover: A high turnover rate can indicate dissatisfaction, poor management, or inadequate compensation. It can be costly due to recruitment and training expenses.

• Business Decision: The company may need to review its recruitment strategies, employee engagement initiatives, and compensation packages to improve retention and reduce turnover.

Low Turnover: A low turnover rate suggests a stable and loyal workforce, which can be beneficial for maintaining expertise and consistency.

• Business Decision: If turnover is low, the company may focus on further enhancing its workforce’s productivity and keeping morale high.

Absenteeism

Absenteeism refers to the frequency with which employees are absent from work, usually due to illness or personal reasons. High absenteeism can be a sign of low employee engagement, poor health and safety practices, or personal dissatisfaction, and it can negatively impact productivity and overall performance.

Formula to Calculate Absenteeism:

$$\text{Absenteeism Rate} = \frac{\text{Total Number of Days Lost to Absenteeism}}{\text{Total Number of Available Working Days}} \times 100$$

Where:

• Total Number of Days Lost: The total number of working days employees were absent.
• Total Number of Available Working Days: The total number of working days available for all employees to work during the period.

Example:
If 100 employees were absent for a total of 500 days and the total number of available working days was 25,000, the absenteeism rate is:

$$\text{Absenteeism Rate} = \frac{500}{25,000} \times 100 = 2\%$$

Interpreting Absenteeism:

High Absenteeism: High absenteeism can indicate dissatisfaction with work conditions, stress, or a lack of employee motivation. It also impacts overall productivity and can lead to increased costs.

• Business Decision: The company may need to investigate the root causes of absenteeism and take steps to improve working conditions, introduce health and wellness initiatives, or address underlying employee concerns.

Low Absenteeism: Low absenteeism typically reflects good morale and employee engagement. It suggests that employees are healthy and motivated to attend work regularly.

• Business Decision: The company may focus on maintaining employee satisfaction and continuing to invest in employee welfare to sustain low absenteeism rates.

Human Resource Strategies to Increase Productivity and Retention, and to Reduce Turnover and Absenteeism

Financial Rewards

Offering financial rewards, such as bonuses, performance-based incentives, or profit-sharing schemes, is one of the most common ways to motivate employees. These rewards can increase productivity and retention by making employees feel valued and providing a direct link between effort and reward.

• Increased Productivity: Financial incentives can encourage employees to work harder, meet targets, and exceed expectations.
• Reduced Turnover: Competitive salary packages and attractive bonuses can help retain employees, reducing the likelihood that they will seek employment elsewhere.

Employee Share Ownership

Employee share ownership schemes involve giving employees the opportunity to own shares in the company, either through direct purchase or as part of their compensation package. This aligns the interests of employees with the success of the company and can drive long-term commitment.

• Increased Productivity: Employees with ownership stakes in the company are likely to be more motivated, as they directly benefit from its success.
• Increased Retention: Share ownership can increase loyalty and retention, as employees may be reluctant to leave when they have a financial interest in the company’s growth.

Consultation Strategies

Consultation strategies involve involving employees in decision-making processes and seeking their feedback on business decisions. This can improve employee engagement, build trust, and foster a sense of ownership and belonging within the company.

• Increased Retention: Employees who feel consulted and valued are more likely to remain with the company.
• Reduced Absenteeism: Consultation can also address any issues or concerns employees may have, such as working conditions or stress, which can reduce absenteeism.

Empowerment Strategies

Empowering employees by giving them more responsibility, decision-making authority, and autonomy in their roles can significantly increase job satisfaction and morale. Empowerment encourages employees to take ownership of their work and can lead to greater productivity and innovation.

• Increased Productivity: Empowered employees tend to be more motivated and productive, as they feel trusted and have a greater sense of control over their work.
• Reduced Turnover: Employees who are empowered are less likely to leave the organisation, as they feel more engaged and appreciated.
• Reduced Absenteeism: Empowered employees are often more satisfied with their roles, leading to lower rates of absenteeism.

Summary

Human resource management plays a pivotal role in shaping a company’s competitiveness. By calculating and interpreting key HR metrics such as labour productivity, labour turnover and retention, and absenteeism, businesses can identify areas for improvement and implement targeted strategies. To increase productivity and retention and reduce turnover and absenteeism, businesses can leverage strategies such as financial rewards, employee share ownership, consultation strategies, and empowerment. These strategies not only help improve financial performance but also enhance employee satisfaction, loyalty, and overall business success.