Capturing the State of Human Resources in an Annual Report
S ick-leave pay cost the Arizona state government $907 per employee in 2002. Multiply that by 37,000 people on the state government’s payroll, and the total comes to an unexpectedly high $33.5 million of the public’s money. Those figures emerge from the Arizona Department of Administration’s annual human resources report. It also highlights trends in sick-leave costs and helps the department initiate cost-saving measures, says the department’s human resources director, Kathy Peckardt.
For instance, the report shows that sick leave cost $687 per employee five years earlier. This reflects a 32 percent hike over the five-year period between 1997 and 2002, or an amount equal to 3 percent of Arizona’s current $1.2 billion payroll. "Agency directors are now taking steps to reduce unplanned absenteeism," Peckardt says. "The data in the annual report serves as a starting point to introduce wellness programs and target health care toward disease management and work/life programs. We hope to turn things around with the new initiatives."
At a time when human resources is redefining itself as a strategic business partner that is financially accountable for its programs and policies, an annual human resources report serves as a diagnostic and promotional tool. The regional governments, educational institutions and private corporations that produce these reports say that the data analysis sheds light on trends in the workforce, information that may not exist in monthly and quarterly summaries.
The municipality of Peel, in Ontario, Canada, has 3,500 employees who provide various services for its 1 million residents. Laura Nashman, commissioner of people, information and technology at the regional administrative body, is using a human resources report for the second year, and it has already saved her government about $300,000 (Canadian). "The report showed that we were spending hundreds of thousands on print ads that were not effective. Now, we have switched to a Web-based system that costs a fraction of that," Nashman says. The cost savings form a significant part of her billion-dollar annual payroll.
Midwest Wireless in Mankato, Minnesota, has experimented with the report, and in the last year alone has saved more than $20,000 in the cost of hiring new people. "The metrics in our report persuaded managers that the employee-referral program was far more effective in leading to new hires than newspaper advertising, which they favored," says Lisa Jahnke, director of human resources at the firm. The 2004 report shows that of the 191 positions the company filled in 2003, 38 new hires came from employee referrals, compared to only four from newspaper advertising. Jahnke says that from now on, she will let the report do the talking. "We have it consistently documented, and so don’t have to work on the persuading." The wireless company employs 590 people in 85 counties across Minnesota, Iowa and Wisconsin, and generated $214 million in revenue last year.
For both the large public organization and the small private company, the annual human resources report is a response to the evolving role of human-capital management. "Our employees self-serve through Web-based software," Jahnke says. "Our role is now more challenging. We have to add value to the bottom line, and be a proactive partner and illustrate how our activities link to the company’s bottom line through cost-saving measures."
Nashman adds, "The annualized statistics on a variety of employment issues allow executives to base business planning on trend data. Simply providing monthly numbers without analysis is not valuable."
The human resources team at the Arizona Department of Administration has published an annual report for the past six years, as required by the state legislature. What began as a compilation of employee and payroll data is now a 34-page dossier focusing on employment trends, equal-opportunity information, employee mobility and results of employee feedback.
Midwest Wireless is in its second year with the report, and Jahnke is its chief architect. "Consider HR like any business, and a business must have an annual report. We make every person in the department list their own goals and accomplishments during the year. It was painful at first, but we now have greater accountability within the department."
The Region of Peel has a 33-page document that looks at staffing and benefits statistics and includes a discussion of a topical human resources issue. "In providing the information just once a year, we find that more people actually read it," Nashman says. "It is more thought provoking, as it focuses on trends rather than statistics at a point in time."
The annual reports target decision-makers in an organization. Peckardt says that two members of her team take up to 60 days to piece together the data before presenting it to the governor and legislature. The report is then posted on the Internet, Peckardt says, and private corporations use the data to determine their own salary benchmarks and benefit packages.
Jahnke says that the 60-page document is looked at by C-level executives and takes 70 man-hours to put together. "The first report was much more excruciating, as the company was not accustomed to collecting data in the format. The second time around, we were able to take actionable steps as a result of the data contained in the report. We reduced time to hire and cost of hiring by using strategies that work better for us. Next year, we are focusing on linking activities of HR to the company’s bottom line, through the budget and more cost-saving measures," Jahnke says. Her current annual report details strengths and weaknesses of the organization, hiring costs and results, training and development usage, and initiatives for the year.
Despite the time and personnel costs that go into preparing such a document, advocates say the reports are a good promotional tool for the human resources department. "The annual report is a quick reference tool that provides information in a very user-friendly format. In fact, it serves as a time-saving measure, as we do not have to repeatedly gather data," Peckardt says. "For us, it doubles up as an excellent tool to have information at our fingertips for the media and members of the public."
More important, the reports have a direct positive impact on each organization’s bottom line through introducing cost-saving measures. The annual reports also point to systemic weaknesses. The Arizona annual report shows that the state’s workforce has shrunk by 2,000 employees because state pay lags behind market salaries in the private sector by 16.3 percent. Peckardt says that budget negotiations currently under way in the state legislature include a plan to raise government pay by up to $1,000 per employee, or by 2 percent.
While annual reports have produced tangible results for these organizations, only a handful of other players generate them. They include Dartmouth College, University of Saskatchewan and University of Texas Medical Branch. Others, like Minnesota-based Fairview Health Services, tried producing a formalized annual report but dropped it. Yet others, such as Intel Corp., opt for less sophisticated informal annual reviews. "Our year-end review is simply an e-mail document that provides a progress report: what was achieved, what was missed, a summary of the year and perhaps a view to what’s anticipated," says company spokesperson Gail Dundas.
Consultants say that most in the private sector are not impressed by the annual report’s utility. "Our experience with clients has been that it is often companies that perceive problems in the workforce who use such a report," says Rob Landau, benefits attorney with the Hay Group in Arlington, Virginia. "Also, such reports are used more often by companies where the HR information system is preprogrammed to readily produce one." Even in cases where the system lends itself to regular metrics, Landau says, managers often demand data on the workforce on a quarterly basis.
Landau does confirm the report’s effectiveness as a prognostic tool. "The annual report grows out of the Sarbanes-Oxley movement to transparency and accountability and is more widespread in government organizations," he says. "Undoubtedly, there is an advantage to having all the information in one place for everyone to reach for on his or her bookshelves. But as HR departments continue to be downsized, consultants may be better placed to take on projects like this."
SAS Institute sells an information-management tool to 100 clients worldwide to assist in generating periodic reports based on human-capital metrics. Daniel Minto, director of human capital management solutions, says that strategic decisions cannot be based on short-term monthly or quarterly data. "The annual report draws out subtle trends in the organization."
Advocates of the report stress that monthly and quarterly reviews don’t provide the sense of perspective that an annual report does. "Some employee surveys are only feasible on an annual basis. Also, our sick-leave trend is troubling, but we only noticed it when we had the year’s data to look at," Nashman says. Minto says that data used to be provided on a transaction basis. "Now, across HR, we are seeing a movement toward a trend-analysis mind-set as our clients see the value of data on an annualized basis and are demanding more of it."
Workforce Management, June 2004, pp. 98-101 -- Subscribe Now!