Where Should HR Be Spending Its Budget Right Now?

Looking back over the last 18 to 24 months, the steady cost consciousness due to declines in revenue and increased operating costs led to job losses at a rapid rate, as well as decreased attention to retention and engagement.

Now, recessionary conditions are easing, and spending freezes are beginning to thaw, including for HR and talent acquisition. When it comes to investing in the human capital of your company, it is imperative to separate the “want to have” from the “need to have” line items in the budget.

Despite showing signs of improvement in the job market, and government reports anticipating stronger hiring by late spring, most companies may not be poised to hire en masse just yet. But for those that have the means to spend on their greatest and most valuable investment — employees — having a clear understanding of what’s most important right now will set the stage for long-term success.

In recent conversations with human resource professionals across a wide variety of industries, a common thread appeared regarding the allocation of dollars traditionally earmarked for talent acquisition.

When asked what the two most concerning areas for employers and the two areas that will receive additional funding were, the common responses were employee engagement and retention.

Joyce Chastain, human resource director for Mainline Information Systems in Tallahassee, Florida, expressed serious concern over battling to keep their top talent. “The business owners feel that they have kept their good folks through the recession because the employees’ choices were limited, but as the economy improves, they may be facing a battle for their talent,” says Chastain.

This idea of engagement is relatively new to a lot of companies despite our current economic climate, but as the HR community becomes painfully aware of the cost to replace top talent and the effects on the company’s bottom line, the focus turns to how to keep the employees engaged with the idea that their next job needs to be with their current employer.

“That’s a tough one,” says Sherry Moore, human resources director for OceanOptics. “Every company is doing more with less, employees are frustrated with pay raise percentage decreases, and in a lot of cases, no increase at all.”

Recognition, internal mobility and better succession planning top her list for HR budgeting this year, and are two areas that again influence retention and engagement.

“All things considered, it ends up being a wash when you compare the cost to replacing just one top salesperson,” said Chastain.

Productivity is high, but at what cost?

According to recent government reports on productivity, overall productivity in 2009 increased 3.8 percent, the most in seven years. The economy also started to grow by the end of 2009, but without any real job creation.

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Companies were doing more with less. Layoffs left double the amount of work, combined with vacations and sick time that will result in triple and in some cases quadruple the amount of work. Moreover, a Conference Board Survey released in January of 2010, revealed that employee satisfaction was at its lowest in 20 years, and the factors that calculate employee engagement is a main calculation in that survey.

When it comes to engaging employees, HR should focus on what it takes to please employees right now, while spending the budget wisely. Taking productivity into account, employers should consider an investment in the technology needed to make jobs efficient. While workers are doing an increased amount of work, having the tools they working at optimum levels will take some of the pressure off, helping them to perform at their peak.

Overworked and underappreciated could be the mantra of many members of the workforce. Even if budgets do not allow for raises, bonuses, or even increased staff levels, budgets should allow for employee recognition programs to increase morale and reward those for taking on added responsibilities. Cost-effective recognition programs can be as simple as internal awards — a small token of appreciation, comp time, even a couple of hours off during the day, could help recharge workers and show them that their time is valued and appreciated.

Additional funding, or the reallocation of funds to provide enhanced career training, investing in the internal mobility function of the organization, and focusing on employee engagement through programs that promote the culture of the organization can go a long way in retaining your top talent.

Despite the indicators that we are in the midst of economic recovery, job losses are still the norm, and overworked and frustrated employees have become the new norm, which leads to a very unique challenge for the HR team.

Additionally, many companies reduced salaries to avoid layoffs, and those cuts ranged anywhere from 5-20 percent, with some even higher. Those who were able to maintain their employment are productive because it pays the bills, and frankly, they need their jobs.

HR will have to adjust those salaries sooner than later in order to retain those employees and the effect that will slow the recovery period for some companies. In the meantime, if salary increases are not possible, the human resources organization will need to rely on other resources to encourage retention and engagement among their staff.

And at the end of the day, the resounding benefits to the organization are seen in the employee satisfaction results, customer satisfaction ratings, and more importantly, the company’s bottom line.

Carol McDaniel is the vice president, Tampa operations, at the Bernard Hodes Group, an international leader in recruitment marketing, branding, and staffing solutions. Her background combines extensive marketing and advertising expertise with the added advantage of direct recruitment experience. She provides clients with a strong understanding of the many challenges within today's competitive labor market environment and is a subject expert on the employer marketing and branding process, social recruiting and employee engagement. Her passion is working with clients to develop strategic recruitment solutions that lead to more successful staffing outcomes.

She is a frequent speaker at HR events and is often called upon to share her expertise. She volunteers her time with the HR Florida State Chapter of the SHRM and currently sits on the executive board as the professional development chair.


7 Comments on “Where Should HR Be Spending Its Budget Right Now?

  1. Carol, you are absolutely right about the possibility for “resounding benefits to the organization”, whether through employee engagement or improved selection procedures.

    In recent ere.net articles, Wendell Williams put the upside potential from best-in-class selection processes at up to 50% of base payroll. And, since those processes generally cost less than 1% of payroll, companies have the opportunity to earn three- and four-digit, short-term ROIs.

    Equally exceptional returns are available from successful employee engagement initiatives. Yet, recent studies have shown that just over half (56%) of companies measure engagement in some fashion and only half of those that do take any action as a result of their scores. Moreover, most of those that do take some action generally fail to get the company’s managers to own the employee engagement agenda at every level of their organization.

    Meanwhile, typical returns on corporate capital fall into the lowest quadrant of two-digit ROIs (i.e. <25%, well below the HR_based alternative invesdtments).

    So it has little to do with budget! It’s all about company leadership not seeing the opportunity to make much better investments than what they are doing. Leadership doesn’t see it because the CEO doesn’t see it and because the COO and CFO don’t see it, either (or if they see it, they don’t want to make C-suite waves).

    If HR wants to have a seat at the table (i.e. answer the CEO’s persistent call to become more strategic) a good place to start would be by presenting the business/economic cases for state-of-the-art selection procedures and employee engagement initiatives.

    Solid business economic cases justify spending by improving the bottom line and the health and value of the company. One successful initiative opens up the corporate coffers to more legitimate spending possibilities. HR can commit itself making quantifiable contributions to enterprise value. HR should be able to get the CFO on its side. HR should be able to get the COO on its side; if not, then HR is not ready to make the business/economic case; get help; qualified vendors will generally do the work for free. Then, the question becomes can HR identify a qualified vendor; if not, get help; it’s out there, too.

    It’s pretty simple, really, make the case on the business/economic merits and get the money HR needs to do what most needs to be done.

    For HR folks (or anybody else for that matter) who wants to become more strategic to their employers, I suggest reading “WHAT THE CEO WANTS YOU TO KNOW”, by Ram Charan. Best

    Richard Melrose

  2. Thanks, Carol. IMHO, both employee engagement and retention are “straw men”: false issues (for now). Will these overworked, underpaid, burned-out employees go to one of the 8.4M jobs that have disappeared since the start of the Great Recession, or to one of the 2.0M jobs that are likely not to return?

    Also, retention is the “R Word” for recruiters. The lower the retention rate, the more work for us. There’s job security in trying to fill a sieve.



  3. Keith, I believe the problem isn’t so much that employees will leave (although the best ones who can, will), but rather that most employees will “retire in place,” i.e., do the minimum necessary to keep up appearances. So organizations have a double whammy: the best talent can and will leave AND the remainder will produce mediocre results at best. That’s a scenario for the organization to go into a metaphorical “flat spin” which, as any pilot will tell you, is very difficult from which to recover. Oh, yeah, and when the job market does rebound then you’re REALLY screwed.

  4. @Mark:
    1) Again I ask, where will these “best”employees go?
    If they decide to found new small companies that hire people, it’s all to the better.

    2)Retire in place? Isn’t this already the case in most non-dynamic organizations?

    3)”Flat spin” organizations- if you have a “golden parachute” it doesn’t matter what happens to the rest of the organization, and if you don’t have a “golden parachute”, you don’t count.

    4) Job market rebounding (http://web.rollins.edu/~wseyfried/forecast.htm)?
    Will this occur before the next wave of housing foreclosures (http://www.washingtonpost.com/wp-dyn/content/article/2010/03/11/AR2010031104866.html New round of foreclosures threatens housing market),
    or after the debt crisis (http://www.businessinsider.com/us-treasury-crisis-2010-4, http://www.bloomberg.com/apps/news?pid=20601087&sid=aAd.sSfnhpTA&pos=6)?

    Keith “Gloomy Gus” Halperin

  5. Great article. It’s clear from the research/latest news that companies have profited greatly by using the recession as reason to drastically cut workforces but still increase productivity on the backs of the remaining workers concerned about losing their jobs.

    News just today (from CNN): “For 2009, the Fortune 500 lifted earnings 335%, to $391 billion, a $301 billion jump that’s the second largest in the list’s 56-year history, approaching the increase in the robust recovery of 2003. For last year the 500 raised their return on sales from less than 1% to 4%. That’s close to the list’s 4.7% historical average.

    “In 2009, the Fortune 500 shed 821,000 jobs, the biggest loss in its history — almost 3.2% of its payroll. By mid-2009, companies were making fewer goods with far fewer workers. A pivotal turn began midyear. Sales bottomed, then began to rise gently, as headcounts continued falling.

    “Today employers are maintaining the super-low cost regimes they imposed during the crisis while the economy is finally growing. That explains the explosion in Fortune 500 profits.”

    The question now becomes, how long can this be sustained? Employees are at or near the breaking point. Hiring will have to resume soon or productivity will drop simply to do sick calls as the stressed become the over stressed.

    So employers who are mistaken that their top performers will stick around, guess again. They are already looking. In fact, nearly 90% of your workforce are already engaging in some level of activity to find a new job.

    And whether or not they find the job in the next week or month or year, they’re still distracted from your work by thoughts of the new job and the process to find it.

    The research on this is available here: http://globoforce.blogspot.com/2009/12/resume-tsunami-coming-are-you-ready.html

  6. Carol,

    Great post. Employee engagement should be seen as a full life cycle process or creating shared destiny and how do we continue to improve to create value internally. Of course we have to bring the right people on the team. Some best employees will leave whatever the economic conditions. It is still up to HR present meaningful figures to the CEO, CFO, COO, showing the crippling cost effects of turnover from a finance and marketplace competitiveness perspective. Until HR provides a multidimensional analysis of the true direct and indirect costs of turnover, the C-Suite will continue to underestimate the value of employee engagement.

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