HR Departments Hold Their Own in 2014

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Competing priorities, lack of influence remain areas of concern

Budgets for human resource departments have increased over the past couple of years, but they are still well short of the levels seen prior to the recession, according to the latest Bloomberg BNA report about the state of the human resource function.

HR Department Benchmarks and Analysis 2014-2015 is based on survey responses from more than 300 human resource executives and professionals, representing a cross section of U.S. employers. Key findings of the report address HR department staffing, expenditures and budgets, departmental responsibilities and priorities, level of influence within the organization, and strategic planning.

The median ratio of HR staff to total employee head count was found to be 1.3 full-time equivalent HR employees for every 100 workers—the highest ratio in the annual survey’s history. The growth in HR staffing in comparison to workforce size has been broad-based across all industries, though staff ratios have risen most among small businesses and in the manufacturing sector.

More important perhaps has been the trend toward greater specialization within the HR function, spurred on by increases in technology use, globalization and workforce diversification, as well as the growing importance and use of HR analytics. Sixty-three percent of survey respondents reported they have at least one specialist on staff, compared with 46 percent who reported so in 2004.

Budgets and Responsibilities

The median HR department budget for 2014 increased 3.9 percent, which is little changed from the previous two years but markedly better than the 2 percent increase reported during the 2009-2011 time period.

HR expenditures per employee have outpaced inflation for the past two decades, according to the report. Since 1994, the median budgeted HR department’s cost per worker has risen an annualized rate of 3.7 percent, while prices of goods and services climbed approximately 2.4 percent per year over the same period, according to the Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers. Small companies’ HR departments typically spend much more on a per capita basis than do large companies’ HR departments because they lack the advantages associated with economies of scale.

The report found that HR departments are likely to take on new functions without surrendering any duties. Twenty-one percent of respondents said they acquired new duties without relinquishing anything, while a mere 6 percent reported surrendering duties; only half of that 6 percent said they gave up duties without acquiring new ones.

Sixty-five percent of respondents said wage and salary administration is handled solely by HR, while 29 percent divide compensation administration between HR and other departments. Most (82 percent) said HR manages all aspects of insurance benefits administration.

Further, HR’s reliance on outsourcing has declined over the last decade, according to the report, though consultants and vendors still play a prominent role in some aspects of the HR function. While expertise and service levels usually determine whether or not to outsource HR activities, 83 percent of respondents said their departments still oversee those outsourced functions.

One major area of concern reflected in the report involves the influence the HR department has within companies. Less than 30 percent of respondents said their departments are fully integrated into corporate strategy and decision-making. This can be particularly problematic when it comes to the strategic workforce planning (SWP) process.

World-class HR departments actively involve senior business leaders in workforce planning to ensure those plans have sufficient organizational support and the insights needed to identify and address the company’s greatest talent needs, according to a report by The Hackett Group titled The World-Class Performance Advantage: How Leading HR Organizations Outperform Their Peers.

“The most effective [SWP] groups analyze the data to understand the drivers of workforce performance and talent risks, and uncover opportunities throughout the organization,” noted the Hackett report. “[They] are populated with a far greater percentage of professionals with the skills to work effectively with HR business partners and directly with business stakeholders.”

As a result, these HR departments produce “demonstratively better results from their SWP efforts,” more effectively narrowing talent gaps, while better matching employees’ skills to individual jobs, and maintaining higher retention rates overall. This is accomplished through better movement and growth of internal talent, particularly as it relates to leadership development, to fill needs generated by organizational growth and change.

“Winning [stakeholder] trust through consistent delivery opens the door, but demonstrating an understanding of the commercial drivers of the business and the way that human capital enables financial performance is a further differentiator” of world-class HR organizations, the report said.

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