Labor-Cost Metric Better Than FTE Count

By Readers Sep 1, 2006
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HR Magazine, September 2006Labor-cost metric; organizational ombuds; more.

Thank you for the article "Repurposing Metrics for HR" (July). HR tends to generate a lot of HR-centric and operational metrics such as cost per hire. It is refreshing to see an article that focuses on the sort of workforce metrics senior business leaders can use to monitor and steer a company.

That said, the revenue-per-FTE metric can favor certain business models. Instead of using FTE for this metric, I have found it more useful to compare company revenue to labor costs (payroll costs + benefits costs + temporaries, contractors and outsourced services). Revenue per labor dollar is a more direct measure of a company’s return on investment in the workforce, as well as a better indication of actual productivity.

The article refers to FTE as “full-time employee,” but FTE is usually defined as “full-time equivalent.” So if full-time is defined as 40 hours per week, then someone working an average of 20 hours per week would be 0.5 FTE.

The problem with using FTE is that it is based on standard or scheduled hours rather than actual hours, and it makes no adjustments for overtime. Using FTE in the calculation could lead a business to increase overtime in an attempt to keep down FTE even though it is counterproductive in terms of labor costs. Resulting numbers may look better, even though the underlying impact to the business is not.

In addition, organizations that measure themselves by FTE might find themselves hiring more expensive senior-level employees as they try to do the same job with fewer FTE. For example, even though it may be possible for one senior employee and three less experienced employees to perform the same job at a lower cost than three senior employees, the revenue-per-FTE metric will favor the latter business model and penalize the former.

Also, using FTE in the calculation can make it hard to include outsourced functions in the calculation. Outsource contracts are generally for a given service rather than a defined number of people to perform the service. If you outsource payroll processing, you may have no idea how many people are actually involved behind the scenes, or how much of their time is focused on your company. In such cases, the outsourced service could be dropped from the calculation, but that would make the metric favor outsourcing simply because it reduces internal FTE, not because it reduces actual costs or improves productivity.

It should be possible to separately monitor overtime, manage the ratio of senior employees to junior employees and make estimates for outsourced labor. But a revenue-per-labor-dollar metric cuts through these issues and gets to the bottom-line impact, which is really what senior business leaders need to be looking at.

Robert A. Flores
Redmond, Wash.

More About the First Certified HR Pro

June's "Certification Institute Celebrates 30th Year" mentions that Herbert G. Heneman Jr. was the first professional to receive accreditation from the ASPA Accreditation Institute (AAI), but nothing more is said about him. I thought readers might be curious to know a bit more about him. (Thanks to Deb Cohen, John Fossum and Ray Weinberg for help on this.)

My father was a professor and longtime chair of what is now the Department of Human Resources and Industrial Relations at the University of Minnesota, guiding its development into one of the country’s premier HR programs for master’s and doctoral degrees. He also was a longtime advocate of certification for HR professionals. He first proposed accreditation in a 1948 article, calling for a test of “knowledge of generally accepted facts, principles and practices in the field” that would “reflect the pooled judgments of experts in the field.” (In the article he also called for a code of ethics for HR professionals). He tirelessly pursued this belief as a founder and board member of the AAI, which honored his contributions by making him the first accredited HR professional.

The photo on page 190 is actually of Dale Yoder, who founded the University of Minnesota HR program and also championed accreditation. Dale and my dad were pictured on the cover of the November 1977 Personnel Administrator (now HR Magazine), which contained a story about publication of the ASPA Handbook of Personnel and Industrial Relations, which they co-edited. The handbook was published to provide a research-based body of knowledge and practice guides for the HR practitioner.

I hope the above information provides a bit of historical perspective on our field’s early days and pioneers.

Herbert G. Heneman III
University of Wisconsin-Madison

Trust Issues? Hire an Ombuds

Good reporting ("Do They Trust You?" June)! However, I am a bit dismayed that no one mentioned the benefits of having an organizational ombuds to alleviate the effects of workplace dysfunction and distrust. Ombuds are far more than just a conflict resolution resource. I wonder if business in America truly feels that its workers are its greatest “resource.” If so, employee benefits should include the option of using an ombuds office. Regardless of size or worth, employees at all levels often need a safe, impartial, informal and confidential source with whom to share workplace concerns. There are many of us ombuds, with a wealth of expertise and experience, who would welcome the chance to work in the corporate environment. Check out the International Ombudsman Association site for more information. It’s not just for government and academia anymore. It’s for everyone, at every level, who works!

Pamela V. Martin
Menlo Park, Calif.

Editors Note: For more information on corporate ombuds, see "Someone To Listen" in the January 2003 issue of HR Magazine.

Generation Y Advice Off Base

In your Management Tools article "Managing Generation Y" (May), I found many inconsistencies and contradictions. I have worked with this generation for many years and have three children who are Generation Y.

The biggest problem I had with this article relates to the position that they are fiercely independent and often come to a manager with a solution as well as the problem. My experience with “Yers” is that it is not about independence; it is often about not listening and at times being downright disrespectful. Their “solution” often lacks a well-thought-out course of action, and they don’t have the benefit of experience and wisdom that comes with age. So you wonder why they ask you in the first place if they immediately question the validity of advice you give.

My experience with “Yers” also has been that they often want instant gratification and are unwilling to wait to discuss a situation; they just want the answer, now!

The article also stated that they will not listen or ask if they perceive you to be “expendable.” We baby boomers caused this problem. There is an old adage about how you will know what the parents think of you by how their children treat you. The children are now grown Yers, and they unfortunately perceive that they generally don’t have to respect people, largely because we baby boomers were so often distrustful of authority figures.

The real truth was discussed in the article about Daniel Goleman on page 32 of that issue. Goleman correctly identifies American kids as "de-skilled" in areas such as motivating oneself, persisting in the face of frustration, delaying gratification and controlling impulsive behaviors.

The "Managing Generation Y" authors want to convey the message that this group is enormously optimistic, educated, energetic and compassionate. The reality is that this generation, raised by us baby boomers, fails in the same way we did, by wanting respect without earning it. We learned (sometimes the hard way) that we succeed only by hard work, respect for all, and learning and respecting a line of authority. Hopefully Generation Y will learn as well.

Jerry French, PHR
Madison, Wis.

HR Magazine welcomes letters from readers. Submitted letters are subject to editing and are the property of the magazine. To submit a letter, click here: contact or fax us at: (703) 535-6489; contact or fax us at: (703) 535-6489; contact or fax us at: (703) 535-6489; contact or fax us at: (703) 535-6489.

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