What is human resource management?
Human resources are the people who work for an organisation. Human resource management (HRM) is the work of getting the right number of people, with the right skills, in the right jobs, at the right time and cost, and helping them do their best.
A firm's written plan for this is its personnel (HR) policy: rules about hiring, pay, working hours, training, promotion, discipline and leaving.
Main HRM functions
- Workforce planning: how many staff and which skills are needed now and in future.
- Recruitment and selection: attract and choose applicants.
- Induction and training: introduce new staff and build skills.
- Performance appraisal: review work and set targets.
- Reward: wages, salaries, bonuses and non-financial benefits.
- Employee relations: communication, consultation, unions, health and safety.
- Leaving: retirement, resignation, redundancy, dismissal.
HR objectives
HR objectives are targets for the HR function that support the firm's overall aims.
- Employee engagement and involvement: staff feel committed and give extra effort; they are asked for ideas.
- Talent development: grow skilled people inside the firm for future roles.
- Training: keep skills up to date and meet legal rules (e.g. safety).
- Diversity: a workforce from different backgrounds brings more ideas and reflects customers.
- Alignment of values: staff share the firm's purpose and culture.
- Number, skills and location: the right-sized workforce in the right places.
- Labour costs: keep them competitive.
Influences: the firm's objectives, the economy and labour market, laws, technology and competitors.
Hard and soft HRM
| Hard HRM | Soft HRM |
|---|---|
| Staff seen as a cost | Staff seen as an asset |
| Top-down, little consultation | Involvement, delegation, two-way talk |
| Short-term contracts, hire and fire with demand | Long-term careers and development |
| Pay linked tightly to output | Wider rewards, recognition, well-being |
| Good for: cost control in a crisis | Good for: creativity, service quality, loyalty |
Measuring HR performance
Labour turnover = number of staff leaving in a period ÷ average number of staff × 100
Retention rate = staff with at least one year's service (or who stayed the whole period) ÷ staff at the start × 100
Labour productivity = output per period ÷ number of employees
Labour cost per unit = total labour costs ÷ units of output
Employee costs as % of revenue = employee costs ÷ sales revenue × 100
Some turnover is healthy (fresh ideas, removing poor performers). Too much raises recruitment and training costs, lowers quality and morale. Causes of high turnover: low pay, poor management, few chances for promotion, a booming job market. Always compare with the past, competitors and the industry average.
Improving HR performance
- Better recruitment (clearer job descriptions, better selection tests).
- Training and clear career paths.
- Fair pay, bonuses, profit sharing; non-financial rewards such as recognition and flexible hours.
- Job enrichment and teamworking; listening to staff (surveys, works councils).
- Using technology to raise productivity.
Try it at home
Ask a relative who works: How many people are in your team? How many left last year? Work out the turnover. Then ask what would make people stay longer. Is it pay, the boss, training or something else? Use the sliders in step 6 to test your numbers.
Key formulas and definitions
- Labour turnover (%) = leavers ÷ average staff × 100
- Average staff = (staff at start + staff at end) ÷ 2
- Retention rate (%) = staff who stayed ÷ staff at start × 100
- Labour productivity = output ÷ number of workers
- Labour cost per unit = total labour cost ÷ output
- Employee costs as % of revenue = employee costs ÷ revenue × 100
Worked examples
1. A shop had 40 staff on average and 6 left during the year. Find labour turnover.
6 ÷ 40 × 100 = 15%.
2. A factory had 180 staff on 1 January and 220 on 31 December. 20 left. Find labour turnover.
Average staff = (180 + 220) ÷ 2 = 200. Turnover = 20 ÷ 200 × 100 = 10%.
3. 25 workers produce 5,000 units a week. Find labour productivity.
5,000 ÷ 25 = 200 units per worker per week.
4. Labour costs are 60,000 a month and output is 12,000 units. Find labour cost per unit.
60,000 ÷ 12,000 = 5 per unit.
5. A call centre starts the year with 80 staff; 68 of them are still there at the end. Find the retention rate.
68 ÷ 80 × 100 = 85%.
6. Firm A: 50 workers, 2,000 units, pay 30 each per day. Firm B: 40 workers, 2,000 units, pay 35 each. Which has lower labour cost per unit?
A: cost = 50 × 30 = 1,500; per unit = 0.75. B: cost = 40 × 35 = 1,400; per unit = 0.70. B is lower: higher pay but higher productivity (50 vs 40 units per worker).
Common mistakes
- Dividing leavers by staff at the end instead of the average number of staff.
- Thinking any turnover is bad. A little is normal and healthy.
- Mixing up productivity (output per worker) with production (total output).
- Assuming higher pay always means higher cost per unit. If productivity rises more, cost per unit can fall.