According to Richard Phelps of PwC, management are increasingly intent on identifying their most productive employees, writes FRANK DILLON

MEASUREMENT OF the performance of an organisation’s human capital is becoming a key focus for chief executives and boards – a trend being accelerated by difficult global economic conditions.

That was the message from Richard Phelps, global leader for HR metrics at PricewaterhouseCoopers, who was in Dublin this week. “Stakeholders are increasingly demanding transparency about the talent levels in organisations and how effective companies are in managing that talent. This is driving a big interest in human resource metrics,” he said.

Human resources metrics have been around for some time. Traditionally, organisations have measured areas such as revenue per employee and return on human capital. According to Phelps, however, their status as a footnote in company annual reports has developed. Once the preserve of the human resources department, increasingly, the finance department and the chief executive are taking lead roles in measuring human capital.

“Our research shows that measuring talent has shot way up the agenda for chief executives recently to become either the number one or the number two issue for them,” he notes. Getting good data and interpreting it appropriately is key, but when they start looking at their organisations, CEOs are often taken aback, he adds. A surprisingly large number of companies, for example, don’t have a handle on the number of people they employ.

As basic as it seems, getting a precise figure for full-time equivalent employees is often a first step because of the mix of part-time, jobsharers and contractors.

Management are increasingly focusing on measuring engagement – in other words, identifying the truly productive people in their organisations.

Research has shown a link between a highly engaged workforce and bottom-line results, and the close relationship between employee engagement and customer satisfaction. This has implications for the design of remuneration and reward schemes.

Engagement metrics include areas such as absenteeism, the link between employee pay and revenue generated, training and learning levels and grievances. “It’s important not to look at one metric in isolation, you need to get a broad picture and you need to benchmark against others, for example competitors or your industry sector,” Phelps notes.

Chief executives are increasingly focused on the organisation’s image or “employer brand”, he says. While less resourced organisations are focused on short-term survival issues and are cutting headcount, others are still concerned about what McKinsey famously termed “the war for talent”. The recession does not make that war for talent any less relevant.

In considering the value of human capital there is increasingly recognition that, unlike many other assets in a business, well managed human capital is an “appreciating asset”, Phelps argues. “Some organisations, such as our own firm, are focused on recruiting raw talent, developing it, retaining it and moving it up through the organisation,” he says.

Balanced against that, organisations need to ensure they are right-sized for the prevailing or coming economic conditions or opportunities, so flexibility is a key issue.

Overall, it appears, the increasing use of HR metrics in multinational organisations spells danger both for underperformers and for relative high-cost locations, such as Ireland.