More Staff, Bigger Budgets, for HR Depts

Anonymous. HR Focus. New York: Feb 2007.Vol.84, Iss. 2; pg. 1, 3 pgs

Corporate America's recognition of the value and importance of HR continues to grow-and the resulting increase in HR department staff and budget reflects the key role that HR now plays in most organizations. Bringing in, orienting, training, and assessing people is finally getting its due as a critical organizational function. The latest information on key benchmarks for HR departments is produced by HRfocus 's parent company, BNA. Highlights from this year's HR Department Benchmarks and Analysis Report 2007 show that HR is gaining in responsibility and importance at organizations. HR STAFF The median HR staff ratio-the number of full-time equivalent HR staff for every 100 employees served-is up from figures reported between 2002 and 2004. The staff ratio increases suggest that HR departments have brought in proportionately more staff than the overall organizations. This means that HR professionals are able to put more time into additional activities and initiatives. HR departments were more than twice as likely to grow as be cut, based upon the reported changes in the past year: 26% of surveyed employers said they added HR staff in 2006, while just 11% said they reduced HR staff. And at 63% of responding organizations, HR staffing levels remained unchanged. The need for-and employment of-HR specialists also continued to grow last year. Complex regulatory areas, such as Sarbanes-Oxley compliance, and specialized knowledge and skills, such as HRIS, are driving these needs. Organizations are most likely to employ HR specialists in the benefits and employment areas. Fifty-six percent of the surveyed organizations report that their HR departments employ at least one HR specialist (defined as a nonclerical employee who works exclusively in one or two HR areas). 1

In addition to more HR specialists, there is a trend toward HR departments becoming increasingly skilled. This trend is reflected in declining numbers of secretarial and clerical workers and an increase in the proportion of professional and technical HR staff. In 2002, the median for professional and technical workers in HR departments equaled about one-third of HR employees (33%), while secretarial and clerical workers accounted for just over one in four HR employees (27%). In 2006, by contrast, the median for skilled HR professionals and technical personnel on staff had risen to 40%, compared with 20% for secretarial and clerical workers. An expanded skill set is also needed as more HR departments go "global." Nearly one in five HR executives in the survey says their department now serves employees abroad. While responsibility for designing global policy still resides overwhelmingly in the U.S. at the corporate level, policy implementation and administration are often handled abroad at a regional or country level. While HR's ongoing emphasis on professionalism is an important indicator of how departments position themselves to serve their organizations better and more strategically, other evidence suggests these efforts are actually having a positive effect. For instance, the head of HR now reports directly to the CEO or president at more than half of the organizations surveyed. Moreover, nearly two-thirds of surveyed HR departments report having "full" or "substantial" involvement in strategic decisions-an increase over recent years. HR BUDGETS & SPENDING HR expenditures have also increased along with department staffing. Overall, median HR expenditures per employee rose to $1,056 in 2006 compared with $857 in 2005. The budgeted HR expenditures in 2006 increased 7.2% over the prior year. Budgeted expenditures have, in fact, increased for three succeeding years, although the year-over-year increases in 2005 and 2004 were more modest: 4.9% and 5%, respectively. Similar increases are reflected in other survey metrics, such as the HR budget as a percentage of total organizational operating costs. Even more significant: HR budgets as a percentage of total operating costs are at a 10-year high, comparable with levels seen in the mid-1990s. 2

Median HR department budgets reported in 2006 represent 1.2% of employers' total budgeted operating costs for the year-an increase from 1.1% reported in 2005. HR budgets as a proportion of total operating costs vary by the type of organization: They are higher in manufacturing firms than in services/nonmanufacturing or nonbusiness establishments. Per capita HR budgets, as well as HR budgets as a percentage of total operating costs, tend to decline with workforce size. However, per capita HR expenditures do increase as the number of activities for which HR assumes full responsibility (or the "activity load") increases. This suggests that, for benchmarking purposes, HR departments should adjust per capita HR expenditures to account for their activity load. Reporting to top management is a boon for HR departments. Per capita HR budgets, as well as the HR budget as a percentage of an organization's total operating costs, tend to increase as HR managers report to higher positions in the organization's management hierarchy. And pay for HR department staff continues to improve: HR staff members continue to earn more on average than other workers within their organizations. HR salaries constituted a median of 1.4% of total budgeted payroll in 2006. The median salary for HR department staff was up in 2006 ($55,920) compared to 2005 ($55,000). Overall, HR departments allocate a median of 3% of their total budgets to technology and consulting. However, the largest organizations-those with 2,500 or more employees-typically allocate a larger proportion of their HR budgets to these areas (5%). OUTSOURCING'S ROLE Outsourcing has become central to the structure and functioning of HR departments. More than 70% of all surveyed organizations report that they outsource at least one HR activity, with higher percentages reported among larger organizations. The survey analyzed outsourcing of benefits and employee services-two areas in which HR activities are most often outsourced. Among the key findings, "access to greater expertise" was the main motive for outsourcing 3

among smaller organizations, while cost-savings topped the list among the largest organizations (2,500 or more employees). These findings indicate that HR executives tend to be most satisfied with the quality of vendor service, but may remain "uncertain" about the cost savings generated by these initiatives. Although the great majority of organizations (just over 80%) report moderate to high levels of overall satisfaction with their outsourcing initiatives, that still leaves nearly one in five either dissatisfied or uncertain about their experiences. About one in 10 takes the ultimate step of bringing an outsourced activity back in-house. The main reasons include no demonstrated ROI from outsourcing and poor customer service by the outsourcing vendor. More than half of organizations that brought an activity back in house did so only after trying their luck with two or more different outsourcing vendors. IMPACT OF CHANGES The survey results show that levels of HR department staffing and expenditures are moderated by a variety of factors including: the number of activities that HR departments perform ("activity load"); the extent to which HR has regular responsibilities hiring contingent workers; and the proportion of clerical workers on staff. The combined results on staffing and expenditures suggest that HR departments may have more capacity now than in recent years to help their organizations approach key HR issues, including recruitment and retention, compensation and benefits, succession planning, and others.