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NOVEMBER 2008

VOLUME 85 NO. 11

Editor: Susan F. Sandler

Research Manager:Bikram GautamV.P., Publisher: Perry Patterson

Sr. Managing Editor: Janice Prescott

Managing Editor:

Maggie ShawSr. Marketing Manager:

Laraine KellyDesign:

David AllikasPresident:

Joe Bremner

Inside this month

WWW.IOMA.COM/HR

continued on page 11

COVER STORY: Set 2009 HR GoalsConsistent With Slowing Economy

It’s no surprise that hiring and other trendswithin HR are moderating. Find out the lat-est benchmarks from a leading informationprovider.

3 RETENTION: Ideas for Building andExpanding Diversity Initiatives Even “elite” professional services firmsstruggle to get diversity initiatives right.Learn from their successes and challenges.

6 BENEFITS: Drug Cost-Control Is StillKey in a Tough Economy Has your organization gone far enough?Learn what other companies are doing totighten drug spending.

10 LEGAL: What the ADA AmendmentsAct Will Mean to Your Organization Find out why you need to schedule a reviewof policies and procedures now to be sureyou meet the demands of the new law.

DEPARTMENTS

2 Legal Insights

8 HRfocus News Briefs

12 Compensation & Benefits News

15 HRfocus Calendar

HR METRICS

Set 2009 HR Goals

Consistent WithSlowing Economy Year-end is a time for HR professionals to look ahead as

well as take in current trends that are affecting the opera-tion of the HR department. This look is never more importantthan during times of change, which certainly define the situa-tion of many industries and organizations right now.

Metrics and benchmarks are an increasingly important wayfor HR to assess and plan. This is so not just within your de-

partment and the organization but also for the bigger pictureof what is happening with HR practices, budgets, and expen-ditures in your organization’s industry and in the economy asa whole.

An excellent resource for the most current benchmarks is HR Department Benchmarks and Analysis 2008. The annualreport is produced by a team of researchers at the Bureau of

National Affairs (BNA), the parent company of HRfocus’s publisher. The information collected from HR professionalsfocuses on traditional HR functions and emerging issues inHR and contains data on staffing, expenditures, measurement,

and planning. Highlights from the responses of HR professionals at 607U.S.-based organizations will help your organization to assessthe “state of the industry” as it is now and will help you inlooking forward to the year ahead.

MODERATION TRENDActivities and growth of HR departments are moderating ina number of areas, perhaps in response to the uncertainty inthe economy that was present late in 2007 (the period duringwhich the data for the report was being collected).

HR staffing ratios declined in this most recent report, com-

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employers are not required to pro-vide a reasonable accommodationto individuals who are regarded asdisabled, an issue over which thefederal courts of appeals were pre-

viously split.“In addition, the ADAAA may

have a limited impact in states wherethe state or local law already defines‘disability’ more broadly than the

existing ADA.”Review your materials and consult

with your organization’s lawyers tosee what changes are recommendedto protect your organization. o

HR METRICS ( con t ’d f rom page 1 )

pared with the 10-year highs re-corded in 2005 and 2006. Also, HRexpenditures stabilized in this lastyear, following a period of growthfrom 2004 to 2006. Another area ofstabilization is average HR depart-

ment staff salaries.The proportion of HR departmentstaking on new responsibilities alsodeclined from 2006 levels, follow-ing a four-year increase.

HR STAFFThe median HR staff ratio acrossall surveyed organizations declinedslightly from 1.1 HR staff membersfor every 100 employees served in2005 and 2006 to 1.0 in 2007 (seeTable 1). “This decline in the HR

staff ratio was coincident with asoftening U.S. economy, particu-larly in the manufacturing sector,”the report concluded.

Organizations with larger work-forces typically dedicate fewerstaff per 100 employees to carryout HR’s varied roles, a trend thatis unchanged. While organizations

with fewer than 250 employeeshave a median staff ratio of 1.8 HRemployees for every 100 workers,organizations with 2,500 or moreworkers have a median staff ratioof 0.7 HR employees for every 100

workers. This lower staff ratio forlarger organizations appears to beone of the benefits of economies ofscale, according to the report.

The more core activities that anHR department performs, the higherthe staff ratios. “This points to theneed for organizations to adjust theirassessments of suitable HR staff ra-tios for comparative benchmarking

purposes to take into account the ac-tivity load of their HR department,”the report noted.

More HR staff are likely to bespecialists now: The proportion ofHR departments with specialists onstaff has steadily increased over the

past four years. Six in 10 HR departments (60 percent) surveyed in2007 have at least one nonclericalspecialist. In 2004, only 46 percenthad a specialist.

The growth in the proportion ofspecialists indicates the growing

professionalism of the HR function,the report observes. HR specialistsare most often employed in theareas of benefits, employment, and

recruitment.Although there are more special-ists, there are fewer secretarial andclerical workers on HR staffs now:Just 20 percent of the departmentwork in this capacity, compared to27 percent in 2004.

Data for 2007 show the highest netincreases in HR staff levels in the

past 10 years, the report observes.This year, one in three organizations(33 percent) report additions to HRstaff, while 15 percent indicate HR

staff cuts for a net increase of 19 per-centage points. “This is a dramaticincrease from 2002 and 2003 whenthe percentage of employers report-ing HR staff cuts and staff increaseswas virtually identical.”

Three out of four HR departments(75 percent) hire contingent work-ers for their organizations. Among

Table 1. HR Staff Ratios by Workforce Size

25th 75thLow Percentile Median Percentile High

All employers 0.03 0.6 1.0 1.8 10.3By workforce sizeLess than 250 0.43 1.1 1.8 2.5 10.3

250 to 499 0.26 0.9 1.4 1.8 5.9 500 to 999 0.30 0.7 1.0 1.5 8.5 1,000 to 2,499 0.30 0.6 0.9 1.4 6.7 2,500 or more 0.03 0.4 0.7 1.1 7.1

(Source for all tables: HR Department Benchmarks and Analysis Survey, 2007-2008 © 2008 BNA Inc.)

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HR METRICS ( con t ’d )

those departments, nearly three outof four (74 percent) assume all ormost of the responsibility of hiringcontingent workers (29 percent) orshare that responsibility with linemanagement (45 percent).

HR departments are increasinglyglobal: Nearly one in five HR depart-ments (19 percent) serve employeesoutside the United States. Responsi-

bility for global HR operations mostoften resides at the corporate levelwithin the United States. Imple-menting and administering globalHR policy, however, is more likelyto be handled abroad at the regional

or country level.

BUDGETS & EXPENDITURESMedian HR expenditures for 2007were $1,082, only a marginal in-crease over the $1,056 per worker

budgeted by HR departments in2006 (see Table 2). The projectedmedian budgeted increases in HRexpenditures stayed at the same 7.2

percent in the 2007 research as theywere for 2006.

The fact that the last big increase

was from 4.9 percent in 2005 to the2006 number suggests a moderatingtrend, the report noted, “possiblygrowing out of the economic uncer-tainties felt by businesses and otherorganizations in 2007.”

HR budgets as a percentage of to-tal operating costs also stabilized in2007, after increasing steadily from0.8 percent in 2002 to 1.2 percent in2006. This figure as a percentage oftotal operating costs was unchanged

in 2007 at 1.2 percent. These find-ings are consistent with a lack ofgrowth in the median HR staffingratio, the report explained.

HR COMPENSATIONHR staff members continue to earnmore on average than other workers:HR salaries constituted a median of1.4 percent of organizations’ bud-geted payroll in 2007, unchangedfrom 2006.

Comparing this figure with themedian staffing ratio of one HRemployee for every 100 workersserved demonstrates that the share

of payroll going to HR staff members exceeds their proportion of theoverall workforce—and so indicatesthat average pay for HR employeesexceeds the pay of workers in therest of the organization.

However, median HR departmentstaff salaries grew less in 2007 thanin 2006. The median HR departmentstaff salary in 2007 was $62,301, a5.2 percent increase over mediansalary levels in 2006 ($59,220). The2006 salary figure, however, was a

7.7 percent increase over the medianHR staff salary of $55,000 earned in2005, indicating a slowing in salarygrowth of HR staff (see Table 3).

The top areas for increased HRexpenditures by HR executives in2007 are compensation (54 percent),followed by benefits (52 percent),employment and recruiting (44

percent), and training and develop-ment (44 percent), the report noted.External relations is at the bottom

of the list of HR spending priori-ties, with only 10 percent of HRexecutives anticipating increasesin this area.

MORE TRENDSOther major trends cited in the reportthat will be of interest to HR profes-sionals in the year ahead include:

Measurement and strategicplanning. HR departments are mostlikely to focus their measurement ef-forts on compensation and benefits,and staffing activities. More thanhalf of HR departments regularlyapply measurement and planning

tools to the area of compensationand benefits (59 percent) and work-force staffing (52 percent). ManyHR departments also regularly ap-

ply measurement to assess cost sav-ings (44 percent) and training anddevelopment activities (40 percent).Regular measurement is rare in theareas of succession planning (26

percent) and workforce diversity planning (22 percent).

Not surprisingly, HR departmentsin larger organizations measure their

activities more often. This is true forall measures surveyed but especiallyso for employee relations and suc-cession planning.

Access to top executives. Re-spondents indicate their HR depart-ments have access to the highestlevels of management in their orga-nizations, and report high levels ofinvolvement in the key business de-cisions within their organizations.

Six in 10 survey respondents

Table 2. Per Capita HR Expenditures Budgeted by Workforce Size

25th 75th Low Percentile Median Percentile HighAll employers $70 $641 $1,082 $2,255 $6,083By workforce size Less than 250 537 1,239 2,153 3,190 6,083 250 to 499 308 936 1,532 2,327 5,265 500 to 999 362 657 1,008 1,607 3,708 1,000 to 2,499 161 617 1,008 1,991 5,307 2,500 or more 70 428 827 1,261 4,427

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HRFOCUS / NOVEMBER 2008

(60 percent) indicate that the headof HR reports directly to the CEOor president of their organizations.Reporting relationships between HRand lower-level individuals—seniorvice presidents, vice presidents, ordirectors—are far less common.

In addition, nearly seven in 10surveyed HR executives (69 percent)report full or substantial strategic in-volvement in key business decisionsmade in their organizations.

How top management assessesHR success.Recruitment, retention,and partnering to implement key or-ganization goals are key factors used

by top management to evaluate HR,according to respondents.

Nearly half of surveyed HR execu-tives (48 percent) cite recruitmentand retention of employees as amongthe most important criteria by whichtop management evaluates the per-formance of the HR department.

Other top evaluation criteria in-clude partnering to implement keyorganizational goals (39 percent)and internal client/manager satisfac-tion with HR (30 percent). HR department priorities.

These align with what matters most

to top management: Among the top priorities for HR departments forthe year ahead were recruitment andretention of employees (34 percent)followed by strategic planning andmanagement (13 percent). Trainingand development also are among themore important stated HR prioritiesfor 2008.

HR departments and strategy.HR departments that measure moreregularly report larger strategic in-volvement in their organizations. Infact, the more HR measures, the morelikely it appears that HR is involvedin the organization’s strategy.

Outsourcing. The use of out-sourcing continues to rise: The pro-

portion of organizations that out-source HR activities has increasedfrom levels seen in the prior decade,according to the report.

Three-quarters (75 percent) ofthe organizations surveyed reportthat they outsource at least one HRactivity. Comparable outsourcingnumbers were about 60 percent dur-ing the late 1990s.

While a majority of HR depart-

ments in all three major industrysectors have outsourced at least

some HR activities, outsourcing isless common in nonbusiness orga-nizations (65 percent) than it is inmanufacturing (80 percent) or ser-vices/nonmanufacturing companies(75 percent).

The most commonly outsourcedactivities continue to be those relatedto employee benefits and employeeservices. Most often outsourced:employee assistance plan/coun-seling (42 percent), preretirementcounseling/retirement planning (36

percent), flexible spending accountadministration (35 percent), and out-

placement services (30 percent).

Overall, the top stated motivefor HR outsourcing benefits andemployee services activities is ac-cess to greater expertise. Cost sav-ings and improved service also areimportant.

The reasons most often given foroutsourcing benefits activities areaccess to greater expertise (57 per-cent) followed by cost savings (36

percent) and improved quality ofservice (33 percent).

For outsourcing employee ser-

vices, access to greater expertise (68 percent) also is the most important

HR METRICS ( con t ’d )

Table 3. Change in Median HR Staff Salaries, 1997 - 2007

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

7.0%

6.0

5.0

4.0

3.0

2.0

1.0

0.0

4.9%4.6% 4.4%

5.0% 4.9% 5.0%

4.0% 4.2% 4.0%

5.9%

5.2%

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Northeast Human Resources Association Annual Conference Series, various geo-graphic locations in Massachusetts:Nov. 5, 2008; Feb. 11 and May 21, 2009.Contact: NEHRA, 781-235-2900; www.nehra.com

Recruiting 2008 Conference and Expo,Orlando, Nov. 16-19. Contact: Ken-nedy Information, 800-531-0007 or603-924-1006, ext. 631; [email protected]; www.TheRecruiting-Conference.com

Employee Benefits: What’s on the Hori- zon—Regulatory, Judicial, and LegislativeInitiatives,Washington, D.C., Nov. 17-18.Contact: BNA, 800-952-2477, www.bna.com

The Best of Talent Management, LakeBuena Vista, Fla., Dec. 9-11. Contact:Linkage, 781-402-5400; fax: 781-402-5556; www.linkageinc.com

IN 2009

Employers of Excellence National Confer-ence, Las Vegas, Jan. 27-29. Contact:HR.com, 877-472-6648; [email protected]

The 2009 Executive Coaching Conference, New York City, Jan. 29-30. Contact: TheConference Board, 212-339-0345; www.

conference-board.org

Strategic e-HR Conference, San Diego,Feb. 4-5. Contact: The ConferenceBoard, 212-339-0345; www.confer-ence-board.org

The 2009 Employee Health Care Confer-ence, New York City, Feb. 12-13; SanDiego, March 19-20. Contact: TheConference Board, 212-339-0345; www.conference-board.org

Talent Management Strategies Conference,

New York City, Feb. 26-27; San Diego,March 19-20. Contact: The ConferenceBoard, 212-339-0345; www.conference-board.org

2009 Employment Law & Legislative Con-ference, Washington, D.C., March 9-11.Contact: Society for Human ResourceManagement, 800-283-7476; [email protected]; www.shrm.org

The Summit on Leading Diversity, Atlanta,March 16-18. Contact: Linkage, 781-402-5400; fax: 781-402-5556; www.linkageinc.com

The Best of Organizational DevelopmentSummit, Chicago, May 12-14. Contact:Linkage, 781-402-5400; fax: 781-402-5556; www.linkageinc.com

2009 SHRM Global Conference andExposition, Toronto, March 31-April 1.Contact: Society for Human ResourceManagement, 800-283-7476; [email protected]; www.shrm.org

IHRIM 2009 Conference and Technol-ogy Exposition, San Diego, April 19-22.Contact: IHRIM; 1-800-804-3983; www.ihrim.org

ASTD International Conference & Exposi-tion, Washington, D.C., May 31-June 3.

Contact: ASTD, 703-683-8100; www.astd.org

Total Rewards Conference & Exhibition2009, Seattle, May 31-June 3. Contact:WorldatWork, 480-951-9191 or 877-951-919; www.worldatwork.org

SHRM’s 61st Annual Conference & Ex-position, New Orleans, June 28-July 1.Contact: Society for Human ResourceManagement, 800-283-7476; [email protected]; www.shrm.org

HRfocus CALENDARHRfocus CALENDAR

motive, but improvement in servicequality (40 percent) occupies second

place followed by cost savings (20 percent).

HR departments in smaller organi-zations (less than 1,000 workers) aremore likely than those in larger onesto cite access to greater expertise asa motivation for outsourcing benefitsand employee services activities. HRdepartments in larger organizationsare more likely to outsource becauseof potential cost savings.

Most HR executives view out-sourcing of benefits activities as suc-cessful. Opinions are more mixed on

the success of outsourcing employeeservices activities.

And the rating of “successful”depends upon which factor is be-ing considered. A majority of HRexecutives rate their experience withoutsourcing benefits as “favorable”in terms of employee communica-tion (73 percent), vendor qualityof service (69 percent), planning

prior to outsourcing (68 percent),and reallocation of resources andnet cost savings to the organization(57 percent).

Ratings on the success of outsourc-ing employee services is more mixed.A majority of HR executives reportfavorable outcomes in terms of ven-dor quality of service (69 percent),communication with employees(63 percent), and planning prior tooutsourcing (56 percent). However,nearly two-thirds of respondents (62 percent) report “undetermined” (56 percent) or “unfavorable” outcomes

(6 percent) in net cost savings to theorganization or successful realloca-tion of resources.

Among organizations that out-sourced benefits or employee servic-es, approximately one in 10 reported areduction in HR staff. Eleven percentof HR departments outsourcing ben-efits activities reported staff reduc-tions in relation to this outsourcinginitiative, compared with 8 percentof HR departments that outsourced

employee services activities.Few HR departments—only 15

percent among the survey respon-dents—that have outsourced a service

bring that service back in-house. Thereport pointed out that this fact under-scored the importance of HR makinginformed decisions about outsourcing,including due diligence in the initial

choice of an outsourcing vendorand in monitoring the chosen ven-dor’s performance.

FOR MORE INFORMATIONThe complete HR Department

Benchmarks and Analysis 2008 isavailable from BNA at www.bna.com. o

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