Key Human Resource Objectives (AQA A Level Business): Revision Note

What are human resource objectives?

• Human resource (HR) objectives are the specific targets a business sets for managing its workforce

  • They translate the overall goals of the business into measurable aims for how people are recruited, developed, managed and retained

• HR objectives must be aligned with the wider strategic direction of the business

  • A company pursuing rapid growth will need different HR objectives to one focused on cost reduction

  • A business entering a new international market will have different workforce priorities to one consolidating its existing operations

• Effective HR objectives help a business to:

  • Ensure it has the right number of people with the right skills in the right roles

  • Manage the cost of employing people efficiently

  • Build a motivated, engaged and productive workforce

  • Meet its legal and ethical obligations as an employer

Number and skills of employees

• Workforce planning involves forecasting the business's future staffing needs and taking action to meet them

• Getting the number of employees right means

  • Avoiding being understaffed

    • Too few employees leads to overworked staff, missed deadlines, poor customer service and lost revenue

  • Avoiding being overstaffed

    • Too many employees increases costs without a corresponding increase in output or revenue

• Getting skills right means ensuring employees have the knowledge, abilities and qualifications the business needs, both now and in the future

  • This may involve recruiting people with specific expertise or investing in training and development to build skills internally

• Failing to meet workforce number and skills objectives has direct consequences for business performance

  • A retail business that cannot recruit enough staff for the Christmas period will lose sales and disappoint customers

  • A technology company that lacks employees with the right coding skills cannot develop new products or maintain existing systems

  • A manufacturer that retains too many workers during a period of falling demand faces unnecessarily high labour costs that reduce profit margins

Example

A delivery company that wins a major new delivery contract must rapidly increase its driver workforce

Without clear HR objectives around recruitment and skills (including appropriate licence qualifications), it cannot fulfil the contract, potentially losing it to a competitor

Employee turnover and retention

• Employee turnover refers to the rate at which employees leave a business and need to be replaced

• It is expressed as a percentage and calculated using the formula

$\mathrm{Employee}\mathrm{turnover}\mathrm{rate}=\frac{\mathrm{Number}\mathrm{of}\mathrm{employees}\mathrm{leaving}}{\mathrm{Number}\mathrm{of}\mathrm{staff}\mathrm{employed}\mathrm{by}\mathrm{the}\mathrm{business}}\times 100$

• Employee retention is the ability of a business to keep its employees rather than losing them to competitors or other opportunities

  • High retention means low employee turnover

The costs of high employee turnover

Recruitment costs

• Advertising, interviewing and onboarding new staff is expensive and time-consuming

Training costs

• New employees need time and investment before they reach full productivity

Lost knowledge

• Experienced staff take valuable skills, relationships and institutional knowledge with them when they leave

Impact on morale

• Frequent staff departures can unsettle remaining employees and signal that the business is not a good place to work

Customer experience

• In customer-facing roles, high employee turnover can reduce the quality and consistency of service

Retention strategies

• HR objectives focused on employee retention help businesses minimise these costs and maintain a stable, experienced workforce

  • Typical retention strategies include competitive pay, flexible working, career development opportunities and positive workplace culture

Example

A restaurant chain with an annual employee turnover rate of 80% - common in the hospitality sector - spent a disproportionate amount of management time and money on recruitment and training

Reducing employee turnover to 40% through improved pay and working conditions significantly reduced costs and improved the quality of customer service

Employee engagement

• Employee engagement refers to the extent to which employees are emotionally committed to their work, their team and the organisation

  • An engaged employee is not simply doing their job

    • They genuinely care about the outcomes of their work and the success of the business

  • Engagement is different from satisfaction

    • An employee can be satisfied with their pay and working conditions without being engaged - motivated to go above and beyond what is required

Signs of high employee engagement

• Employees taking pride in their work and the business

• Willingness to suggest improvements and contribute ideas

• Low absenteeism and strong attendance

• Employees acting as advocates for the business with customers and in the wider community

The importance of high employee engagement

• Businesses with high levels of employee engagement outperform those with disengaged workforces

  • Productivity

    • Engaged employees work harder, more carefully and more creatively than disengaged ones

  • Quality

    • Employees who care about their work are less likely to cut corners or make careless mistakes

  • Customer service

    • Engaged frontline employees deliver a better customer experience, directly affecting revenue and reputation

  • Retention

    • Engaged employees are less likely to leave, reducing employee turnover costs

  • Innovation

    • Engaged employees are more likely to contribute new ideas that improve products, processes or services

Example

A study of two similar manufacturing plants found that the one with higher employee engagement scores produced 21% more output per employee and had 40% fewer quality defects

The difference was attributed not to equipment or processes, but to how employees felt about their work and their managers

Employee costs

• Employee costs, sometimes called labour costs, include all the costs associated with employing people

• For most businesses, employee costs are the largest single category of operating expenditure

  • In labour-intensive sectors such as retail, hospitality, healthcare and education, employee costs can account for 60–80% of total costs

Examples of employee costs

• Wages and salaries

  • The direct pay received by employees

• Employer's National Insurance contributions

  • A tax paid by employers based on employee earnings

• Pension contributions

  • Employers are legally required to contribute to employees' workplace pensions

• Recruitment and training costs

  • The cost of hiring and developing staff

• Other benefits

  • Company cars, private healthcare, bonuses and other non-salary benefits

The significance of employee costs

• Managing employee costs is a critical HR objective for several reasons

  • Excessive labour costs reduce profit margins and can threaten the viability of the business

  • Cutting labour costs too aggressively can reduce workforce quality, increase employee turnover and harm both productivity and customer service

  • Rising minimum wage legislation, pension auto-enrolment, and employer National Insurance increases can significantly increase the cost base — particularly for businesses that employ large numbers of lower-paid workers

• The challenge for businesses is to manage employee costs efficiently without compromising the quality, motivation or stability of the workforce

  • This requires balancing financial discipline with fair and competitive employment practices

Example

A supermarket employing 15,000 staff faces a 10% increase in the National Living Wage. The additional annual cost runs into tens of millions of pounds

The business must decide whether to absorb this through efficiency improvements, reduce hours, increase prices or accept lower profit margins

Each option has different consequences for employees, customers and shareholders

Equality, diversity, inclusion and belonging

• These four concepts are closely related but distinct

The significance of equality, diversity, inclusion and belonging

• Setting HR objectives around equality, diversity, inclusion and belonging matters for a range of reasons

Legal compliance

• Failure to uphold equality obligations can result in employment tribunal claims, financial penalties and reputational damage

Attracting talent

• Businesses with strong inclusion reputations attract a wider pool of candidates, increasing the quality of recruitment

Innovation

• Diverse teams bring a broader range of perspectives and experiences

• This can lead to more creative problem-solving and better decision-making

Employee performance

• People who feel they belong and are valued perform better and are more engaged

Customer relationships

• A diverse workforce is better placed to understand and serve a diverse customer base

Reputation

• Customers, investors and potential employees increasingly choose to associate with businesses that demonstrate genuine commitment to these values

Example

A financial services firm that reviews its recruitment processes and removes unconscious bias from application screening finds that it attracts a significantly more diverse pool of candidates

Within two years, it reports higher employee satisfaction scores, lower employee turnover and measurable improvements in team performance

Influences on HR objectives

• HR objectives are shaped by a range of internal and external factors

Internal influences

Overall business strategy

• A growth strategy requires HR objectives focused on recruitment and skills development

• A cost-reduction strategy may lead to objectives around reducing headcount or managing labour costs more tightly

Financial position

• A business under financial pressure may prioritise reducing employee costs

• A profitable, cash-rich business may invest more in pay, benefits, training and staff development

Other business functions

• Marketing decisions, such as launching a new product, create demand for specific skills

• Operational changes, such as automating a process, affect the number of staff required

Culture and values

• A business with strong values around people will set ambitious objectives around engagement, inclusion and well-being

External influences

Labour market conditions

• In a tight labour market where skilled workers are scarce, businesses must set more ambitious retention and reward objectives to remain competitive

• In a looser market, recruitment is easier and costs may be lower

Legislation

• Changes to employment law, such as minimum wage, working hours, pension contributions or equality requirements, directly affect what HR objectives are legally required and financially feasible

Economic conditions

• A recession may lead to objectives focused on cost reduction

• A period of growth may shift focus to recruitment and development

Technological change

• Automation and artificial intelligence are reshaping the skills businesses need, requiring HR objectives focused on retraining and reskilling existing employees