Human Resource Data (AQA A Level Business): Revision Note

Why measure human resource performance?

• Businesses collect and analyse HR data to make informed decisions that help improve performance, reduce costs and plan for future workforce needs

Why HR data matters

• Identify problems

  • High labour turnover or rising costs may indicate poor working conditions, low morale or training gaps

• Plan ahead

  • Workforce data informs recruitment, training, succession planning and budgeting

• Improve performance

  • Tracking productivity or absenteeism helps managers take action to boost efficiency

• Control costs

  • Monitoring labour cost per unit and employee costs as a percentage of revenue helps businesses stay competitive

Employee engagement

• Employee engagement measures the extent to which employees feel motivated, committed to and emotionally invested in their work and the organisation

  • High engagement is linked to higher productivity, lower absenteeism and reduced staff turnover

  • It is commonly measured through employee surveys and exit interviews

• Measuring engagement allows managers to identify problem areas, such as poor leadership or lack of development opportunities, before they lead to a loss of valuable employees

• Tracking engagement over time shows whether HR initiatives are having the intended effect on workforce morale and motivation

Employee representation

• Employee representation measures the degree to which different groups of employees have a voice in workplace decisions

  • Through trade unions, works councils, employee forums or elected representatives

• Measuring representation helps the business assess whether all employees have fair access to support, particularly during disputes, redundancies or changes to terms and conditions

• Strong employee representation is linked to better communication between management and staff, which can reduce conflict and improve trust

• Monitoring representation also helps identify whether certain groups – such as junior staff or those on flexible contracts – are under-represented in decision-making processes

Employee diversity

• Employee diversity measures the composition of the workforce

  • It considers characteristics such as gender, ethnicity, age, disability and socioeconomic background

• Monitoring diversity data allows the business to assess whether its workforce reflects the communities it serves and the wider population

• Measuring diversity highlights gaps such as under-representation of certain groups at senior levels

  • This may indicate barriers to progression or bias in recruitment and promotion processes

• A diverse workforce is associated with greater innovation, better decision-making and improved performance

• Increasingly, investors, customers and regulators expect businesses to report transparently on diversity

Employee well-being

• Employee well-being measures the physical, mental and emotional health of the workforce

  • It is commonly monitored through absenteeism rates, staff surveys, occupational health referrals and access to well-being support services

• Poor well-being is costly

  • It leads to absenteeism, presenteeism (being at work but not fully productive), and, ultimately, high staff turnover

• Measuring well-being allows the business to identify stresses, such as excessive workload, poor management or an unsupportive culture, and address them before they escalate

• Businesses with strong well-being programmes tend to report higher engagement, lower sickness absence and better staff retention

Key performance indicators (KPIs)

• Key performance indicators (KPIs) are measurable targets set for individual employees or teams, used to assess whether performance meets the standards the business requires

  • Common examples include sales targets, customer satisfaction scores, output per hour, error rates and project completion times

• KPIs give employees a clear understanding of what is expected of them, which supports motivation and focus

• Measuring performance against KPIs allows managers to identify high performers for recognition and development, and to support those who are not meeting expectations

• KPIs must be realistic, clearly defined and regularly reviewed to remain meaningful

  • Poorly designed KPIs can drive the wrong behaviours or demoralise staff if targets are unachievable

Measuring performance data

Employee productivity

• Employee productivity measures output per worker during a specified period of time

• It is expressed as a number of units and calculated using the formula:

$\mathrm{Employee}\mathrm{productivity}=\frac{\mathrm{Output}\mathrm{over}\mathrm{a}\mathrm{time}\mathrm{period}}{\mathrm{Number}\mathrm{of}\mathrm{employees}}$

• Businesses aim to increase the level of labour productivity to improve competitiveness

• Falling productivity could trigger a review of equipment, working conditions or staff training needs

  • For example, Royal Mail invested in automated parcel sorting and upskilled employees in response to falling productivity during peak online shopping seasons

The link between high labour productivity and competitive edge

Employee cost per unit

• Employee cost per unit measures how much it costs in wages to produce one unit of output

  • It is a key piece of data to assist with pricing and cost control decisions

• Rising labour costs may push a business to automate processes or reallocate staff more efficiently

  • For example, Greggs introduced more self-serve tills and centralised some baking operations to reduce labour costs per unit across stores

• It is calculated using the formula:

$\mathrm{Employee}\mathrm{cost}\mathrm{per}\mathrm{unit}=\frac{\mathrm{Total}\mathrm{weekly}\mathrm{wages}}{\mathrm{Number}\mathrm{of}\mathrm{units}\mathrm{produced}}$

Sales per employee

• Sales per employee measures the average amount of revenue generated by each member of staff over a given period

  • It shows how efficiently the business is converting its labour resource into revenue

• Sales per employee is calculated using the formula

$\mathrm{Sales}\mathrm{per}\mathrm{employee}=\mathrm{Total}\mathrm{sales}\mathrm{revenue}÷\mathrm{Number}\mathrm{of}\mathrm{employees}$

• A rising figure suggests the workforce is becoming more productive

• A falling figure may indicate overstaffing, declining sales or poor employee performance

• It is particularly useful for comparing performance across different time periods, branches or against competitors in the same sector

Employee turnover

• Employee turnover measures the proportion of employees leaving a business during a specific time period

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

$\mathrm{Employee}\mathrm{turnover}=\frac{\mathrm{Number}\mathrm{of}\mathrm{staff}\mathrm{leaving}}{\mathrm{Average}\mathrm{number}\mathrm{of}\mathrm{staff}}\times 100$

• High staff turnover might lead a business to invest in better training, improve management or raise pay to improve retention

  • For example, in 2022, NHS England faced high nurse turnover

  • It responded with improved retention schemes, including flexible working, leadership development and mentorship programmes

Internal and external factors that affect employee turnover

• A rising rate of employee turnover can signal internal HR management problems such as

  • Poor management leading to workers losing commitment

  • A poor recruitment and selection approach leading to staff leaving soon after starting their job

  • Low wage levels compared to those that could be earned elsewhere

• External factors can also increase employee turnover in a business

  • A buoyant local economy where workers are attracted to employment opportunities elsewhere 

  • Improved transport links that provide an opportunity for workers to seek work across a wider geographical area

The consequences of high employee turnover

Employee costs

• Employee costs as a proportion of revenue shows how much of a business’s revenue is spent on paying employees

  • It helps assess how efficiently the workforce is being used

• If employee costs are growing faster than revenue, the business may need to restructure or freeze recruitment

  • For example, Marks & Spencer faced rising wage costs and declining revenues in some departments. It responded by closing underperforming stores and streamlining staff roles

• It is calculated using the formula:

$\mathrm{Employee}\mathrm{costs}\mathrm{as}\%\mathrm{of}\mathrm{turnover}=\frac{\mathrm{Employee}\mathrm{costs}}{\mathrm{Revenue}}\mathrm{x}100$

Influences on employee costs as a percentage of revenue

1. Wage levels and contracts

   • High wages, overtime pay or generous bonuses will raise employee costs

2. Productivity

   • More productive staff reduce the cost per unit and lower the ratio

3. Technology

   • Automation can reduce the need for labour, cutting costs

4. Industry type

   • Labour-intensive industries such as hospitality usually have higher employee costs than capital-intensive ones such as manufacturing

5. Revenue performance

   • A fall in revenue (e.g. due to low demand) makes employee costs look higher, even if wages have not changed