Employee Performance Management: What Your CFO Needs to Know About Culture Before Investing

Everyone knows that CFO’s have great influence and play a huge role in the success of a business. Despite their expansive knowledge of technology, often times they are not fully equipped to make a decision on which HR technology provider to choose.

Reflektive recently sponsored a webinar as part of the Performance Management Masterclass Series through Human Resources Today. The webinar featured speaker John Frehse, Senior Managing Director at Ankura. Frehse has more than 20 years of experience in labor and operations strategy. In that time, he has developed and implemented innovative labor solutions for more than 100 companies across a wide range of industries.

SEE ALSO: How to Effectively Change Performance Management

The webinar focused on the difficulties that human resources departments often face when communicating the value of performance management to the CFO. Frehse examined how many CFOs have a hard time believing that “Values equal value”—meaning that a company’s core values and culture actually translate to bottom line success.

Frehse pointed to a 2016 survey of CFOs in which 63% of respondents said that measuring employee engagement is not a priority for their companies. That could be due to the fact that 71% of CFOs said they believe that employee engagement metrics lack financial credibility. And less than half of respondents (46%) said that they have implemented an enterprise-wide employee engagement strategy.

These numbers point to the fundamental difference between the mindsets of a CFO and a CHRO. While the CFO is a strategic partner to the CEO and sees every employee as a cost, the CHRO is a champion of employees and sees each individual’s value.

Jack Welch, former CEO of General Electric, once said that “The head of HR at every company should be at least as important as the CFO.” Unfortunately, this isn’t the current reality for many companies.

The head of HR at every company should be at least as important as the CFO. Click To Tweet

The CFO is naturally driven by data, so the human resources team needs to provide metrics that illustrate the value of performance management initiatives. By talking about people-centric financials, HR leaders can start to change the conversation and ensure their voices are heard.

One of the first data points that CHROs should highlight is that a company’s market valuation today is based more on its intangible assets (people and intellectual property) than its tangible assets. In 1975, 83% of an S&P 500 company’s valuation was based on its tangible assets. That number has flipped today: Only 16% of a company’s current market value is tangible assets while 84% is intangible assets.

A company’s market valuation today is based more on its intangible assets (people and IP). Click To Tweet

And a company’s engagement strategies have a major impact on financials, as they affect turnover, retention, and absenteeism rates, as well as the ability to recruit top talent. Frehse compared two companies: Company A had a fully loaded cost of straight time (pay, benefits, PTO, etc.) totaling $54.67 while Company B had a cost of $17.22. While the first company paid its employees better, the second company scored much higher on engagement. Employees were asked whether they agreed with the following statements:

  • Management really cares about employees
    • Company A: 15.9%
    • Company B: 98.5%
  • I feel like I’m part of the company
    • Company A: 53.2%
    • Company B: 90.8%
  • The management team communicates well with employees
    • Company A: 35.6%
    • Company B: 69.2%

As these two companies illustrate, employees are looking for more than compensation. They want the opportunity to make a positive impact, they want visibility and structured mentoring, they want public recognition for high performance and merit-based promotions. These are all areas that performance management initiatives can improve.

DOWNLOAD FREE E-BOOK: How Microsoft Got Performance Management Right

For more information and case studies on human equity valuation, true labor cost calculations, and the true cost of absenteeism, be sure to watch the full webinar here.

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