Empowering Human Capital Management Through HR Metrics

by Shebani Patel, PricewaterhouseCoopers

The utility sector enjoys greater success in recruiting and retaining talent than other U.S. business sectors, data collected by PricewaterhouseCoopers (PwC) Saratoga shows. But that high performance also presents an aging, more expensive work force than most other sectors.

Utility executives in recent years have focused increasingly on data-driven, human capital management for balancing work force stability and skill, financial sustainability and development of younger talent.

Many companies face an employee exodus within the next decade and are searching for strategies to mitigate talent drain. Effective metrics provide important tools for evaluating the success of human capital strategies in maintaining work force effectiveness and achieving long-range personnel objectives.

PwC Saratoga teams with hundreds of executives and human resources departments each year to apply a rigorous, evidence-based approach to decision-making and human capital management. As part of this, PwC Saratoga developed the Utilities Metrics Consortium (UMC), an organization of some 25 utilities with 10,000 employees, on average. In addition to providing a thought leadership forum for human capital issues, the UMC helps members learn best practices for recruiting, retaining and engaging their current talent and choose the metrics that best measure human capital success. In 2009, members provided data for about 30 work force-related metrics. Results from some of the key metrics are detailed below. PwC Saratoga encourages utility companies to consider these findings as they assess and manage human capital assets.

Acquiring and Retaining Talent

PwC Saratoga assesses quality of hire by looking at the percentage of hires that left a company within 90 days of service and within the first year. Generally, high turnover during this period tends to suggest a breakdown in recruiting and on-boarding efforts (e.g., effectiveness of hiring sources, realistic job preview provided to candidates, effective on-boarding, etc.). Turnover during this first year receives much attention because it marks the period of greatest churn for many companies and represents significant out-of-pocket costs (e.g., hiring, on-boarding, etc.). Unlike most industries in the PwC Saratoga national database, utilities experience minimal turnover in the first year, suggesting that the talent acquisition strategy and process tend to yield strong, quality-hire results.

On average, the time to fill a position within the utilities sector is 61 days compared with 49 days for companies in Saratoga’s national database. This suggests that the utility hiring process takes longer, but the time investment yields more favorable retention results.

Although members of the consortium are increasing recruiting efforts at the Generation Y level (defined as being born 1982 or later), most of the hiring continues at the Generation X level (defined being born between 1961-1981). Many participants note a struggle to create employment value propositions for Generation Y candidates because the industry traditionally has held a reputation for a slower pace and less technological innovation, making other industries more attractive for younger talent as they start their careers.

Ninety-day and first-year turnover rates might be lower than other industries in part because recruiters and hiring managers continue to focus on hiring within a demographic (i.e., Generation X) they recognize as valuing the industry’s culture and environment. While this practice is producing a content work force, companies will need to expand efforts to introduce younger talent into the workplace to address future work force needs. To attract talented young workers, organizations might need to develop recruitment strategies with rewards, alternative work schedules, career development and training priorities that align with Generation Y values.

Work Force Investments

Because of their highly tenured work forces, low turnover and need for specific technical skills, utility companies tend to invest more heavily in employee cash compensation and benefits than other sectors. According to PwC’s Health and Well-Being Survey (which includes more than 600 participating organizations), medical costs are higher and increasing faster on average for utilities than for other industries.

 Organizations looking to right-size as a way to cut costs must closely monitor these structural cost metrics. Some organizations experience a spike in human capital costs because reorganizations can disproportionally affect lower levels of the organization (i.e., entry-level, less-tenured employees are impacted).

Work Force Planning and Succession Management

While the sector does not generally struggle with the high turnover many other industries traditionally face, utilities face their own challenges as they deal with shifting work force demographics. Results from the utilities metric consortium suggest that potential risks for high-volume talent loss in the coming years continue to worsen.

While most organizations recognize that the economy has slowed the actual rate of retirements, many are not ignoring the looming issue and are addressing it by developing and strengthening succession-planning programs. Just over the last two years, members of the consortium strengthened succession depth of key roles (generally defined as the most senior level positions in the organization).

Many recognize the need to apply similar programs and practices across broader levels of management. In addition, organizations are focused on succession planning for pivotal roles, such as specific roles within the organization that create and sustain wealth preservation for the organization, which might include management and nonmanagement roles.

One of the largest concerns as organizations work through succession and work force planning is the need to document and transfer institutional knowledge. With an average employee tenure of 15 years for UMC members, a great deal is at risk if an employee leaves without sharing his or her knowledge with whom will carry it forward. Most organizations recognize the imminent need to crack the code on how to best address this concern, but most are barely scratching the surface on building programs and initiatives. In a PwC Saratoga survey on knowledge documentation and transfer within the utility sector, the majority responded that they did not have a process to document critical or tacit knowledge, or if they did, it was informal, such as ad hoc mentoring and not consistently applied throughout the organization. A few noted it as a priority for the coming year. Others indicated that the retirement window drove their urgency to document tacit knowledge from specific employees.

A handful of organizations have built and invested in specific business initiatives for knowledge documentation of specific roles. Some suggested pilots before expanding the initiative across the organization. Most noted that information was currently captured in simple tools such as electronic spreadsheets or documents. Based on some initial results, companies addressing knowledge documentation said they were in a better position to provide cross-training or developmental assignments that would allow rookie employees to gain the right experience. A few also noted that it was helpful to link knowledge transfer and documentation initiatives into development plans to ensure accountability.

Work Force Development

While UMC members stress the importance of informal mentoring and coaching, the sector also is committed to providing formal training. UMC employees receive about seven courses on average compared with the Saratoga national database average of five courses. Furthermore, one of the measures PwC Saratoga uses to measure the organization’s commitment to developing internal talent is by assessing the percentage of vacant management positions eventually filled by internal candidates. The median for utilities was 63 percent (59 percent for the Saratoga national database). This suggests that utilities are committed to providing their talent with leadership opportunities. This strategy might support employee engagement and satisfaction of current employees, but utilities must remember aging work force concerns and hire new talent to develop future leadership needs.

As utilities address sector trends through innovation, they must evaluate and monitor the impact human capital has on their ability to achieve key operating initiatives and goals. The development of a simple human resources metrics dashboard can help proactively identify and address concerns.

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