7.20 - Employee Performance
Labour productivity and its measurement
Labour productivity measures how effectively employees contribute to output, often assessed by tracking increases in output per worker over a period. When labour productivity rises, the cost of labour per unit of output decreases, assuming wage rates stay the same.
Reasons for increasing labour productivity
- Enhanced employee motivation, which encourages greater effort and efficiency.
- Investment in more advanced capital equipment that speeds up processes.
- Comprehensive training programmes to build skills and knowledge.
- Greater employee involvement in identifying and resolving issues.
- Streamlined operations to eliminate inefficiencies.
Measuring productivity in service industries
Productivity in services can be quantified using industry-specific metrics:
- In transport, it might be kilometres driven per employee annually.
- In hospitality, such as hotels, it could be the number of guest nights handled per worker each year.
- In sectors like information technology or finance, revenue generated per employee per year is a common indicator.
Improving productivity in service industries is challenging because high-quality service typically demands consistent staff presence.
Absenteeism and its implications
Absenteeism refers to unplanned employee absences from work, which can signal underlying issues like low motivation or dissatisfaction. High absenteeism disrupts business operations, particularly in service-based sectors where immediate staff availability is crucial and services cannot be stored for later use.
Impact of absenteeism
- Increased costs, such as recruiting temporary workers or paying overtime to cover gaps.
- Absenteeism rates can reflect employee motivation levels, with motivated staff less likely to miss work.
- Factors like poor working conditions or excessive supervision, as outlined in Herzberg's hygiene factors, can contribute to higher absence rates.
Formula for absenteeism
Where:
- Number of days absent = Total days employees were absent
- Total number of workdays = Total possible working days for all employees
An alternative measurement expresses the average number of absent workers per day as a proportion of the total workforce.
Worked example - Calculating absenteeism rate
A company with 60 employees operates for 22 workdays in a month. During this period, there are 55 days of employee absences in total. Calculate the absenteeism rate as a percentage.
Step 1: Identify the values
- Number of days absent = 55
- Total number of workdays = 60 employees × 22 days = 1,320
Step 2: Apply the formula
Other measures of employee performance
Beyond productivity and absenteeism, businesses use various indicators to evaluate employee performance. These metrics help identify areas for improvement and ensure operations run smoothly.
Key performance measures
- Wastage rates - The percentage of materials wasted or output damaged during production.
- Quality levels and reject rates - The proportion of output that fails to meet quality standards and must be rejected.
- Consumer complaints - The number of complaints received as a proportion of total customers served.
- Individual performance against targets - How well employees meet predefined goals, such as sales quotas or project deadlines.
When addressing poor performance, it is essential to first investigate the underlying causes before applying solutions.
Hard and soft HRM strategies for improving performance
Human resource management (HRM) strategies for enhancing employee performance are categorised into hard and soft approaches. Hard strategies emphasise control and cost reduction, while soft strategies focus on development and engagement.
Hard HRM strategies
Hard strategies treat employees as costs to be minimised, using methods like formal warnings, disciplinary actions, and flexible contracts that facilitate easy dismissal.
Benefits and drawbacks:
- Benefits - They can reduce short-term expenses by quickly addressing underperformance.
- Drawbacks - They often lead to lower motivation.
Soft HRM strategies
Soft strategies view employees as valuable assets to be nurtured, involving higher initial costs but potentially yielding long-term gains in motivation, reduced absenteeism, better punctuality, and improved quality.
Examples of soft HRM strategies:
- Regular performance appraisals - Two-way discussions to review progress and set goals.
- Training programmes - Additional skill-building to boost efficiency and provide challenges.
- Quality circles - Groups where workers collaborate on problem-solving.
- Autonomous work groups - Teams trained in multiple skills for flexible operations.
- Financial incentives - Rewards tied to company profits, such as bonuses.
- Employee share schemes - Options for staff to own company shares, aligning interests.
- Management by objectives - Setting clear, agreed targets to guide performance.