Spending up on HR

by 17 Apr 2007

Human Resources magazines study of the top ASX-listed companies in Australia has shed light on the business of people management within Australia. In the final instalment of a three-part series, Craig Donaldson looks at trends in HR budgets as well as staffing levels of HR professionals

HR has been getting a lot of airplay within companies of late. There are increased demands of the HR function with a variety of complex new business challenges. As companies increasingly realise that issues such as talent management, attraction and retention are key to competitive edge, executives are demanding more of their HR departments –and many CEOs are willing to put their money where their mouths are.

HR investment on the up

In Human Resources magazine’s latest study of Australia’s top ASX-listed companies, the majority of these companies are spending up on HR, with 63 per cent of companies increasing their investment in the HR function.

Where companies did increase their investment in HR, it rose by an average of 30 per cent. Investment increased by up to 100 per cent for a couple of companies, while the lowest increase was 4 per cent. In our 2006 study, we found that 65 per cent of companies reported that financial investment in their HR function had increased.

Only 8 per cent of companies decreased their investment in the HR function this year, compared to 5 per cent last year. Where investment had decreased, it fell by an average of 9 per cent, with the lowest decrease coming in at 5 per cent and the highest at 20 per cent.

A further 5 per cent of companies reported that their investment in the HR function had remained the same. So overall, increases in investment in the HR function easily overshadowed small decreases.

Ansell is one company that has increased its investment in the HR function over the past year. Ansell’s Asia Pacific HR director, Jon Nolan, says the company has a global HR budget of about $7 million –up by about 15 per cent on the previous year. The company has increased its spend on HR for a variety of reasons. Ansell employs about 9000 employees in the Asia Pacific region, and it has created several new HR management positions in response to business demands. Because Ansell’s head of global manufacturing is based on Malaysia, for example, Nolan has created a regional HR manager position specifically for manufacturing in order to focus on the manufacturing plants that the company has in this region.

“We have very capable and competent HR management, particularly through this region,” Nolan says. “In Asia predominantly it’s an employee market, rather than an employer market. So you need to attract and retain the very best that you can, which we have done. There has been some turnover in the last two years, but not necessarily in a bad way. So we have worked hard to make sure that we have very competent HR professionals, both in terms of formal qualifications and work experience, who can assist us in this way.”

For example, Ansell is focusing on both short-and long-term incentive programs in executive remuneration, he says. “As you cascade down to the operational ranks, our wages, terms and conditions are superior comparably, and would be in the upper quartile wherever we are based globally.”

HR staffing levels

Companies are also paying more attention to the numbers and structure of HR staff within their departments. As business becomes more complex, the skills required of HR professionals are also becoming more sophisticated. There is a need in the market for both good generalist HR practitioners as well as those with cutting edge specialisations in areas such remuneration and industrial relations.

There was a significant difference in the ratio of HR practitioners to the remainder of the workforce in some companies. This usually depends on the structure of HR within the companies. We found that the average ratio of HR practitioners to employees was 1:128. The highest ratio was 1:500, while the lowest was 1:25. There was also some difference in ratios of HR practitioners to employees if a company’s HR operations were centralised (1:153), decentralised (1:183) or a hybrid model (1:93).

Colonial First State Property Management has a ratio of about 1 HR practitioner to every 65 employees, according to its manager of people services, Eileen Kershaw. This ratio has increased significantly recently, she says, with the ratio standing at about 1:100 around three years ago.

The company has undergone significant growth over these years, and HR was brought on board in a serious way to help with improving capabilities as the business grew, particularly with regards to talent analysis, internal communications and learning and development. “There was literally no learning and development in the early days. HR was very much an administrative function,” she says.

With Kershaw leading organisational development, Colonial First State Property Management has also appointed a number of HR specialists to assist with growth. “We’ve just appointed a remuneration and benefits manager, which is a key area of focus for us. Prior to that, we were just using payroll consultants. So we’ve brought a number of people into HR with those specialist skills,” she says.

Kershaw believes the current ratio of HR practitioners to other staff will probably stay static for a while. As the company has gone through some major changes recently, transitioning from a family business to more of a corporate structure, the current ratio is sufficient for business needs, she says. “It may increase a little in line with growth around our strategy, but I can’t see it increasing at the same rate that it did over the last little while.”

Kershaw estimates that the ratio of HR to other staff has increased by around 100 per cent over the growth period, as a result of input from both HR and management. “We have a managing director who’s very focused on the people side of things. We’re investing quite significant amounts into talent management for a business of our size. Our MD is quite focused on developing an entrepreneurial culture, so that is going to take a fair amount of work over the next 12 to 18 months,” she says.