Tag Archives: Finance

Accounting Lessons for HR Pros (Interview)

Today I have the pleasure of introducing my brother, Brandon, to the HR community. Brandon is an auditor for the federal government and has worked in the world of accounting for more than ten years. We’ve been talking about some of the needs that we have in the HR profession for being more number savvy, and that led to this interview. I hope you enjoy! If you have questions or want to know more about how HR can use accounting/finance principles to establish credibility and lead within the organization, just shoot me a note. Thanks!

brandon eubanksAccounting for HR – An Interview with Brandon Eubanks

Ben: Let’s establish that you’re a credible source (despite being my brother, which should disqualify you immediately). :-) So, tell me a bit about your background (degree, certification, work experience to date, etc.)

Brandon: I have a BS in Accounting from UAH as well as a Master’s of Accountancy from the University of Alabama in Huntsville. I currently have an active Alabama CPA license, and I also have an active Certified Fraud Examiner credential. I started my work in the accounting field at a small company just before I graduated with my undergraduate degree, and I landed a job at that same company upon completion of my degree. I worked at this company for a total of two years before I landed a job with my current employer (DCAA).

I became an auditor with the Defense Contract Audit Agency in 2005, and I performed in that job category for 5 years. I was promoted to an instructor at our agency training institute, and I served in that position for two years. Upon completion of those two years, I came back “to the field” as a supervisory auditor in Huntsville. In addition to my full time job as supervisory auditor, I also teach accounting courses on an adjunct basis for Athens State University.

Ben: It sounds like you’re in neck deep! But for some of the audience out there, imagining someone that enjoys accounting can be a bit “out there.” What drove you to choose accounting as your profession?

Brandon: I took an accounting course in high school, and I loved it! I actually started college going for a Mathematics major, but in the end, my true passion for accounting won out. When I changed my major from Mathematics to Accounting, I truly felt like I was where I belonged. Everything made so much sense to me in the accounting realm, and the majority of it came easy.

Ben: Okay, great. So let’s shift the perspective a bit. We’ve talked before about HR and what I do in some capacity, though I know it’s not your focus area specifically. What do you think HR pros need to know about accounting/finance to be successful in their role as a business leader?

Brandon: I think one of the most important things to understand regarding accounting/finance is budgeting. For most companies, the budget is king. Many hours are spent poring over the budget, and then many more hours are spent deciding how the company is doing compared to the budget. In my opinion, knowing what role the HR functions play in the budget would help HR pros to see the big picture. HR work is not completed in a vaccuum, even if it seems that way some times. Recruiting employees, changing benefits, and employee training all have a part in the company budget, and typically people can perform their jobs in a more precise way when they know how what they do fits into the company’s big picture.

Another important accounting/finance topic for HR pros is financial statements. If someone who isn’t in accounting/finance looks at a set of financial statements, other than noticing a profit or loss, he or she probably won’t know much about what those statements are portraying about the company. Is the company doing well financially? It takes more than a good year of income for a company to be thriving. Continuing from my earlier comments, knowing what role HR pros play in the company can help them to see what impact on the financial statements they are having.

Ben: Those are some excellent suggestions. But let’s say hypothetically that I come to you today and only have 30 minutes to learn some basics of accounting and/or finance to help me do my job better. What topics would you recommend to get the best return on my learning time?

Brandon: I would start with an income statement to help you get a picture of what decisions HR pros make and how they affect the company. Obviously, all decisions you make affect a company in some way (whether small or large), but really seeing numbers that relate to those decisions can help get a bigger idea of context. To me it all boils down to understanding where your role fits into the workings of the company, rather than simply focusing on the next task on your “to do” list.

Ben: I would completely agree. It’s easy to get bogged down and take the time to get a broader view of what’s going on. So let’s get philosophical. You’ve said a few times that HR needs to figure out how it fits into the organization. Why do you think human resources as a profession has a more difficult time of getting “attention” or “clout” in the organization when it seems like accounting/finance has it as a natural byproduct of the function it carries out?

Brandon: It is my perception that HR is seen as something necessary but only value-added some of the time. As a supervisor of five employees, I appreciate my HR specialists that I have to work with. However, I typically contact them only when I’m having trouble with an employee. It is my perception in these types of circumstances that HR is “holding back on the reins” while managers and supervisors are wanting to go full-speed ahead with disciplinary actions. So, in this way, HR is seen as necessary, but a roadblock overall in the process of an organization running more smoothly (in the eyes of the manager).

On the other hand, accounting/finance seemingly hold power over the entire company because the numbers they report can make or break a company. To me, that is why there is such disparity in the treatment of the two departments. One is seen as holding up the process, one is seen as completely necessary and somewhat powerful.

Ben: Thanks for your time! Any closing thoughts, wit, or wisdom to share?

Brandon: If I had any advice to HR pros, it would be to learn how you and your department fit into your company. Furthermore, if there is a way to educate employees (from the bottom to the top) on what HR does and can do for them, it could go a long way in battling that perception bias for managers and staff.

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I hope you enjoyed the interview with Brandon! You can find him on LinkedIn here. Let me know in the comments what you think of this interview.

What are your thoughts on the topic? What can we learn from our accounting/finance brethren? Is this an area of strength for you or an area of weakness? 

Money for Motivation: How Incentive Based Pay Works

monetary rewardsLast week I was talking with some folks about using compensation to drive employee behavior, and it occurred to me that I have never shared anything about that topic here. While I might not be the world’s foremost expert on the topic, I do have a few basic principles that I have relied on over time. The thing that I would like to note is that these apply to organizations of virtually any size. Even small companies (I’m looking at you, Mr/Ms HR Manager of a company with less than 250 employees) can incorporate these elements into their compensation planning without too much stress.

The other caveat I want to mention up front: money is not always a motivator for everyone. We want to instantly think that we can drive performance or discourage behaviors through monetary incentives. While that may be the case at times, it’s also worth noting that we humans are unpredictable creatures. That’s why motivation discussions are based on theory, not law. We have laws of physics. We have theories of motivation. Keep that in mind. If you implement something we talk about today and it doesn’t work, feel free to change it. It’s about finding what works for your organization and your people.

Everyone Needs a Variable Element

When it comes to compensation we have two basic elements: base pay and variable pay. Base pay is what someone earns as a condition of their employment. The fun comes when we start talking about variable pay, its elements, and how to use those pieces to really drive the behaviors we’re looking for in the workplace.

The most common area we see this in is for sales professionals. Base+Commission is the longstanding model, and it’s fairly easy to understand. What’s more difficult is figuring out how that sort of structure applies to other professionals, such as engineers, accountants, clerical staff, or even HR. How can you implement that?

A Few Types of Variable Pay

So, what types of variable pay might you commonly see? Here are a few:

  • Bonuses
  • Profit sharing
  • Deferred compensation
  • Group incentives

Each of these types can be combined and/or configured in a wide variety of ways to target specific jobs, types of workers, and even company culture. Test, measure, and revise as necessary.

How to Afford It

One of the first hurdles I always face when it comes to getting management on board with a compensation change is pretty obvious:

Can we afford it?

The good thing about incentive compensation that is tied to performance metrics like sales or profitability is yes, you can afford it. Here’s a good illustration for how that works.

Imagine that your friend has a lemonade stand valued at $5,000 that you want to purchase. You could go out and get a loan for $5,000 to buy it, but that increases your risk (what if you don’t have the cash flow to make the payments?) and jeopardizes the future operation of the business. The smarter, and less risky, way is to negotiate a purchase price that comes from periodic payments of net profits. If your net profit runs $1,000 per year, you’ll pay for the business over five years, but you are not at risk if there is a downturn in the market–it just takes longer for the final payoff. 

Variable compensation tied to business performance is the same thing. You are only on the hook for paying out when the business performance is good enough to cover the increased compensation costs.

This is identical to the fixed/variable cost discussion as it pertains to economics as well. Your fixed costs (base pay) will be there always. The variable costs/compensation will only be applicable if certain conditions are met. That, my friends, is how you afford it. You structure the incentives so that the growth in revenue/sales/profit/productivity/whatever-you-choose is enough to cover the cost of the incentive compensation.

This Hinges on Performance

If you haven’t already figured it out, this setup is going to require something that might not already be in place. We have to be able to properly measure performance for our staff in order to compensate them appropriately. If you’re not willing to measure performance and hold people accountable for it, then you might as well scrap this whole incentive compensation thing before you even start.

But if you are willing, then you need to try to find some objective metrics to tie into the jobs you’re trying to create incentives for. That’s a whole other discussion for another day, but in the initial planning and setup you’ll need to determine those performance objectives, because those are the basis for who earns variable compensation, how much they earn, when they earn it, etc. This is important, because you have to be offering incentives for the right thing.

It’s easy to focus on rewarding people for following the process instead of rewarding them for actually achieving the desired results. Be careful about that common trap.

Check out the free employee performance management guide for more on the whole performance topic, if you’re interested.

Shorten the Distance

There are two things that I have observed with incentive compensation that really help to drive results, and they have to do with control and reaction time.

If you can shorten the distance so employees have more control and a shorter reaction time, the rewards will be more meaningful.

Money Isn’t Everything

As I wrote about a while back, there are some great things that motivate people at work other than money. Sometimes it’s easier to assume money will work in all cases, but it’s often a more complex arrangement of details that ultimately drives people to do (or not do) things at work.

Do you currently use incentive based pay? How is it working for you? What types of positions do you use it for? 

401k savings plans are (not) for suckers

The other day my buddy Laurie posted about 401k plans being for “suckers.” After reading her comments and those of some of her audience, I felt led to respond. Here’s a snippet:

Some HR professionals are horrified by the way you manage your money, but I feel your pain. You can't squeeze blood out of a turnip. So I have a challenge for HR: Want your employees to invest in retirement? Pay them more so they can take care of the basics and then invest. Until then, 401ks are for suckers…
Full article

Stating the obvious

This revolutionary idea is going to astound everyone.

You can’t invest and save for the future when you’re buried in debt. 

It’s not just the millenials walking out of college with massive debt. The baby boomers are pushing back retirement because they have too many obligations to stop working. And unless they are total losers, they’re probably making more money than they were as entry level peons. Yet they are still in debt. Weird, huh?

Paying people more money isn’t going to solve the problem by itself.

Personal finance is *personal*

Here’s a crazy idea: Spend less than you make.

Yeah, but [insert excuse here].

I’ve been there. It’s hard. But it’s necessary. I haven’t lived the perfect life, but I have learned a few things via my own experiences and those I’ve observed in others (friends, family, employees, etc.).

My imperfect story

I have a great job. It wasn’t always this way. The day after I got married, I sent in my offer letter to start my first “real” job. I signed up for a whopping $9/hr data entry gig. It was torture. I hated it. And I knew that there was no way we would be able to survive and pay our bills.

So I studied, worked my tail off, and made myself more valuable to my employer. Then my wife got a job. We scrimped and saved. Looking back now I have no idea how we made it. It was very tight, and we didn’t live extravagantly. We didn’t have cable. We went without internet access. We cooked almost all of our meals. We carpooled to work. We really tried to keep things as tight as possible, because at that point we were living the paycheck-to-paycheck nightmare.

And, yet, I made sure to put money into my 401k at work.

Why? Because I took five minutes to pull up a financial calculator and run the numbers. As a 21 year old if I just put in $100 per month (which is a LOT for someone making $9/hr) from age 21 to age 60, I’d have over a million dollars in my retirement retirement fund. And that’s assuming I’m such a loser that I never make any more money than the $9/hr and that my company matches 0% of the contributions (the majority match around 4%).

But then I found another job (and took a pay cut voluntarily so I could get into HR). They didn’t match anything, so I didn’t put any money in. That’s also around the time that my wife and I were saving money like crazy for an adoption. We were determined not to go into debt, because one little misstep could lead us into a financial death spiral. At least if we were cash flowing the expenses we could bail if things didn’t go as expected.

How our employees do it

Recently I was putting together some data for a benchmarking tool, and it all related to our 401k plan, how employees utilize it, etc. I quickly noticed something. We basically match 6% if an employee puts in 7%, so there’s a big incentive to use it.

However, some of our staff have never even touched the 401k, despite the offer. For a hypothetical person making $100k (enough to cover the “basics,” I would say), that is an additional $6k that we’re ready to give them if only they would commit their own dollars to the account.

People get performance-based pay increases on a fairly regular cycle. 99% of the staff don’t touch their 401k contribution percentage at that time, even though they could put half of the increase into the account and never even notice it was gone.

This isn’t a scientific study, but I’d be willing to bet that it’s a fair approximation of the overall workforce. Some people make 401k contributions a priority, and others don’t. It’s a personal choice we all have to make for ourselves.

The only time to touch your 401k

With regard to the article that Laurie mentioned, there are times that families need to dip into the 401k for extreme emergencies. But the only time that is a truly “extreme” emergency is when you’re going to face foreclosure/bankruptcy and lose everything. That’s a personal choice, and the only comment I have here is to caution you to discern what is a true emergency (a child needs a medical procedure) from what is merely an urgent non-emergency (your car breaks down and needs $2,000 in repairs).

The thing to remember is that when you take money from your 401k, you’re losing up to 40% of it (depending on your tax bracket). The IRS charges you your tax rate plus a 10% penalty to get your hands on that money.

Ever since my children were born we’ve had a small emergency fund to help us in case a true emergency arises. When I had a car accident in 2011 and totaled my vehicle, we were able to shop around and find a suitable replacement without having to rush out and pick up a car payment. Again, I’m not the expert and don’t have all of the answers, but this is how we live and it has been a relief for us. The more of a buffer you build between you and “life,” the less chance of an emergency derailing your financial future.

Still learning

I’m not a 401k or financial expert. I can’t speak to every person’s unique situation. But I have learned a good bit about behaviors and personal finance in my lifetime. People make their choices about priorities and then need to live with them. Decide to put 0% into your 401k so you can get a new car with a $450/month payment (the US average)? That’s your call, but don’t look at me when you decide it’s time to retire.

In case you’re wondering, for a 40 year old, that 450/month payment would be worth about $450k by age 60. Hope you enjoy the car!

The workplace application

When I’m throwing out these examples or telling my own story, you need to see these not as disconnected, random events. These are very real examples, and many of your employees are living out financial train wrecks. 40% of the employees in your organization (statistically) are living paycheck to paycheck. They can’t afford to take time off, relax, de-stress, etc.

Stop and think for a second. If you were getting calls from creditors, facing financial issues, etc. at home, how productive do you think you’d be at work?

I’d love to hear some thoughts in the comments below. Am I the only one who thinks that employees need to get their personal finance affairs in order? Any comment that doesn’t contribute to the discussion in some way will not be published. Attacks and foul language are not allowed here. 

 

Employee Financial Wellness

employee financial stressIf employee financial wellness is not on your radar, it should be. The level of employee stress and the resulting business impact caused by this widespread issue can’t be ignored. Some studies indicate that up to 1/4 of your employee population is dealing with serious financial issues.

In fact, Financial Finesse\’s most recent research on the trends of employee financial issues indicated that nearly 21 percent of employees reported “high” or “overwhelming” levels of financial stress. With financial problems being cited as one of the leading causes of stress in America, today\’s workplace is greatly affected by employees who are experiencing financial problems.

The hidden victims

One issue that many don’t realize is that this affects people like our military pretty heavily. Having recurring or serious financial difficulties makes it more difficult for soldiers to maintain a security clearance (financial problems make you a target for foreign government intelligence). In fact, soldiers can be declared unfit for duty if they are unable to resolve the financial issues they have. Imagine losing your job due to a few poor financial mistakes, and you realize how serious this is.

What you can do about it Continue reading →

4 Ways HR Can Prepare for Business Growth

When you work for a smallish company, you need to be ready for growth. And I’m not talking the 2-3% increases over the course of time. I’m talking about the decisions that lead to explosive growth, seemingly overnight. Don’t be “that HR guy/gal” who finds out after the fact that big changes are coming. Have some forethought. Plan ahead. Develop a strategy. You’ll be looked at as a stronger partner within the organization, and it will mean less stress for you and your team when the inevitable changes do come.

We’ve ridden those waves before, and we’re now poised for yet another growth spurt. Here are four ways I’m preparing for this potential growth.

1) Automation

While we’re not big enough (yet) to be able to afford a lot of software/hardware upgrades, we do have ability to use things like SharePoint to organize and automate our processes and workflows. Saving time on a single new hire or employee action adds up over time. The key is for these actions to be able to scale, even if we double or triple in size.

2) Document SOPs

When you have a lull in the storm, that’s the best time to look back at how you were able to navigate the previous circumstances. Once you’ve identified those key actions that led to success, document those. While you’re at it, make sure the day-to-day activities you complete are documented as well. What happens to your work if you get hit by a bus?

3) Build a Pipeline

I plan to write more on proactive recruiting soon, but I had two instances recently where this came in handy and helped to avoid being stuck in a tight spot. The interesting part was that it was entirely by accident. We’d interviewed a few candidates several months ago and were ready to hire, but the position was closed due to customer requirements. I kept in touch with the candidates, and when the positions came available again, it was as simple as sending an offer letter since they’d been pre-screened and pre-qualified. It’s easy to talk about and not always easy to do, but just a few interviews over time can help uncover great candidates if you hire for the same types of positions often.

4) Cut Waste

Automation saves time, but financial waste is a drain on the company as well, and with even more work to be done, it will be that much more painful to continue the status quo. Consider talking with vendors, benefits brokers, and other service providers about what sort of rate negotiations you’ll be able to secure as a larger organization. Saving 3% on health insurance premiums may seem like a small amount, but don’t forget that the cost savings grow incrementally even as the business grows.

Those are a few of the ways we’re looking to prepare for the next tidal wave of activity on the HR/recruiting side. Anyone else have ideas they’d care to share?