Finance: What Every HR Professional Must Know

Yesterday, I had a great session on the above mentioned topic during the NHRD meeting in Chennai. The speaker, V Ramesh, Sr Vice President & CFO, Carborundum Universal explained the relevance of many finance concepts that should be understood and leveraged by HR professionals. One such concept that has fascinated me a lot is 'Time value of money'. It's incredibly important for an HR professional to recognize and understand such a concept especially when the HR team is fixing a VRS scheme for it's associate. Well!!! VRS scheme is just one of the many instances when a concept like 'time value of money' becomes very important.

He also mentioned the need to develop HR metrics in 4 essential areas[taking the example of Genpact]:

1. Growth
2. Retention[attrition by tenure,level,location,business; early attrition %,cost per hire etc]
3.Employee Engagement[Survey Response Rate etc]
4. People Cost

I particularly loved the Q&A session the most. An expected question on why there is a kind of loggerhead between HR & Finance was raised. I was quite convinced with the answer when Mr Ramesh said that HR should build the case in a better and logical manner. A classic example is that of a few revered companies that pay higher salary to their employees when compared to other companies in the industry. Well!!! one of the reason for this possibility is that the HR team in such organizations helps the associates to create greater value for the business, which allows the finance team to pay better salary to all it's associates. This basically means that Finance and HR have to take co-ownership for fixing the pay package of it's associates with equal interest.

One of the example of HR helping the associates creating greater value for business is by setting up lazor sharp KRAs for the associates.

Another interesting question raised was on what are the parameters considered in a variable pay????

One of the important point to be kept in mind in such a context is that the variable pay should be fixed not on a relatively permanent basis but on the basis of what the business wants to achieve in that financial year.