Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy

Steven Director  
Total pages
December 2012
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Financial Analysis for HR Managers: Tools for Linking HR Strategy to Business Strategy
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HR managers are under intense pressure to become strategic business partners. Many, unfortunately, lack the technical skills in financial analysis to succeed in this role. Now, respected HR management educator Dr. Steven Director addresses this skill gap head-on. Writing from HR's viewpoint, Director covers everything mid-level and senior-level HR professionals need to know to formulate, model, and evaluate their HR initiatives from a financial and business perspective. Drawing on his unsurpassed expertise working with HR executives, he walks through each crucial financial issue associated with strategic talent management, including the quantifiable links between workforces and business value, the cost-benefit analysis of HR and strategic financial initiatives, and specific issues related to total rewards programs. Unlike finance books for non-financial managers, Financial Analysis for HR Managers focuses entirely on core HR issues, including:

  • How do you model HR's financial role in corporate strategic initiatives such as the introduction of a new product line?
  • How do you select bonus drivers to send the right signals to managers?
  • How do you design compensation packages that are fully consistent with your goals?
  • How do you identify and manage pension-finance costs and risks that can dramatically impact the long-term financial health of the business?


The only HR-specific guide to financial analysis: indispensable knowledge for every HR leader, manager, and practitioner.

  • Gives HR pros crucial financial information for maximizing ROI within HR and tying HR strategy to business strategy
  • Provides crucial knowledge for designing HR systems, building workforces, and aligning incentives behind business strategy
  • Helps HR pros intelligently assess the impact of pension finance on long-term corporate health

Table of Contents

Chapter 1: Business Strategy, Financial Strategy, and HR Strategy     1
Chapter 2: The Income Statement: Do We Care About More Than the Bottom Line?     9
Chapter 3: The Balance Sheet: If Your People Are Your Most Important Asset, Where Do They Show Up on the Balance Sheet?     23
Chapter 4: Cash Flows: Timing Is Everything     43
Chapter 5: Financial Statements as a Window into Business Strategy     49
Chapter 6: Stocks, Bonds, and the Weighted Average Cost of Capital     59
Chapter 7: Capital Budgeting and Discounted Cash Flow Analysis     71
Chapter 8: Financial Analysis of Human Resource Initiatives     97
Chapter 9: Financial Analysis of a Corporation’s Strategic Initiatives     127
Chapter 10: Equity-Based Compensation: Stock and Stock Options     153
Chapter 11: Financial Aspects of Pension and Retirement Programs     185
Chapter 12: Creating Value and Rewarding Value Creation     217
Bibliography     249
Endnotes     257
Index     263

Back Cover

“The touchstones of any business function are effectiveness and efficiency. For HR leaders, it is essential they have a clear grasp of how the various areas of HR--incentives, benefits, staffing, etc.--impact the financial and strategic objectives of the organization. Professor Director has provided an invaluable handbook to enable HR leaders at all levels to better understand and assess the contribution of human resource programs and practices to organizational success. Financial Analysis for HR Managers is a must-read for HR professionals.”
-- Charles G. Tharp, Ph.D., Chief Executive Officer, Center on Executive Compensation

“At last a finance book that speaks to human resource professionals! The author does a masterful job of providing the financial context for aligning HR strategy with business strategy and achieving the all-important goal of creating shareholder value. This book is not about finance for the HR function but rather about the business of the business and what HR professionals need to know to maximize their contribution. In a conversational style, we are introduced to key concepts through targeted examples and actual financial reports from publicly traded companies. This book takes you from the basics of reading an income statement to the more sophisticated use of Monte Carlo simulation techniques.”
-- Jill Kanin Lovers, Corporate Director, Heidrick & Struggles, Dot Foods, Inc., and HPF

T he Only HR-Specific Guide to Financial Analysis

Firms that want to optimize their performance need HR organizations capable of acting as true strategic business partners. Their HR leaders must be able to fully participate with executive and line management in the development and monitoring of business strategy. This means HR managers need strong skills in business and financial analysis: specific expertise they can use to tailor HR strategy to the business and financial strategy of the company and quantify the likely business impact of every significant decision they make. For today’s HR professional, no skill set is more important. This book will help you build and apply those skills.

Steven Director thoroughly demystifies financial analysis as it relates to the HR function, focusing on specific techniques you can use to maximize return on your workforce investment and ensure that your workforce can skillfully execute your company’s value-creation strategies. Step by step, Director guides you toward an intuitive understanding of each key financial measure and shows how to apply them with Microsoft Excel. You won’t need advanced math: Director teaches through straightforward examples and even presents the keystrokes you’ll need to use Excel’s built-in financial functions.

Use business analysis to answer questions such as the following:

  • Which HR-related approaches to value creation are most effective?
  • Can you align incentives with business strategy more successfully?
  • Where should you invest limited HR resources?
  • How much value will additional training really deliver?
  • What’s the optimal mix of overtime versus new hiring?
  • What are the business implications of equity pay and stock options?
  • How should you approach “pay for performance”?


Steven Director is a professor in the Rutgers University School of Management and Labor Relations. He has held a number of leadership positions at Rutgers, including serving as Associate Dean, as Chair of the Human Resource Management Department, and as Director of the PhD program in Industrial Relations and Human Resources. Prior to joining Rutgers he was an Employment Policy Fellow at the Brookings Institution and on the faculty of Michigan State University. He received his Ph.D. and MBA degrees from the Northwestern University Kellogg School of Management.

Dr. Director teaches courses in Labor Economics, Statistics, and Finance. His most frequent and preferred teaching assignment is a course in Financial Analysis for Human Resource Managers. In addition to his on-campus teaching, Dr. Director has taught Finance for HR to senior executives in the U.S., Europe, and Asia. Recognized for his ability to effectively communicate financial concepts to non-financial audiences, Dr. Director has also developed and delivered customized finance training for scientists, engineers, and physicians. His publications have appeared in numerous journals and edited volumes.

His research interests include the financial aspects of HR, compensation and benefits policy, and the interaction between national and corporate employment policy. In January, 2003 he developed and partnered with the Society of Human Resource Management to produce the monthly Leading Indicator of National Employment (LINE) Report. Dr. Director continues to serve as economic advisor to this project and SHRM has now published over 100 consecutive monthly LINE reports. This data series is followed closely by financial analysts and business economists.