Labor is probably your number one CONTROLLABLE cost. Talented employees are also a scarce resource. How is it that financial capital is plentiful but carefully managed, and great employees are scarce and poorly managed? The answer lies in the relationship between your CHRO and your CFO.

1. Employee Performance Management - What Your CFO
Needs to Know About Culture Before Investing
John Frehse Shelley Trout
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2. Reflektive is committed to employee success—for your employees and
ours! We believe that every employee deserves a great manager, a
clear career path, and ample opportunities for development and
professional growth. Since day one, we’ve been passionate about
helping every employee reach their fullest potential. Our talented and
creative team started with an intuitive continuous feedback tool, which
is now the basis of our robust performance management solution.

3. 3
Click on the Questions panel to
interact with the presenters
www.humanresourcestoday.com/webinar-series/performance-management-masterclass/
www.recruitingbrief.com/webinar-series/performance-management-masterclass/

4. About John Frehse
John Frehse is a Senior Managing Director at Ankura, based in the New York office. He has more than 20 years of
experience focused on labor and operations strategy.
John has developed and implemented strategies for more than 100 companies, and he delivers to corporate leaders
innovative labor solutions that incorporate solutions to employee needs. His work has spanned a wide range of
industries, including food and beverage, automotive, chemical, electronics, pharmaceuticals, power, call centers,
banking/insurance, distribution, telecommunications, mining, government and healthcare.
John’s professional philosophy is that people are the most valuable resource of every company. His experience has
proven that in order to create long-term success, a thoughtful and methodical approach to labor must be created.
About Shelley Trout
Shelley went to UC Berkeley and majored in Anthropology & Archaeology. After working at the Center of
Digital Archaeology, she became fascinated with digital representations of personality and culture, and now
leads Webinar Production at Aggregage, providing some of the most interesting thought-leaders across a
wide variety of industries with a space to celebrate the diversity, depth, and experience of their professional
cultures, personalities, and passions.

5. 5
Negative Engagement,
Performance Management,
and the CFO?

6. 6
I Am The Smartest
Pursen Hear!

7. 7
(Only my mother thinks I am brilliant!!)
I Am The Smartest
Person Here!

8. 8
“We believe employees are every
organization’s most valuable resources.”
REALLY?

9. 9
Values ≠ Value

10. 10
CHROCFO
Small Fissure or Giant Chasm??
Finance Human Resources

11. 11
Different Mindsets & Points-of-View
CHROCFO
Strategic partner to CEO Champion of employees
Every employee a cost Every employee is valuable
Compliance & reporting Compliance & reporting
Deal maker Organization builder
Financial gatekeeper Steward of culture
Drive shareholder value Promote continuity & cohesion
Quantitative (& qualitative) Qualitative (& quantitative)

12. 12
46%
71%
63%
0% 20% 40% 60% 80%
We have implemented an
enterprise-wide employee
engagement strategy.
Employee engagement metrics
lack financial credibility.
Measuring employee
engagement is not a priority.
Organizational Performance Survey of CFOs
2016 Industry Agnostic Survey; n = 237; March 2016
Why Employee Engagement Measures
May Be Necessary But Insufficient
“I intuitively believe in improving
employee commitment and
engagement – what could be the
counter-argument? But, the level
of employee engagement we
have here is not a business
outcome our investors care about.
The antecedents and
consequences of employee
engagement remain unclear.
Third-party correlation analysis is
insufficient for us. Until we can
map (employee) engagement into
our short- and longer-term
financials, we view investments in
employee engagement programs
as second- or third-tier
allocations.”
− CFO, Public Industrial
Services Company

13. 13
New Times…
Financial capital is abundant but carefully managed; human
capital is scarce but not carefully managed.
Why?
In part, it’s because equity markets have historically measured and rewarded good
management of financial capital. CEOs were held in high regard for their clever
management and allocation of financial capital.
But today’s best CEOs are equally great at managing financial, physical and talent capital.
This will accelerate as the GAAP Gap continues to widen.

14. 14
14
How value is created
in the contemporary
economy
During the past 4 decades, there
has been a steady decline in
market value attributable to
tangible assets (on balance
sheet), while there’s been a
steady increase in market value
attributable to intangible assets
(off balance sheet).
83%
68%
32%
20%
16%
17% 32% 68% 80% 84%
0%
20%
40%
60%
80%
100%
1975 1985 1995 2005 2015
Components of S&P 500 Market Value
Tangible Assets Intangible Assets
TODAY
*Generally Accepted Accounting Principles
This we refer to as
the GAAP* Gap

15. 15
Measuring and Tracking Human Equity Value™
GAAP Financial
Statement
Human Equity Value™
Statement
Description
Income
Statement
Human Equity Impact Statement
A supplement to the Income
Statement, measures the impact of
the workforce on financial
performance period-over-period.
Balance
Sheet
Human Equity Asset Statement
Quantifies the total value of the
workforce at a given point in time,
much like a Balance Sheet.
Statement
of Cash
Flows
Human Equity Flow Statement
Tracks the flow of workforce
deployment and usage over time,
much like a Cash Flow Statement.
The 3 Human Equity Value™ Statements are analogous to and supplement the 3 GAAP
financial statements. Together, they are “auditable,” predictive and prescriptive.

16. 16
Human Equity Valuation
Impact Statement Key Metric Comparables
Source: Ankura as of 5/1/2018. Industry averaged consists of 12 comparable companies Ω.
ß Total Employees
* Total Workforce Investment
Zimmer Biomet Industry Sample
Ω Source of comparable companies: Capital IQ
Includes: Abbot Laboratories; Baxter International, Inc.; Becton, Dickinson and Co.; Boston
Scientific Corp.; Edwards Lifesciences Corp.; Globus Medical, Inc.; Hologic, Inc.; Intuitive Surgical,
Inc.; Medtronic plc; NuVasive, Inc.; Stryker Corp.; Zimmer Biomet Holdings, Inc.
Revenue per
Employeeß
TWI* as % of
Revenue
Market Cap
Value per EE
Human Equity
ROI Value
Return on
Human Equity
Investment
Total
Workforce
Productivity
Impact ($mil)
2012-2017
TWPI CAGR%
Sample
Best
$704,073 15.3% $9,201,336 2.85 220% $11,043 17%
Sample
Average
$377,285 17.8% $2,114,946 1.88 166% $3,220 6%
Sample
Worst
$224,702 22.9% $749,318 0.71 113% $282 -15%
ZBH $429,896 16.5% $1,342,441 1.62 220% $2,102 3%

17. 17
HUMAN EQUITY IMPACT STATEMENT
REVENUE 2015 2016 2017 VARIANCE % CHANGE 12-17 CAGR
Total Operating Revenue $5,998 $7,684 $7,824 $140 2% 12%
Total Workforce Headcount (# Employees) 17,500 18,500 18,200 (300) -2% 14%
Exmployee Productivity Rate (Revenue per EE) $342,731 $415,346 $429,896 $14,550 4% -2%
COSTS
Total Expenses $5,531 $6,858 $7,016 $158 2% 15%
Total Operating Expenses $2,284 $2,933 $2,974 $41 1% 10%
PROFIT
EBITDA $2,337 $2,800 $2,842 $41 1% 11%
Net Income $147 $306 $1,814 $1,508 493% 19%
Profit per EE $8,400 $16,535 $99,659 $83,124 503% 4%
CASH AND CAPITALIZATION
Cash Flows from Operations $850 $1,632 $1,582 -$50 -3% 7%
Investment in Capital Expenditures $434 $530 $493 -$37 -7% 13%
Free Cash Flow $416 $1,102 $1,089 -$13 -1% 4%
Total Equity $9,889 $9,670 $11,736 $2,066 21% 15%
Equity per EE $565,109 $522,697 $644,808 $122,110 23% 0%
Outstanding Shares 198,834,320 200,600,000 203,146,930 2,546,930 1% 4%
Total Market Capitalization $20,906 $20,671 $24,432 $3,762 18% 16%
Market Cap Value per EE $1,194,617 $1,117,347 $1,342,441 $225,094 20% 2%
HUMAN EQUITY PRODUCTIVITY
Total Workforce Investment (TWI) $1,315 $1,552 $1,294 -$258 -17% 11%
TWI Percent of Revenue 22% 20% 17% -4% -18% -1%
TWI Percent of Total Expenses 24% 23% 18% -4% -18% -4%
TWI Percent of Operating Expenses 58% 53% 44% -9% -18% 0%
Human Equity ROI Ratio 1.36 1.53 1.62 0.09 6% -7%
Return on Human Equity Investment 177.7% 180.4% 219.6% 39% 22% 0%
TOTAL WORKFORCE PRODUCTIVITY IMPACT $1,782 $2,378 $2,102 -$275 -12% 3%
Revenue up
significantly
Headcount growth
outpacing revenue
growth
Profit per FT up
markedly
Market Cap Value
per FT up
substantially
Total Workforce
Investment
inconsistent over
time
Human Equity ROI
& Return on Human
Equity Investment
trending down over
time
YOY decline in Total
Workforce
Productivity Impact
Carry forward to Human
Equity Asset Statement

18. 18
13.0%
46.8%
25.2%
13.0%
2.2%
23.8%
41.3%
23.3%
9.0%
2.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Excellent
place to work
Better than
most
About the
same
Somewhat
worse
Worst
company in
the area
Client Normative Database
Survey Says! Compared to Other Companies…

19. 19

20. 20
I worked at Indeed.com full-time (Less than a year)
Pros
Benefits, catered lunches, nice building
Cons
I would have gladly traded every free lunch, every free snack, and
every day of unlimited PTO for a genial, approachable team leader
as opposed to the nongenial, wholly unsupportive,
unapproachable, abrasive, snarky boss I had. This jerk could have
written, produced, directed, and starred in Horrible Bosses 1 and 2
(and any other sequels). I understand she is no longer with the
company. Good. I'm sure the office is more pleasant now. Too bad
that she didn't leave before I got there.

21. 21

22. 22
Cultural Dissonance:
Source of Engagement +/-
n = 550 Organizational Units

23. 23
What is the purpose
of Analytics?
• To provide access to relevant information in a useful format
The Bold Assumption That People Matter.

24. 24
Google AssistantTHIS IS THE ENTIRE
GOOGLE BUSINESS
MODEL

25. 25
The Google Mission Statement:
Provide access to information in a useful format
Terrible!
Do you really want your employees to have this information?
Let’s take a quiz!
What is the starting salary of a software engineer at Google?
$113,128!
What is the starting wage of your hourly employees?

26. 26
How do I know the google salaries?
I GOOGLED IT!

27. 27
Google is changing employee expectations

28. 28
The simple truth
We believe employees are your most valuable resource.
By providing them with access to information in a useful format, you
can help employees make better decisions faster.
Performance Management!!

29. 29
Can your team get the answers to these questions?
29
Who is my best supervisor?
Who are my best employees?
Do I have a negative labor variance?
What are my FMLA trends?
What are my overtime trends?

30. 30
Excel Is For Old People

31. 31
Do These Look Familiar

32. 32
How about this?

33. 33
Source: Kronos Analytics product
The
management
team is staffing
higher on
Fridays in
anticipation of
absenteeism.

34. 34
Source: Kronos Analytics product
Time off on Friday is
bout the same as other
days. The plant is not
experiencing a typical
bathtub curve evident
in many facilities.

35. 35
• Serious idle time problem
• Isolated Friday overstaffing
issues - costing $1,100,000
annually in idle time costs
• Employee morale on Fridays is
down because employees have
less chance to feel valued and
achieve goals
• Plug-In gave management
visibility into labor statistics in a
timely manner to make more
informed decisions
• Reduced Friday overstaffing
• Gave employees the right ratio
of work to employee allocated
hours
• Although some idle time
remained due to variable
demand, the management team
was able to reduce idle time by
$924,000 annually
• An 84% reduction
• Employees noted, “The days
went by faster”
SEE IT IN ACTION
Shifting Your Labor Strategies
Diagnosis Solution Results

36. 36
Improving the results of your intelligence: IQ + EQ
Curious and engaged
Able to ask the right questions: understand your business
Discipline to follow the Scientific Method
Ability to use statistics and tools to explore the data
Intelligence to spot patterns and outliers with limited information
People Competencies:
No one person can do it all!

37. 37
Problem solving with single data sets
37
People steal toiletries from hotels
In the 1st year, they reduced their toiletries cost by 31%
1 dimensional thinking:
Wall mounted dispensers – guests only take what they
need. Smaller bottles – if they steal, the loss will be smaller.
A famous golf resort took a different approach:
Valet said, “Bigger bottles”
They knew business travelers visiting their hotel primarily
brought golf clubs and 22 inch carry on luggage and TSA
does not allow liquids or gels over 3 oz.

38. 38
Because companies don’t understand how
to invest in human capital, they make bad
decisions and drive poor results.

39. 39

40. 40
In God we trust. Everyone else bring data. ~ Chief Financial Officer

41. 41
HR has a seat at the table, but…
…often doesn’t have enough to say.

42. 42
“The head of HR at every
company should be at least
as important as the CFO.”
− Jack Welch

43. 43
Payroll Burden
Straight
Time
Overtime
Double
Time
Health/Other 21.20%
Retirement
Contribution
7.36% 7.36% 7.36%
Social Security 6.20% 6.20% 6.20%
Unemployment 1.10%
401K 4.85% 4.85% 4.85%
Life/LTD 1.59%
Medicare 1.45% 1.45% 1.45%
Total 43.75% 19.86% 19.86%

44. 44
Payroll Ratio
Hours Worked Hours Paid
Scheduled Hours 2,080 Hours Worked: 1,702.4
Less: Plus:
Vacation 144.0 Vacation 144.0
Holiday 127.5 Holiday 127.5
Sick 44.1 Sick 44.1
FMLA 53.0 FMLA 53.0
Mat/Pat 5.1 Mat/Pat 5.1
Work Injury 2.0 Work Injury 2.0
Personal-Unpaid 1.8 Personal-Unpaid 0.0
Unexcused-Unpaid 0.1 Unexcused-Unpaid 0.0
Total Hours Worked 1,702.4 Total Hours Paid 2,078.2
2,078.2 (Total Hours Paid) / 1,702.4 (Total Hours Worked)
Hours Paid to Hours Worked Ratio = 1.221

45. 45
Base Wage*:
Straight Time Burden:
Pay Ratio:
Calculations:
Straight Time:
True Labor Cost:
=
Overtime: x 1.5000
Adverse Cost of Idle Time:
Adverse True Labor Cost:
Adverse Cost of Overtime:
Overtime Burden: Double Time Burden:
Double Time: x 2.0000
Adverse Cost of Double Time:
Adverse Cost of Straight Time: $0.00
$31.16
$31.16
$31.16
$31.16
43.75%
x 1.4375
19.86% 19.86%
x 1.1986
x 1.1986
1.22
x 1.221 $54.67
$56.01=
$54.67
$54.67$56.01
$54.67$74.69
-
-
= $1.34
= $20.02
$74.69=
Idle Time is 40.69 Times More Expensive Than Overtime
True Labor Cost

46. 46
• STAFFING PARABOLA PACKING ONLY
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
5
9
13
17
21
25
29
33
37
41
45
49
53
57
61
65
69
73
77
81
85
89
93
97
101
105
109
113
117
121
125
129
133
137
141
145
149
152
156
160
164
AnnualLaborCost
Core Prac ce Staffing Parabola
Idle Time Double Time Over me
Current: 133
Recommended: 105
Low Cost: 81
Average Week: 40.54 Hours
Minimum Week: 10.33 Hours
Maximum: 49.47 Hours

47. 47
The Tale of Two Companies….
Company A Company B
Fully Loaded Cost of Straight Time: $54.67 $17.22
Compared to other Companies Pay/Benefits Are Good: 93.0% 77.8%
Management Really Cares About Employees: 15.9% 98.5%
I Feel Like I Am Part of the Company: 53.2% 90.8%
The Management Team Focuses More On Office Workers: 78.2% 21.2%
The Management Team Communicates Will With the Employees: 35.6% 69.2%

48. 48
Did You Know There Is
More Than One
Currency?
1. Cash
2. Fringe Benefits
3. Time Off
4. The chance to make a positive impact
5. Investments in training
6. Visibility
7. Structured mentoring
8. Flexibility
9. Public recognition for performance
10.Leadership enabled success
11.Merit based promotions
12.Etc…………….

49. 49
Let’s Look at the True Cost of Absenteeism:
OT Fill-In: 400 ee * 3% unplanned absence * $1.34 * 2080 hours/year
= $33,446
Person Absent: 400 ee * 3% unplanned absence * $18.00 in benefits *
2080 hours/year = $449,280
Total Cost: $482,726

50. 50
Human Equity Valuation™ & Reporting is Inevitable

51. 51
But If You Do Want To Change…..
Homework:
(for which I have no authority to assign!)
1. Take Inventory of Leveraged Currencies
2. Do True Labor Cost Calculation
3. Start With Simple: Cost Out Absenteeism

52. 52
Q&A
Senior Managing Director, Ankura
Linkedin page: johnfrehse/
Twitter ID: @ScheduleDoctor
Website: www.ankura.com/
John Frehse
With:
Managing Editor, Aggregage
Linkedin page: shelleytrout/
Twitter ID: @hrposts/ @recruitingbrief
Website: http://www.aggregage.com
Shelley Trout
Moderator:
www.humanresourcestoday.com/webinar-series/performance-management-masterclass/
www.recruitingbrief.com/webinar-series/performance-management-masterclass/