At an early growth company, it’s likely that a single employee has taken on all human resource management needs and handled them relatively informally. However, as companies approach and surpass 100 employees, that’s no longer sufficient.
“[In particular], organizations with employee bases of 150+ start to experience communications and productivity challenges as they grow,” said Lars Hyland, chief learning officer of Totara. It becomes “all the more important to ensure the organizational structure and management processes are flexible and adaptable.”
The HR function needs to be running at peak efficiency to bolster scaling efforts. Here, we’ll outline best practices for HR as firms surpass 100 employees, handle this stage of growth and prepare for the stages to come.
For this article, we spoke with:
Lars Hyland, chief learning officer at Totara
Patricia Karam, founder of Mission Recruit
James Rice, Head of SEO at Picked
How Much Should I Be Spending on HR?
The question of how much to spend on human capital management is a tricky one. Not only can the answer vary considerably based on industry, number of employees and nature of the role, but it also is highly dependent on leadership’s attitude. Do execs place a lot of emphasis on talent management, training and continued development?
Despite the disparities, efforts have been made to benchmark HR costs. In a 2016 survey from the Society for Human Resource Management (SHRM), respondents reported their HR-expense-to-operating-expense ratio. The 25th percentile of respondents cited a ratio of 0.6%; the median was 2%; the 75th percentile was 17.8%; and the average came out to 15%. In the same vein, professional services firm Alvarez and Marsal estimate that HR costs generally comprise 4-5% of total SG&A costs.
Using a different metric, SHRM surveyed over 3,000 HR professionals and found the average HR expense per full-time employee for all organizations was $2,986. As organizations grow in staff size, the total costs of the HR function increase, but the HR dollars spent per employee decrease. Median HR expenses for small, medium and large organizations were $306,044, $840,015 and $3,393,775, respectively. Small organizations had significantly higher ratios, though, (at $3,592 per full-time employee) than medium organizations (at $1,897) and large organizations (at $1,427).
The theory of Dunbar’s number (opens in new tab) could be part of the reason companies struggle with employee relations when they hit 100-150 employees. According to the theory from Oxford Anthropologist Robin Dunbar, “when an organization reaches about 150 people, the communication and coordination demand outstrips what the human mind can handle.”
“It’s one of the magic numbers in group sizes,” Facebook Chief Product Officer Chris Cox said at the 2016 Aspen Ideas Festival. “I’ve talked to so many startup CEOs [who say] that after they pass this number, weird stuff starts to happen. The weird stuff means the company needs more structure for communications and decision-making.”
Suddenly, the smooth-running company faces inefficiencies, dissatisfied employees and heightened tensions as it comes to terms with the fact that what worked before isn’t going to work now.
One founder described the phenomenon in remarkably quantitative terms. Using a Net Promoter Score survey, the founder’s organization asked, “On a scale of 1 to 10, how likely are you to refer [our company] as an employer to a friend?” When the company had under 100 employees (opens in new tab), results were largely positive, with much of the feedback praising the management team’s communications practices. Yet, one year and 50 employees later, dissatisfaction was predominant. Employees called for a big overhaul to internal communications considering the company’s massive growth. Further criticism called the organization “a mid-sized company acting like a startup.”
“I call it the stand-on-a-chair number,” Patty McCord, author of leadership book “Powerful” and former chief talent officer at Netflix, told Quartz. “Once a startup leader (opens in new tab) gets up on a chair to address the staff and someone yells out, ‘We can’t hear you,’ it’s time to start rethinking how you’re communicating.”
At that point, internal communications can’t be ad hoc, particularly as it relates to HR matters. Instead, you’ll need a structured program covering topics like HR policies, training and development opportunities, open enrollment deadlines, benefits, culture and company goals. Communications should go out frequently and consistently in various modes like email, meetings and instant messaging. For bonus points, analyze the platforms on which HR messaging is currently delivered to determine which reaches your audience best.
Companies with fewer than 100 employees tend to use a flat management structure with limited hierarchical levels and few ways to delegate decisions. They need to prepare for their dynamics and organizational structure to change.
“Keeping things below 150 means you can manage the system by peer pressure, whereas above 150 you need some kind of top-down, discipline-based management system,” said Dunbar in a 1992 study.
As companies grow to midsize, employees crave more feedback, advancement opportunities and a clearer career path than a flat management structure can provide. Additionally, decisions are often stalled when delegation practices are not clear. Both factors necessitate the transition to a more top-down organizational management structure with clear levels of leadership, responsibility and authority to allow the organization to continue to scale.
Instituting a more “pyramid-shaped” organizational structure is a complex task. For instance, will you choose a functional, divisional or matrix structure? Will it be organized by function, region, product line or a different component? Ultimately, it boils down to finding the most efficient workflow for your organization through the six basic elements of organizational structure (opens in new tab): departmentalization, chain of command, span of control, centralization and decentralization, work specialization and the degree of formalization. Taking into account each element while building out the organizational chart will produce a structure that more clearly shows job responsibilities, delegation processes, decision-making authority, and information flows.
Once the number of staff exceeds a certain point, the group is arguably too large to be the single, cohesive, culture-reinforcing unit it once was. One founder, Bill Gore of the waterproof textile brand GORE-TEX, felt so strongly about the cultural ceiling of 150 employees that he’d create a new plant every time the number of workers at one exceeded that threshold.
“We found again and again that things get clumsy at 150,” he told an interviewer, arguing that the sense of connection when “everyone knows everyone” reduces the need for a hierarchy and increases individual commitment to the group’s goals.
Now, that ideology may be too extreme for most businesses to embrace. McCord recommends instead that leaders “be able to articulate on a pretty regular basis where we’re going, what we’re doing, what we’re not doing.” Write about what the culture is in an employee handbook (opens in new tab) and/or a dedicated culture deck (opens in new tab), and ensure leaders are exemplifying it with every interaction, meeting and email. Highlight the top priorities and values for the company on a frequent basis, across mediums, like the co-founders of Warby Parker (opens in new tab) in their weekly all hands meetings, briefing videos and newsletters.
For instance, if your company emphasizes transparency as a key part of the culture, ensure that leaders communicate clearly and frequently about any upcoming changes. Or if work-life balance is a major factor in a company's ethos, avoid sending emails after hours. One example that definitely gets the message across? Patagonia, who strongly promotes work-life balance with their infamous “Let the people surf” mantra, locks their headquarters, at 8 p.m., and on weekends. In turn, recognize and reward employees publicly that are embodying company values. Encourage employee feedback and two-way communication. This will help employees shift the focus of company culture from single tribes of coworkers to the company’s overall mission — which will likely beget more focus on the customers you serve.
Organizations can also play around with office design to group employees with others they work with and experiment with fluid seating and flex spaces allowing colleagues to work in optimized clusters. These arrangements can reap some benefits of the “150 rule” without having to, you know, build a new office. If your teams work virtually, consider setting up smaller groups on collaboration platforms based on function.
When companies break the 100 employee threshold, they are subject to new legal requirements. The most notable change is that all private sector businesses with more than 100 employees, under federal law, must submit the Employer Information Report EEO-1 (opens in new tab). As a part of their annual Equal Employement Opportunity Commision (EEOC) compliance report, employers must provide demographic workforce data, including data by race/ethnicity, sex and job categories. It’s a time-consuming process prone to mistakes, so it is best to be proactive in compiling the information:
However, as you’ve likely learned already, labor laws and regulations change frequently on local, state and federal levels as the EEOC looks for equal employment compliance. As your company grows, consider contracting with an outside entity like a local employment law legal firm to review and update policies.
Tip: The Society for Human Resource Management, or SHRM, provides legislative updates on its site and through a newsletter.
The importance of diversity and its benefits for business have been touted for several years. However, two things have changed recently: First, the Gen Z workforce is incoming, and it’s more racially and ethnically diverse than any previous generation. Second, the level of diversity’s import to job seekers has increased significantly.
In a Glassdoor survey from late 2020, 76% of employees and job seekers said a diverse workforce was important when evaluating companies and job offers. Meanwhile, the National Association of Colleges and Employers (NACE) asks new graduates to rank the importance of a diverse workforce every year. In 2008, diversity ranked 12 out of 15 options. By spring 2020, it had risen to 7 out of 19, with 79% of respondents calling it “very important.”
Empirically speaking, diversity has proven critical to both attracting and retaining talent, as well as valuable for the experiences and perspectives it brings to a company. However, unconscious bias in the talent search can preclude a diverse workforce. To avoid unintentionally deterring great candidates, James Rice, head of SEO at Picked, a talent acquisition software tool, suggested several tools:
At the 100-employee mark, one of the tough balances to find is managing people but not to the point of excess.
“The best way to frustrate a talented employee is to over-manage,” said Patricia Karam, founder of the HR recruiting company Mission Recruit. “[However], it’s equally important to ensure that people are held accountable.”
Hyland described it by referencing Dan Pink’s well-known book “Drive,” which “highlights that we all require a work environment that values our ability to develop our skills, which is called ‘mastery.’ It offers the psychological safety to engage in our work openly and honestly, referred to as ‘autonomy.’ And it operates with a mission and set of goals that we can get behind, which is ‘purpose.’ To achieve this [environment, we] need a reset of both how HR and management support their people.”
For management to create that type of environment, it means:
Starting in the candidate stage, set realistic and clear expectations about the position, its responsibilities and requirements, and advancement opportunities. Ensure that the HR department is conveying them in a thorough and detailed job description and transparent interview. You may think you’re already doing so — but, in a Glassdor survey, 61% of employees said they’ve found aspects of a new job — like the hours expected to work, company culture and job responsibilities — different than they were portrayed in interviews. Mismatched expectations and confusion about the role will likely result in high turnover — frustrating trends for all parties involved.
Especially when a business is scaling and new processes are being put into place, the company’s leadership may feel inclined to have a hand in every aspect of employee experience and performance. This can manifest in personnel with micromanagers who won’t let people work autonomously or in processes that encourage overmanagement — like requiring documented project evaluations on a weekly basis. A more concentrated approach, though, can provide benefits in terms of employee autonomy and everyone’s time. When an employee has autonomy, they feel accountable and invested in the results. Overmanagement can also stifle creativity and risk-taking, which are particularly high-value traits at 100-person companies looking to scale.
Useful steps to promote a company culture of autonomy include instituting work policies that avoid overmanagement processes, implementing onboarding that effectively conveys company culture and expectations, providing training that helps develop high-performance work teams, deploying frequent employee engagement surveys and feedback tools, setting up a strong HR communications program, and keeping lines of communications open to improve the employee-employer relationship.
Empower managers to help employees find their “productive zone.” Rigid requirements around work output, hours and location can deter potential talent and sap current employees’ overall productivity. Especially when the organization is growing from 100 employees, work policies must improve productivity. Failure to do so can stall growth, profitability or both.
As a company’s layout becomes more hierarchical in preparation for growth past $10M, performance management needs to become more structured — but not a time-consuming, tedious corporate exercise:
Implement performance appraisal training for managers to keep the process smooth and consistent. In addition to core performance management topics, topics to cover include: communicating the big picture, diagnosing and addressing performance issues, giving feedback, and coaching.
Don’t wait until the end of the year to give feedback. Younger generations in particular tend to prefer continuous, informal feedback as opposed to the structured, infrequent, formal reviews of the past. HR should set standards for frequency of informal check-ins, which allow employees to self-correct and avoid surprises.
Install practices for documenting formal and informal feedback. Managers don’t need to write massive narratives after each check-in, but notes on how employees responded to feedback, learning opportunities and constructive criticism is helpful in appraising overall performance.
Don’t overcomplicate. When feedback and its respective documentation are provided continuously, you can usually change up the formal review process. Many formal frameworks — like numerical ratings on a large number of competencies, SMART goals (opens in new tab) and cascading goals (opens in new tab) — are often seen as administrative and time-consuming. Confirm that using them would truly produce your desired results. If not, avoid them.
More HR Resources
What IS Productivity?
The term gets thrown around a lot, but make no mistake: Productivity plays a major role in your company’s profitability and competitiveness. Discover ways to measure productivity, then use that data to make your workforces more productive.
NetSuite’s human capital management (HCM) software
NetSuite’s HCM tool, SuitePeople, has all the features HR professionals and managers need, plus it lets employees interact with their HR information. In addition to payroll, employee information, compensation and new hires, businesses can use interactive performance management workbooks provided by the SuiteAnalytics tool to lend visibility into employee performance.
Are Your HR and Payroll Systems Stifling Growth? (opens in new tab)
Watch an on-demand demo of NetSuite’s HR tool (opens in new tab), which offers real-time people analytics alongside financial analytics, automatically reconciles payroll data with your accounting data, boosts teams’ engagement and more.
According to data from Statista, Gen Z already made up about 20% of the U.S. population in 2019 with an estimated 61.17M persons making up the generational group. As members of Gen Z continue to enter and reshape the workforce, take their work preferences into account in order to attract, retain and bolster talent.
Gen Z is markedly different from generations past in many areas, with its desire for fast-paced work, a flexible work environment and training in soft skills. If companies want to remain competitive in the talent arena, these areas of flux warrant attention.
The rule-of-thumb ratio is 1.4 full-time HR staff per 100 employees, according to Bloomberg BNA’s HR Department Benchmarks and Analysis report. This ratio is at an all-time high primarily attributable to unprecedented workforce growth, as well as the role becoming more strategic and involved in the goals of the business. As a business nears and exceeds 100 employees, it needs to consider adding more HR professionals to reflect that.
In 2021, upping your HR game means upping your technology game. In order to scale, implement human capital management (HCM) software, or ensure your current tool meets your changing needs — no more tracking payroll in a spreadsheet. A system that can store employee information, track promotions and compensation changes, monitor upcoming vacation schedules, and host performance management processes makes the employee experience smoother, prevents errors and frees up HR’s time.
Leadership development is often touted as critical within an organization — but its emphasis is far from evenly distributed. Development efforts are often focused on the executive leadership team. However, it’s important to develop managers and other front-line leaders who have more exposure to the day-to-day operations and represent the next generation of executives, Marci Paino, global learning & talent development executive at Western Digital, said in a recent webinar via the Brandon Hall Group (opens in new tab).
Paino detailed the leadership development program at Western Digital, which includes tiers for first-level leaders, leaders of first-level leaders and executives. In their programming, the first tier is the most intensive, and executives are expected to master the earlier tiers’ material before training at the executive level.
Developing leaders at all levels doesn’t necessarily have to manifest in a full-fledged leadership program at your business. Start small by giving those not in leadership roles the opportunity to lead a project, and see how they do. Reward success with new opportunities to lead.
As your business passes the 100-employee mark — and marches on toward $50 million in annual revenue — your approach to HR needs to change. Use the strategies above to fuel your organization’s trek to the next level, people-first.