I am always shocked when I hear about the horror stories that come out of HR departments. They often involve recounts of rudeness, unprofessionalism, thoughtlessness and a plain old lack of regard for fellow man. However, this is the group in an organization, mind you, that above all is supposed to be about the people. But in my career after working both sides of "the line," I have found this only to be partially true. Having worked in sales, training, recruiting and now running my own business, I've come to believe that HR departments are not functioning optimally because of the way they tend to be structured.
Usually "HR" refers to things like benefits, payroll, hiring, firing, training, reviews and compensation. I think that we missed an opportunity to better organize Human Resources as it moved away from its roots in "Personnel." Back in the day, employees were considered an expense above all. Over the years however, attitudes changed as employers began to appreciate that the humans who were doing the work were a resource themselves. Suddenly Human Resources Departments were born (or Personnel Departments were renamed) and the views attached were that employees were investments and should be treated and valued like any other asset. But therein lies the rub, because remnants of old school thinking remain and employees are therefore still considered a liability to the extent that they are, and always will be, a major cost to the company. The problem for HR departments is that both are true. Employees are an asset and liability at the same time. So, while the understanding and appreciation of human resources have evolved into a sophisticated and strategic practice over time, its structural underpinnings have not kept pace.
The best way for businesses to think about the right HR structure is to think about the "type" of work coming out of the department and the people best suited to execute the tasks. For the most part, the skills that individuals need to bring to the money side are not the same (in fact they are often the opposite) as those needed to do well on the warmer-fuzzier side of things where it's all about human interaction and interpersonal skills.
The good news is that it's an easy fix. Align functions like benefits administration and payroll with accounting because their primary implication to the company is financial and they require transactional minds. Then, on the other hand, the people-development initiatives should make up the Human Resources Department with people who excel at building relationships, creating innovative employee programs and developing talent to support the business's goals.
Then, when it's time to evaluate performance and make compensation decisions, the two worlds meet. The organizational expertise is appropriately aligned to be mutually complementary and can therefore produce the best possible business results.