Benchmarking HR metrics provides very real indication of the effectiveness of HR programmes. It also allows HR professionals to communicate with senior management the impact of their activities in real dollar terms.
Now, in many organisations, HR professionals have redefined their role to be true strategic business partner. They see their role as equipping people managers with the skills to take responsibility for recruitment and performance management initiatives while ensuring the organisation has the right people, with the right skills to achieve its strategy.
As result, more is expected of HR managers and CEOs are looking for evidence of the effectiveness of the various initiatives for which HR has overall responsibility.
To demonstrate that it’s not just about doing the right thing by employees, HR departments have begun measuring their activities to demonstrate their effectiveness. These measures provide relevant and timely indicators on organisational, divisional and human resource activities.
Staff turnover rates, absenteeism costs, time to hire, engagement scores, cost to hire, training costs are all examples of common HR metrics. They can all be useful to identify problem areas where additional focus or investment is needed or to provide crucial information to find, develop, retain and reward the right employees.
For any organisation, the first step is to determine its current situation, then track improvements in HR metrics from year to year, and finally compare results with other similar organisations.
Strategic Pay recently released its 2012 HR Metrics survey to help organisations benchmark their HR activities. The results confirm some of the commonly held beliefs and rules of thumb around people management, and create some interesting points for discussion.
Now in its second year, the survey includes data from 112 organisations with breakdowns by revenues, employees and sector.
How many HR people should you have in your organisation? This is common question, and while the correct answer will depend on number of factors, the common guide has been one HR person for every 100 employees. Our survey has shown it’s more likely to be one for every 50 employees.
The largest and the smallest organisations tend to spend larger proportion of their total revenue on salaries, and not surprisingly, the private sector spends more on incentives. Interestingly, the not for profit sector proportionally provides the most in benefits with an average of 6.8 percent of total salary costs spent on benefits.
When it comes to voluntary turnover, small organisations, in terms of employee numbers, had the lowest turnover, whilst large organisations had the highest. The average voluntary turnover rate for all organisations was 11.4 percent.
But whilst turnover is higher, large organisations also had the longest average tenure. This apparent paradox is partly explained by the fact that large organisations had much higher voluntary turnover in the first 12 months, indicating that those who leave, are likely to do so sooner in large organisations.
Large organisations also take longer to recruit staff, but small organisations spend less on recruitment. Across all organisations the average time to hire was 33 days.
Large organisations also tend so spend less on training based both on total employees and on per employee trained basis. For those who received training, the cost was typically $2000 per employee.
There is very little difference in sickness and absenteeism based on organisation size, however, private sector organisations have slightly lower average number of days lost with median of four days per year, per employee.
Finally we asked participants to provide an indication of their organisation’s recent financial performance and engagement survey scores to examine the connections between various HR metrics used in this survey and organisation performance.
We compared the average score for those that reported engagement scores in the top quarter of their survey against those that reported scoring in the bottom half of their particular survey.
Likewise we compared those organisations that reported “outstanding” financial performance against those that reported “poor” or “below target” financial performance.
Surprisingly, this analysis has shown very little distinction between the top performing and lowest performing organisations on number of HR metrics. Highly engaged organisations had longer average tenure, and those which reported outstanding financial performance spent less on recruitment and had lower cost of absenteeism.
For total cost to hire and training cost per employee, there was very little difference between those with the best and worst financial performance and the highest and lowest engagement scores.
When it comes to voluntary turnover, high performing organisations fared slightly better with turnover three percentage points lower. While this might not seem huge difference, if you are an organisation with 200 employees for example, an additional three percent employee turnover (six people) per year equates to cost of $24,000 to the organisation based on the average cost to hire of approximately $4000 per role.
Add to that the cost of lost productivity while the role is vacant, the cost of training new individual, the time to become fully effective in the role, and even small improvement in turnover can result in significant cost savings. M
Jarrod Moyle is manager executive reward at strategic remuneration and performance management solutions company Strategic Pay.
