MEASUREMENTS THAT determine employee return on investment (ROI) are tipped to take over as the HR metric of choice, recent research has suggested.
MEASUREMENTS THAT determine employee return on investment (ROI) are tipped to lead HR metrics of choice, recent research has suggested.
A survey by Boston-based consulting firm Veritude found that 81 per cent of executives currently measure the effectiveness of their HR departments by examining employee turnover and labour costs as a percentage of revenue. However, 61 per cent said they expect to look at a different major metric soon – employee return on investment.
“Perhaps because it’s relatively easy to track, turnover is the metric most often used today – yet it’s the least desired in the future,” Veritude’s Workforce Data Insight newsletter said. “The ROI of employees is what’s of most interest.”
“Knowing what you are getting back for each dollar you invest [in employees] is fiscally prudent,” said Jim Del Rosario, vice president of talent acquisition for Veritude.
“Employee ROI provides data about issues you may not have considered before. One could drill into the data and find, for example, a correlation between say poor performance and the cost to hire a poor performer versus a higher cost to hire a high performer.
“Data about employee ROI makes HR professionals smarter about how to operate their companies more cost effectively.”
The survey results, based on the responses of 138 senior executives, indicated that “companies are becoming much more sophisticated than they ever have been before,” Del Rosario said.
However, some organisations have been slow to establish effective metrics. “There are many companies and many HR departments that have been late to the table, and to a certain extent, it’s understandable,” Del Rosario said.
“First, it’s a matter of priorities. Depending on the company, industry and point in time, other objectives have taken precedence ... I think there’s a huge misconception that developing a metrics program and measuring employee ROI is a daunting process. It’s not. Yes, it does require careful thought and company-wide collaboration, but it doesn’t take years and millions of dollars.
“This means that rather than looking at one factor, such as productivity or cost per hire, companies will roll all of these metrics together. That will let them see how much return they are realising from their employees’ efforts, versus what’s spent on hiring and retaining them,” Del Rosario said.
Trying to measure the effectiveness of HR presents stumbling blocks for organisations and Del Rosario said there has to be buy-in that the metrics used represent the right way to measure what everyone agrees should be measured.
