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Fi e HR Metrics That Five HR Metrics That Matter
June 12, 2007
Agenda
• Welcome & Introduction
• The HR Measurement Journey• The HR Measurement Journey
• Five Metrics that Matter– Average Headcount– Age Staffing Breakdown– Average Workforce TenureAverage Workforce Tenure– Termination Rate– Employee Engagement Index
• Reference Information and Learning Opportunities
• Questions
Today’s Presenters
Brian KellyThe Infohrm Group
Paige MengeThe Infohrm Group The Infohrm GroupThe Infohrm Group
The Infohrm Group
• Global leader in on-demand workforce reporting, analytics & planning solutions
• Three primary offices: Brisbane, AU; Washington, DC; London, UK
• Founded in 1982
• Original partner in CLC Metrics Program; acquired Corporate Executive Board’s interest in 2006; ongoing research relationship
• Focus on public & private sectorFocus on public & private sector– Goldman Sachs, EMC, Charles Schwab, ING, Time Warner, Aetna,
MetLife, The Hartford, Starbucks, Lowe’s
Infohrm’s Core Capabilities:A Partnership Model
Our Capabilities• Business Information
• Business IntelligenceOur Expertise
• Business Intelligence
• Business Impact• Business Reporting Services
• Workforce Reporting Services
• Workforce Planning
Flexible Solutions
g
• Business & Employee Surveying
• Human Capital Management ROI
B i & W kf A l ti l S i• Programs
• Tools
• Consulting
• Business & Workforce Analytical Services
• Metrics & Benchmarking
• Strategic HR Consulting• Consulting
• Professional Development
Representative Client List
The HR Measurement Journey
Vision of “Human Capital” Measurement
Primary Goals of HR Measurement
Most HR Measurement Initiatives Aspire to Align HR and Corporate Strategy and to Enable Managers to Make Better Workforce-Related Decisions
60%70%
yPercentage of Survey Respondents Citing Each Item as One of the Top Three Goals of HR
Measurement Efforts
45%
33% 33% 31%27%
35%27%
23%
12% 11%8%
0%Better AlignHR Strategy
with CorporateStrategy
Enable Managers to Make BetterDecisionsRegarding
ControlHR Cost
Demonstratethe Bottom-Line Impactof Specific
HR Practices/
PrioritizeHR
Investmentsand Actions
SupportOrganizational
StrategicPlanning
IdentifyOpportunities
For HR Impact
Respond to“Measurement
Pressure”from Senior
Management
ProvideJustificationfor HR in theOrganization
Create “Lineof Sight” forEmployees
8
Strategy RegardingWorkforce
Management
HR Practices/Programs
Management
Source: CLC, Exploring the Measurement Challenges (2001).
n=278 companies
Many Obstacles Block the Road
Primary Challenges of HR Measurement
While the Following Challenges Have Taken Precedence in Establishing a Human Capital Measurement System for HR …
y gPercentage of Survey Respondents Citing Each Item as One of the Top Three Challenges
of HR Measurement Efforts61%
55%50%
70%
50%
29%25%
35%25%
20% 18%15%
10%6%
QuantifiablyLinkingHR and
Business
IdentifyingValue-Added
Lack ofTechnology Integrating
HR andCorporate
Subjectivityof HR Metrics Obtaining
Raw Data
HR StaffSkills Gap Accountability
for Metrics
Accessto Metrics Tying
Incentivesto HR
0%
9
Goals AddedHR Metrics
CorporateMeasurement
to HRMetrics
Source: CLC, Exploring the Measurement Challenges (2001).
n=278 companies
The Journey: Four Stages of Value CreationTransform HR from “Service Provider” to “Business Driver”
HighConsistent HC
ReportingBusiness Insight
HC Metrics Embedded
Phase 2 Business Partner
Phase 3 Business Driver• Build a data-driven
Phase 4Note: The first two levels of business impact are enabled by a successful rollout strategy. Enabling the third and forth levels requires significant cultural and behavioural change in the HR function.
Business Impact Service Provider
• Respond to ad-hoct
Phase 1 Business Enabler• Support data self-
service• Ensure data
Phase 2 Business Partner• Integrate HC data
into planning processes
• Identify problematic HR
HR function• Manage core HR
processes with data• Quantify impact of
HR interventionsrequests• Prepare
performance reports
• Maintain HR d t b
Ensure data consistency
• Provide automated reports
problematic HR trends
e e o s• Analytically
determine HC drivers of business success
• Focus organization on right HRdatabases
Low
on right HR measures
• Build data-driven business case for HR interventions
10
Source: CLC and InfoHRM Research
Time / SophisticationLow High
A Balancing Act: Common Concerns vs Unique StrategiesPattern of KPI Selection Reflects Both Common Human Capital Concerns and
Unique Corporate StrategiesPortion of Members Selecting Each Measure
80%
90%
100% Common ConcernsThe Gold Standard: 60% or greater penetration:• Termination Rate• Staffing Rate (by gender, ethnic background, …)
The Silver Standard: 40% to 59% penetration:
50%
60%
70%
atio
n R
ate
The Silver Standard: 40% to 59% penetration:• Employee Engagement• Managerial Bench Strength
The Bronze Standard: 30% to 39% penetration:• Revenue per FTE
P fit FTE
• Employees at Risk Factor
• Net Workforce GrowthC t f T
20%
30%
40%
Pen
etra • Profit per FTE
• Performance-Based Pay Differential• Management Performance• Successor Pool Coverage
L “t il” t diff ti ti f t t i
• Cost of Turnover• Training Investment per FTE• ROI of Training• New Hire Failures
0%
10%
KPI's Selected2072 6 16
Long “tail” suggests differentiation of company strategies.
11
Source: Infohrm, 207 measure across 88 workshops.
Five Metrics That Matter
The Struggle to Focus on HR Measures that Matter
Most organizations are capturing thousands of pieces of data about their workforce, and it can be hard to focus on what really matters
8 Organizational
UnitsX
5 Departments in Each Org Unit
20 Workforce
Metrics
10 DemographicDimensions
6Categories in
Each DimensionX X X
48,000 measures = ,to analyze!
Five Metrics That Matter
1. Average Headcount
2. Age Staffing Breakdown
3. Average Workforce Tenure
4 Termination Rate4. Termination Rate
5. Employee Engagement Index
Format for Remaining Measures
1 Formula and Importance of Measure1. Formula and Importance of Measure
2. Case Study
3. Limitations of Measure
4. Related Measures
Average Headcount
Formula: Rolling daily headcount average
Why it’s Why it s important: 1. Serves as the denominator for many workforce measures, including:
• Termination Rate
• Promotion/Demotion/Transfer Rate
• External/Internal Hire Rate
• Training Expense per Employee
2. Company size
• End of period/Start of period headcount can be misleading due to seasonal termination patterns
Average Headcount “Case” Study
Most companies use End of Period Headcount (EOP), Start of Period Headcount (SOP), or (EOP + SOP)/2 as a proxy for average headcount when calculating termination rate, external hire rate, etc.
Day 1 Day 4Day 2 Day 3 Day 5Day 1 Day 4Day 2 Day 3 Day 5HC = 12 HC = 10 HC = 15 HC = 12HC = 15
SOP HC = 12
EOP HC = 12
(EOP + SOP) / 2 = 12
Average HC = 12.8g
Average Headcount Limitations
• Does not detail demographics, skill levels, or experience of the g p pworkforce
• Does not reflect churn within the workforce• Does not reflect churn within the workforce
• Does not indicate internal movement patternsp
Average Headcount Related Measures
• Age Staffing BreakdownAge Staffing Breakdown• End of Period Headcount• External Hire Rate• Organization Tenure Staffing Breakdown• Promotion Rate• Staffing Rate High Potential• Staffing Rate – High Potential• Termination Rate• Transfer Rate
Age Staffing Breakdown
Formula: End of Period Headcount.[Age] / End of Period Headcount * 100
Why it’s Why it s important: 1. Generational differences
• Employee motivations
• Employee attitudes about work
• Employee benefits
2. Experience
• Capability within company to execute on strategy
• Training and development
• Career paths
3 Risk of talent and kno ledge drain d e to retirement3. Risk of talent and knowledge drain due to retirement
Age Staffing Breakdown Case Study #1
Insurance Company concerned about their aging workforce
• Finding #1: The Company does have an aging workforceTh b f l li ibl t ti h i d f d 15% i – The number of employees eligible to retire has increased from around 15% in 2003 to around 20% in 2006; at the same time, the percent of those eligible to retire who actually do retire has also increased
Fi di #2 Th i kf d t th t th b i i th h t t• Finding #2: The aging workforce does not threaten the business in the short term– Management employees over the age of 60 only represent about 6% of total
company leadership– Current staffing levels should be able to accommodate the admin/technical
l li ibl t ti ithi th t fi employees eligible to retire within the next five years– Advances in technology will mitigate the risk from office and special services
employees eligible to retire
• Finding #3: By changing policies, the threat can be further reduced– By implementing policies that reward employees to remain with the Company until
age 65 rather than age 60, the number of employees eligible to retire shrinks from 18% of all employees to 6% through 2011p y g
Age Staffing Breakdown Case Study #2
Financial Services Company analyzing career paths within accounting department
• Created a matrix of age and job grade for professional, exempt employees
Age Staffing Breakdown Case Study #2
Age 21 21-25 26-30 30-35 36-40 41-45 46-50 51-55 56+ TotalGrade 6 8 5 2 2 4 5 1 27Grade 7 14 7 4 4 5 6 6 1 47Grade 8 1 15 4 4 2 3 29Grade 8 1 15 4 4 2 3 29Grade 9 9 8 2 1 2 2 3 27
Grade 10 1 6 2 1 10Grade 11 1 1 2 1 5Grade 12 1 1 2 4Grade 13 1 3 4Grade 14 2 2
Total - 23 38 26 12 16 12 16 12 155
Age Staffing Breakdown Case Study #2
Age 21 21-25 26-30 30-35 36-40 41-45 46-50 51-55 56+ TotalGrade 6 8 5 2 2 4 5 1 27Grade 7 14 7 4 4 5 6 6 1 47Grade 8 1 15 4 4 2 3 29Grade 8 1 15 4 4 2 3 29Grade 9 9 8 2 1 2 2 3 27
Grade 10 1 6 2 1 10Grade 11 1 1 2 1 5Grade 12 1 1 2 4Grade 13 1 3 4Grade 14 2 2
Total - 23 38 26 12 16 12 16 12 155
Age Staffing Breakdown Limitations
• Does not account for age profile of those entering and leaving the g p g gorganization
• Does not provide information on cost of retirements (pensions defined • Does not provide information on cost of retirements (pensions, defined benefit vs. defined contributions, etc)
• Does not indicate the skill set, knowledge base, or tenure of employees
Age Staffing Breakdown Related Measures
• Average Workforce AgeAverage Workforce Age• Benefits Satisfaction Index• Educational Attainment Breakdown• Employee Engagement Index• Employee Engagement Index• External Hire Rate• Organization Tenure Staffing Breakdown• Successor Pool Coverage• Termination Rate• Training Course Content BreakdownTraining Course Content Breakdown
Average Workforce Tenure
Formula: Total Workforce Tenure / End of Period Headcount
Why it’s Why it s important: 1. Determine knowledge base about company
2. Evaluate state of culture and innovation
3. Inform development needs
4. Research impact of tenure on certain jobs and performancep j p
Average Workforce Tenure Case Study
Financial Services Company researching indicators of branch profitability
• Finding #1: Top performing branches have managers with high average tenure
• Finding #2: Employee allegations of fraud were twice as likely to come from branches with two or more managers in the past 18 months
• Finding #3: Managers who terminated with short tenures were often promoted to manager due to high sales, not leadership skillso a age due o g sa es, o eade s p s s
Average Workforce Tenure Breakdown Limitations
• Does not inform the range or distribution of tenure above and below the average
• Not an indicator of general work experience, skill level, or functional knowledge
• Only looks at tenure of employees in the organization, not tenure within the current positionthe current position
Average Workforce Tenure Related Measures
• Age Staffing Breakdown• Average Annual Salary per FTE• Average Termination Value• Employee Retention Index• External Hire RateExternal Hire Rate• Manager Quality Index• Organization Tenure Staffing Breakdown• Termination Rate• Termination Reason Breakdown• Total Compensation Expense per FTE• Total Compensation Expense per FTE• Training Course Content Breakdown• Work Units per FTE
Termination Rate
Formula: Terminations / Average Headcount * 100
Why it’s Why it s important: 1. Monitors adequacy of employment “offer”
2. Indicates effectiveness of staffing function
3. Represents costs to the company
• Cost of hiring replacementg p
• Lost productivity during vacancy and training
• Training and onboarding costsg g
• Lower morale and increased workload
4. Low turnover can show stagnation of ideas4. Low turnover can show stagnation of ideas
Termination Rate Case Study #1
Company’s Sales Department concerned about high termination rates
• Finding: Sales regions which terminated low performers had lower profitability than those branches who kept low performers– Low performers were those employees with the shortest tenure– Branches who kept low performers and gave them time to “grow” into their
roles saw higher long-term profitability
Termination Rate Case Study #2
Company concerned about Call Center turnover
• Finding #1: Non exempt terminations are high• Finding #1: Non-exempt terminations are high– Involuntary terminations overwhelmingly driven by failure to pass licensing exam, so
need better upfront screening– Voluntary terminations driven by “better opportunity ” but can be mitigated by retention Voluntary terminations driven by better opportunity, but can be mitigated by retention
bonuses, and promotion and development opportunities
140%
160% Voluntary
Involuntary
80%
100%
120%
natio
n Rate
(%)
0%
20%
40%
60%
Term
in
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23months of tenure
Termination Rate Case Study #2
Company concerned about Call Center turnover
• Finding #2: Non exempt termination rates vary greatly by call center location• Finding #2: Non-exempt termination rates vary greatly by call center location– Further research needed to determine whether caused by labor market, competition,
type of work, management, etc.
34%
42%
61%
15%
10%
37%
tions
29%
22%
32%
13%
16%
Voluntary Termination Ratenter L
oca
11%
6%
14%
19%
6%
10%Involuntary Termination Rate
Call C
en
11%
Termination Rate Case Study #2
Company concerned about Call Center turnover
Finding #3: High non exempt termination rates may be caused by low exempt • Finding #3: High non-exempt termination rates may be caused by low exempt termination rates– Few opportunities for advancement if there are no managerial positions
openingopening– Long tenure in exempt position could mean managers are very “far removed”
from the challenges of the non-exempt role
Termination Rate Limitations
• Does not indicate voluntary vs. involuntary termination
• Does not show specific reasons for termination (better opportunity, manager, compensation, returning to school, etc)
• Does not reflect who is leaving or how those employees are being replaced to demonstrate true impact on the workforce composition
Termination Rate Related Measures
• Average Termination Value• Compensation Satisfaction Index• Employee Retention Index• External Hire Rate• Involuntary Termination Rate• Manager Quality Index• Market Opportunity Index• Offer Acceptance Rate• Operating Expense per FTE• Organization Tenure staffing Breakdown• Return on Human Investment Ratio• Termination Breakdown by Performance Rating• Voluntary Termination Rate
Employee Engagement Index
Formula: Derived from survey methodology
Why it’s Why it s important: 1. Helps measure employee discretionary effort to the firm
2. Leading indicator for turnover
3. Leading indicator for customer satisfaction
Employee Engagement Index Case Study
Major retail chain in the food service industry determining link between employee engagement (in the company) and store profitability
• Finding #1: Employee engagement is linked to customer satisfaction• Finding #1: Employee engagement is linked to customer satisfaction• Finding #2: Employee engagement is linked to store profitability
**For each graph the differential in percentage points from low engagement to For each graph, the differential in percentage points from low engagement to high engagement is 6%
• Finding #3: When combined with manager stability, average workforce tenure, and satisfaction with pay employee engagement accounts for a 4% variance and satisfaction with pay, employee engagement accounts for a 4% variance in financial profitability
Employee Engagement Index Limitations
• Value of the measure depends on the effectiveness of survey design and delivery
• Survey answers can reflect temporal events
• Engagement is only one aspect an employees opinion about/ relationship with the company
Employee Engagement Index Related Measures
• Age Staffing Breakdown• Voluntary Termination Ratey• Employee Commitment Index• Employee Retention Index• Employment Brand Strength• Internal Hire Rate• Manager Quality IndexManager Quality Index• Market Opportunity Index• Offer Fit Index• Organization Tenure Staffing Breakdown• Promotion Rate• Promotion Speed Ratio• Promotion Speed Ratio
Reference Information and Learning Opportunities
The Metrics StandardA rating system for easy application.
A Detailed Guide of 200+ Metrics
Retention
Turnover Cost of Turnover
Employee Engagement
Category and subcategorysubcategory provided for easy reference.
Interpretive text describes what is measured, the importance of theimportance of the measure, and the impact of high or low results.
Provides a listing of variations and interrelated measures for those “on the hunt” for the most appropriate metric or set of
f f
Captures the lessons learned from CLC Metrics members’ e perience ith this metrics for a given set of
circumstances.experience with this metric.
Workforce Analytics and Workforce Planning Workshops
March 7-8Los Angeles, CA*
June 19-20Chicago, IL
March 13-14New York, NY
Sept. 27-28Washington, DC,
April 17-18Boston MA*
g ,
Nov. 6-7Dallas TXBoston, MA
April 24-25W hi t DC
Dallas, TX
Nov. 13-14Atl t GAWashington, DC
June 12-13
Atlanta, GA
San Francisco, CA**Workforce Analytics Only
2007 Infohrm Human Capital Analytics Conference
Keynote Speakers Include:
• Thomas Manley, Cognos
• Norm Smallwood, University of Michigan
• Corbette Doyle, Aon
• Jonathan Terrell, The Infohrm Group
September 25-28, Washington DC
Workforce Planning Summit
Dr John Sullivan San Francisco State
With presentations by:
• Dr. John Sullivan, San Francisco State University
• Dan Hilbert, Valero Energy, gy
• Jeff Higgins, Countrywide Financial
• Kari Trost & Merryl Rees, The Hartford
• Peter Howes, Infohrm Group
• Anastasia Ellerby, Infohrm Asia Pacific
The Infohrm GroupThe Infohrm Group
Thank you for your time!For more information, please visit:
www infohrm comwww.infohrm.com
Or contact Duncan Scott at:Duncan Scott@infohrm [email protected]
202.589.2664