HR Metrics - The More You Know.

On Tuesday I attended the AASHRM monthly meeting featuring JoAnn Corley. The meeting was great, and there were plenty of take-aways. In fact, I am sure they will crop up in a few HRCT blogs in the future.

The take-away that I want to attach to this blog is the need for HR professionals to demonstrate more business acumen. While business acumen covers a wide array of knowledge and skills, one area where we can improve our contribution is by using metrics.

HR Metrics are a way to demonstrate both the value of good HR programs as well as HR's strategic contribution to the organization. Practitioners can use HR metrics to justify business action. By developing, implementing, and monitoring a solid HR Metric program, companies can make more informed decisions with regard to their HR programs.

Let's consider one area where we can use HR Metrics. Turnover.

It is well established that turnover is costly, but just how costly is it to your organization? How do you explain the cost of turnover to your CFO?

Do you say "it costs more to hire a new employee than it does to keep an employee," or, do you quantify as many aspects of turnover as possible and provide a dollar figure associated with that cost?

I say the latter is probably a better approach.

When considering the cost of turnover, think about the following costs: The cost of administrative functions related to termination such as handling exit interviews, handling unemployment submission, terminating benefits, and sending letters of termination; the cost of unemployment compensation realized in higher premiums for most employers or direct cost for reimbursing employers; severance pay.

Don't forget vacancy costs. Are you incurring more overtime to fill the space? What is the impact to revenue with one fewer employee? Are higher paid employees filling the void?

Oh, and replacement cost, like the cost of advertising. Then there are administrative costs related to hiring a replacement, like the time spent sifting through applications/resumes and interviewing.

If you want to hire for the long-term, you have to consider the cost of pre-employment testing, including background checks and drug testing. Also, you may want to do aptitude tests or personality tests to bolster your chances(you don't want to have to hire again in less than a year!)

Now that the replacement is hired, let's include the cost of training. Training can be formal, such as a training program, certification, or even just orientation. It can also be informal, such as the time spent learning processes and procedures on the job. Don't forget the variance in productivity in a new employee and one who has been at the job for a while.

I will add one final consideration. In my experience, first year employees have the highest rate of on the job accidents. It could be inexperience or unfamiliarity with the work environment, but I have seen it hold time and again. So, perhaps adding in the additional exposure with regard to workers compensation is of value.

Some of these costs will be easy to obtain. Others require a little more digging, and others will be speculation. Rest assured, formulas can be created to give you a pretty good idea of what the cost is.

The point is, the more you understand what costs are associated with an action, the easier it is to justify preventing it.

Preventing it may take the form of better hiring procedures. If you increase the cost of the hiring procedures through better testing, structured interviews, and utilizing talent search firms, you may end up reducing the amount of turnover and thus saving the company money.

Maybe prevention takes the form of better incentive programs designed to prevent voluntary turnover. While I will admit it is rare, I have seen employees leave for an additional $.25 per hour. On the flip side, I have had an employee turn down $4 more per hour (nearly 25% of her wage) because she felt valued by the employer. Creating incentive programs is not just about pay; it is about finding what motivates your employee. Savvy HR professionals can find the proper incentive, then justify it by comparing the cost of the incentive to the cost of turnover.

I think the point is made, and it is not just for HR professionals. JoAnn Corley said it pains her when she hears that HR is the step-child of the organization. The reason for that is that HR is still viewed by most as a cost center of the organization. Maybe it is, but it is still a necessary part of the organization. By using HR Metrics, we can show the value of sound HR programs and contribute to the strategic success of the organization.