As the talent wars continue, it is becoming increasingly important to back up recruiting activity with numbers. The question becomes what are the best metrics to show. It's easy to get caught up in pages of numbers only to find that no one is reading them.
To make things easy, start small. Pick five. Calculate and distribute them regularly. Here are the five I would start with:
1. Cost per hire
It's absolutely essential to understand the cost of hiring someone. Here are a couple of scenarios to illustrate the point.
- You're the vice president of human resources for a retail operation. Your company is getting ready to open a new location and will need to hire 100 employees. The senior leadership team is putting together the budget to build and open the new location. You will need to provide them with the cost of hiring those 100 employees.
- You're the director of human resources for a consulting firm that was just awarded a huge contract. In the proposal, the company indicated that they would need to hire 3 employees who would be dedicated to the project. The cost to hire those employees was included in the proposal.
The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI) have partnered to develop a universally accepted calculation for cost per hire (CPH):
CPH = (EC + IC) / THP
EC = external costs for all spending outside the organization including staffing agencies, advertising, job fairs, travel, drug testing, background checks, signing bonuses, etc.
IC = internal costs include recruiting staff salary and benefits, time cost for the hiring manager, fixed costs for infrastructure, government compliance, referral bonuses, etc.
THP = total number of hires for the time period being evaluated.
2. Source of hire
This data tells the company where their applicants, candidates and new hires are coming from. Examples might include job boards, social media sites and mobile platforms. Please note, there is a difference in where sources come from. It's possible that a source can provide a lot of applicants that don't turn into candidates, much less new hires. Companies need to spend their resources where it has the greatest impact.
Speaking of impact, employee referral programs continue to provide an effective cost and quality per hire. It's the reason many companies offer a referral bonus. In essence, the employee is helping to offset the cost of hiring and providing a quality candidate. But this also means that companies need to carefully consider the referral bonus amount. To do it right, the referral bonus should be established with cost per hire in mind.
Let me also add that employee referral bonuses should be given for doing just that - providing the referral. Referral bonuses are not retention bonuses. If an employee provides the referral and the candidate is hired, that's when the bonus should be paid - not three months or six months down the line. The company - not the employee - needs to accept responsibility for employee retention.
3. Turnover cost
Once you know cost per hire (see number 1) that amount can be used to determine turnover cost. This is a metric that should be shared with the management team. In the book "How to Measure Human Resource Management", author Jac Fitz-enz uses the following formula for calculating turnover cost (TC).
TC = CPH + TRM + VC + LCL / THP
TRM = termination costs are all the expenses associated with an employee leaving the company including exit interviews, COBRA, unemployment, attorney's fees, going away parties, etc.
VC = vacancy costs include overtime, temporary staffing, contractors, etc. that are utilized while the position is vacant.
LCL = learning curve loss takes into account that new employees are not 100% effective on Day One of employment and the loss in productivity that occurs while the new hire is being onboarded.
THP = total number of terminations for the time period being evaluated.
Once managers understand the cost of turnover, there's an opportunity to change the conversation about performance coaching. For example, let's say a manager decides that they want to terminate an employee within the introductory period. The turnover cost number represents the investment that has already been made and the expense associated with the decision. It could change the manager's perspective about giving the employee additional performance coaching (versus letting the employee go).
In addition, turnover cost can change the way the organization makes decisions about employee terminations in general. For instance, if your organization has a 3-step review process for any expenditure over $5000, and the cost of turnover is over $5000, doesn't it make sense to treat terminations with the same kind of rigor?
4. Turnover rate
In the 2015 Deloitte Global Human Capital Trends study, employee retention is identified as one of the top issues in talent and human resources. Organizations will not only want to understand the cost of turnover but the rate that employees are leaving the organization.
Turnover rate can be determined by dividing the number of separations by the average number of employees for a given time period.
Understanding how many employees have left the organization can provide insight on how much has been spent on turnover over a period of time. It can also be used to calculate turnover expense by department or by job title.
To give the metric some frame of reference, compare the expense to something in the operation. Is the company turnover expense equal to a piece of equipment? The employee holiday party? The executive bonus budget? As you can see, turnover is a very real expense.
5. Yield ratios
Yield ratios are particularly valuable when the hiring process has multiple steps. This metric measures one step in the process to the next step. It can provide an overview of the effort necessary in recruiting. For example, take the earlier example of the retail location looking to hire 100 employees. Here are the yield ratios for 100 applications.
|10||Complete Introductory Period||40%|
So, let's say we're hiring 100 employees for our new retail location. If a company receives 100 applications, they expect to screen 75 percent (or 75 people). Of those 75 people, they expect 40 to receive department interviews (or 53 percent from those selected for screening). 30 people will be extended job offers (i.e., 75 percent of those receiving department interviews). 83 percent will accept the job offer (or 25 people) and 10 will complete their introductory period.
This tells us that we need to generate a lot more applicant flow if the company is going to find the 100 employees they need to open the new location. Yield ratios can identify possible weaknesses in the process or places where an increased focus is necessary. In this example, the company might want to examine the reason 15 candidates accepted the job offer but did not complete their introductory period.
What get measured gets managed
Peter Drucker once said, "What gets measured, gets managed." And it's never been truer.
Now some might say that these five metrics are pretty basic - and that would be correct. The reality is companies have to get the basics right before moving to more complex calculations. These five metrics provide a lot of information. Use them to their fullest.