by Greg Chartier, Ph.D., SPHR

 

This article was published in The Productivity Institute newsletter

 

Management cares about results.  Historically, however, human resources has not understood nor attempted to understand what results were important.   Two measures are most common, effectiveness and efficiency.  I think we begin with efficiency. 

 

Efficiency is a ratio of inputs and outputs; you put resources in and get results out.  If you can decrease the inputs and increase the outputs, you are more efficient.  Efficiency also allows you to spend more resources, assuming that the outputs will increase in a greater ratio than those inputs.

 

One of the difficulties in using the term “efficiency” is that we have multiple definitions for it.  I will use efficiency to mean, “How much does a given expenditure on human resources produce in programs or practices?”

 

For HR people that means, what level of human resource programs (training, compensation, staffing, communications ,etc.) is generated for a given investment of

resources (such as time and money)?

 

Every business uses some sort of metrics or management index to determine “how we are doing.”  When business people talk about a company or the health of the economy or an industry, they almost always use some sort of measures to refer to.  What is valuable about indexes is they serve as a barometer for the overall health of the system we are measuring.

 

If the other departments have indexes, then Human Resources should have them, as well.  I have always felt that the principal measure of the HR department has been staffing.  It is the most obvious of our functions and the one that affects every manager.  So , a staffing index is a good place to start.  A staffing index will tell us how the staffing function is doing and, more importantly, give us some conversation points for our Senior Management.

 

Most of us already use some measures, particularly in the staffing area.  We talk about “time to fill” or recruiting costs per placement or turnover ratio.  These are good but they create a mindset that focuses only on lowest cost or fastest delivery.  This is not efficiency.

 

I have several different types of measures that I would like to introduce, all of which can add value to your organization.  Let’s start with Revenue per Employee.  Rather than focus on headcount, we should look at how much revenue each employee brings into the firm.  Headcount doesn’t mean much if they are contributing to the success of the organization by either bringing in money or reducing outlay of money.

 

Now, we need to look at the staffing function, just to collect some data we will need later.

 

Cost Per Hire.  This is not only the direct cost of advertising and agency fees.  I would include several other items:

 

Source Costs = Advertising and agency fees as well as referral bonuses.  There are four

costs:  advertisements, agency fees, employee referrals and no cost walk

 ins.

 

Staff Time = salary, benefits and overhead for the recruiting staff. 

 

Manager Time = Salary, benefits and overhead for the hiring manager

 

Processing Cost = Employee references, physicals, drug tests, payroll set up, other

      employment costs

 

Miscellaneous = New Employee Orientation, and any unplanned expenses.

 

 

            CPH =  SC + ST + MT + 10%

                                    N

 

            SC = Source Cost (Advertising expense + Agency fees + Employee Referrals)

            ST =  Recruiting staff time

           MT =  Manager time

          10% = Miscellaneous

 

New Hire Performance.  While it’s great to fill our positions, the true measure of our effectiveness as recruiters is the quality of the people we hire.  In this case, the new employee is the product of our recruitment efforts and we must be held accountable for at least a portion of the success of the new employee.

 

Quality is a difficult concept to apply to human resources but I think we can admit two things: 

 

The new employee must perform, on the job, over a period of time, in order to be considered “successful.”  I would suggest a six month review of new hire performance, compared to the performance averages for the company as a whole.  There must be some return on the investment we made on the new employee.  This means, to me, that they need to stay with the organization (voluntarily) in order to demonstrate success.

 

With these two items in mind, we can measure New Hire Performance:

 

 

            NHP = PR + HP + HS

                                    N

 

            NHP = New Hire Performance

             PR   = Average job performance rating of the new employee

             HP   = Percentage of new hires promoted within one year

             HS   = Percentage of new hires retained after one year

              N    = Number of new employees hired during the evaluation period

 

                                    NHP = 60 + 20+ 90       = 1.7%

                                                        100

 

This is a relative value and it means what you want it to mean.  The evaluation only becomes valuable over time as you compare period to period.  It can be valuable to compare different departments, over time, as well.

 

 

            Greg Chartier is Principal of The Office of Gregory J Chartier, a Human Resources Consulting firm and is a well-known management consultant, educator and speaker.  His practice consists of two broad areas:  Human Resources management and outsourcing for firms of less than 100 employees and Management Training. His business experience includes management positions with Pfizer, The Chase Manhattan Bank, The Bank of New York and Johnson and Johnson.  Greg is a Board Member of the Business Council of Westchester and the Chair of the Human Resources Council.  He is also a Board Member of the Job Service Employers Council (JSEC) of the New York State Department of Labor.  Greg can be reached at greg.chartier@att.net and by phone at 914-548-1689.