It Pays to Invest in Employees

During a recession, every line item in a company’s budget receives intense scrutiny. Costs are correlated with projected outcomes, and expenses that aren’t expected to deliver a return are often cut. The good news is that if you’re hoping to make a case for employee-related expenditures, findings from CTHRA’s latest Human Capital Metrics Survey may provide the rationale you need.

 

CTHRA’s survey, conducted by the Society for Human Resource Management (SHRM), found that cable employers invest more money on human capital than similar-sized companies in general based on the SHRM Human Capital Benchmarking Database for all industries combined (see figure 1). CTHRA’s findings found that cable employers spend $660 more to hire an employee and twice as much on human resources expenses per employee than the cross-industry average.

 

Given the dramatic differences in expenditures, did CTHRA’s respondents realize a greater return on their investments? The answer is an emphatic “yes!” In fact, while many organizations faltered during the recession, CTHRA’s survey participants outperformed organizations in general on key human capital and financial metrics.

 

 

Let’s take a look at the bottom line impact reported by CTHRA’s survey respondents. Total revenue divided by total full time employees (FTEs) is a key measure of efficiency. This ratio, termed revenue per FTE, conceptually links the time and effort associated with a company’s human capital to its revenue output. A firm with higher revenue per FTE would be more efficient because it produces greater financial results with fewer employees than a similar company with lower revenue per FTE.

 

CTHRA’s survey results established the average revenue per FTE is $749,391, which is significantly higher than SHRM’s cross-industry average of $420,915. When we analyze net income before taxes per FTE, the difference is even more dramatic. The net income per FTE for cable employers was $331,952 compared to SHRM’s cross-industry statistic of $64,035.

 

While cable employers were found to be highly productive and profitable, CTHRA’s survey findings also indicate that cable’s employees are more satisfied and committed than the general population. The annual voluntary turnover rate for CTHRA’s respondents was 10% compared to SHRM’s cross-industry rate of 28%. Although the tough economic market may have contributed to the lower turnover for CTHRA participants, this metric suggests that CTHRA’s survey respondents were more successful than other industries in keeping their staff from seeking career opportunities outside of their organizations. As a result, CTHRA’s survey determined the average employee tenure increased from 5.8 years in 2008 to 6.3 years in 2009. It’s interesting to note that the employee turnover rate was the most important metric cited by CTHRA’s participants—an indication that retaining key talent is seen as critical to organizational success.

 

Did the findings in this article catch your attention? If so, you’re not alone. A growing number of companies are relying on human capital analytics to aid their decision making. In fact, SHRM states that the “highest purpose for human capital analytics [is] creating predictive business indicators that CEOs can use to help chart the course of their business.”

 

Linda Chambers, SPHR, vp of corporate human resources at Bright House Networks, shared this insight: “There are substantive, tangible business outcomes as a result of including key HR Metrics in business planning.”

 

If you want to put human capital metrics to work in your company, consider participating in CTHRA’s 2010 Human Capital Metrics Survey and attending CTHRA’s Annual Symposium on June 10 in Atlanta. The symposium will feature a practical session on the nuts and bolts of human capital analytics. For more information about CTHRA’s survey or symposium, please visit www.cthra.com.

 

On a parting note, I leave you with the sage advice of Galileo: “Measure what is measurable, and make measurable what is not so.”  

(Pamela Williams is exec director of CTHRA).