human capital benchmarking study 2012
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We assist companies in MEASURING efficiency, effectiveness and outcome of Hpractices, ACTION PLANNING and BENCHMARKING to improve workforc
PRODUCTIVITY and demonstrate contribution to bottom line in FINANCIAL ter
Key Reasonsfor HR
Measurement
Numbers are theuniversal language of
business and businessleaders prefer to takedecision on hard datarather than subjective
and instinctive gutrecommendations
Metrics can be used asmeasurable KPIs of HR
to determine theefficiency,
effectiveness andoutcome of HR
practices in alignmentwith business
Metrics are helpful inquantfiable gapanalysis,
benchmarking andaction planning to
achieve and surpassindustry standardsMetrics help in
assessing theeconomic viability ofan HR investment in
view of percievedmeasurable benefits
Metrics quantify HRdepartmentscontribution to the
overall bottom line inverificable financial
terms
HR professionals canupgrade their standing
in the organization,pave way for their
personal andprofessional growth
Human Capital Benchmarking Study 2012
In business the rear view mirror is always clear but the windshield is hazy Business leaders expect HR to assist incombating future issues by focusing on leading indicators of performance rather than lagging indicators
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Table of Contents
Rationale of HCBMS 2012 ................................................................. 3
Statistics - HCBMS 2012 ..................................................................... 5
The Findings ............................................................................................................7
Table 1: Key study areas vs. Percentiles of Industry ...............................................7
Conclusion .......................................................................................... 11
HR Metrics - Company Profile ....................................................... 12
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This report is intellectual property of HR Metrics. Its circulation without approval is unauthorized.
1. Rationale for Human Capital Benchmarking Study
Business Executives judge HR strategic role NOT on be the basis of emotions or HR
activities but by the IMPACTof their actions on the business, which is always measuredin financial services. As per 2012 statistics in Pakistani business organizations, 12-47%
of operating cost goes to people management. In an increasingly dynamic environment
led by cost-cutting and tight budget justification, the role of HR is increasingly becoming
critical to the organizational success. Shareholders and CEOs are interested to know thathow the investment in Human Capital impacts the top and the bottom line of the
organization. They are keen to have rigorous, logical, and principles-based framework for
seeing the connections between human capital investments and organizational success.
Like finance, sales, risk, audit and operations; the key responsibility of HR is to articulate thelogical connections between progressive HR practices and important organizational outcomes,
and demonstrate those connections with data and ratios.
Benchmarking is rapidly becoming an indispensable tool for HR professionals. It is amechanism for measuring processes, practices and results against the competition or
peer companies in order to improve performance. Used wisely, it can transform a
companys HR and people management strategies by showing how human capital
practices influence organizational performance. HR professionals can use benchmarkingdata to compare their organization against their competitors or other similar
organizations. For example, HR professionals can compare their HR investments and
corresponding results like employees retention rate, career growth rate, productivity ratewith peer organizations and may benchmark against industry standards. A gap between
organization benchmarks and industry may warrant further analysis. Benchmarking also
protects areas or programs that are performing well. To illustrate, if line executives wantrecruiting costs lowered, benchmarking data may show that their current recruiting costs
are in line with their industry. In fact, to lower costs far below their competitors might
actually jeopardize the organizations ability to find the right talent to compete in the
market. Benchmarking can also create support and momentum for organizational changeFor example, making changes to existing pay practices may be difficult, unless there is
objective benchmarking data that can support otherwise.
Likewise, if the HR professional wants to alter an organizations long-standing practice
of not offering employee bonus plans, making that argument alone, without
benchmarking data, is very difficult. Benchmarking data can help make the case. CEOs
and board-level executives also depend on quality benchmarking data to make strategicdecisions that affect their organizations. In fact, benchmarking is more effective when
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used as part of an overall business strategy. It is less effective, however, when companies
use benchmarking only for short-term cost reductions and not part of a long-termstrategy. An example of this occurs when an organization lowers training budgets to meet
short-term budget goals. While this may achieve a short-term objective, it has a negative
impact on developing the skills of the organizationsworkforce. Thus, over the long termthe knowledge and skills of its human capital start to lag behind the market, and the
organization loses its competitive advantage.
Understanding the Data
As you compare your own data against other organizations, keep the following in mind:
1. A deviation between your firm figure (for any human capital measure) and thecomparative figure is not necessarily favorable or unfavorable; it is merely an
indication that additional analyses may be needed. Human capital measures thatrelate more closely to the context of your organizations industry, revenue size
geographic location and employee size are more descriptive and meaningful than
information that is more generic in nature, such as all industries combined. The
larger the discrepancy between your figure and those found in this executivesummary, the greater the need for additional scrutiny.
2. In cases where you determine that large deviations do exist, it may be helpful togo back and calculate the same human capital measure for your organization overthe past several years to identify any trends.
3. The information in this report should be used as a tool for decision-making ratherthan an absolute standard. Because companies differ in their overall business
strategy, location, size and other factors, any two companies can be wellmanaged, yet some of their human capital measures may differ greatly. No
decision should be made solely based on the results of any one study.
Working with the Data
The information in this report is designed to be a tool to help you evaluate decisions and
activities that affect your organizations human capital. When reviewingthese data, it isimportant to realize that business strategy, organizational culture, leadership behaviors
and industry pressures are just a few of the many factors that drive various human capitalmeasures.
For example, an industry that generally hires non skilled workers, such as construction,may have less costly benefits packages than the high-tech industry, which hires
specialized knowledge workers. This is because organizations in the high-tech industry
may need to have richer, more attractive benefits plans to make them more enticing tohard-to-find knowledge workers.Absolute measures are not meaningful in isolation
they should be compared with one or more measures to determine whether a satisfactory
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2. StatisticsHCBMS 2012
level exists. Other measures, for example, might be your organizations past results in this
area or comparatives based on organizational size, industry or geographic location
Notes and Caveats
Number of organizations: The number of organizations (indicated by n) is noted in thefindings and indicates the number of organizations (not individuals) that provided data
relevant to a particular table. The number of organizations varies from table to table
because some organizations did not respond to all of the questions. Organizations maynot have responded to a question on the survey because all or some part(s) of the question
were not applicable or because the requested data were unavailable. This also accountsfor the varying number of responses within a table Letter n in tables and figures
indicates the number of respondents to each question. Therefore, when it is noted that n =
17, it indicates that the number of respondents was 17.
Percentile: The percentile is the percentage of responses that have values less than orequal to that particular value. For example, when data are arranged from lowest to
highest, the 25th percentile is the point at which 75% of the data are above it and 25% arebelow it. Conversely, the 75th percentile is the point at which 25% of the data are above
it and 75% are below it.
Median (50th percenti le): The median is the midpoint of the set of numbers or values
arranged in ascending order. It is recommended that the median is used as a basis for allinterpretations of the data.
Human Capital Measurement and Productivity Benchmarking studies are conducted b
progressive economies in the world. In Pakistan, first such study was conducted durin
year 2011 by SHRM Forum Pakistan in collaboration with FAST School of Managemen
Total 44 companies participated in it. For year 2012, HR Metricswww.thehrmetrics.co
took the initiative of conducting research to determine HR functional performance anworkforce productivity in 28 key areas. The period covered for this report is year 201
may it be from Jan 2011-Dec 2011 or Jul 2011-Jun 2012.
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Areas of Measurement
HR to organizational staff ratioSize of HR department
Recruitment cost to HR cost ratio
Cost per hire
Time to hire
Total turnover rate
Voluntary turnover rate
Premature turnover
Internal hiring ratio
Hiring & Retention
Metrics
Training cost to HR cost ratio
Training cost per employee
Training hours per employee
Internal trained ratio
Training and development ROI
Training and Development
Metrics
Promotion rate
Career path rate
Employee Growth
Metrics
Gender ratioGender ratio in managerial cadre
Management span of control
Workforce Demographics
Metrics
Compensation to HR cost ratio
Compensation cost per employee
Salary to compensation ratio
Compensation and Benefit
Metrics
HR cost to revenue ratio
HR cost to operating cost ratio
HR cost per employee
Human Capital ROI
Human Capital ROI
Metrics
Operating revenue per employee
Operating cost per employee
Net profit (After Tax) per employee
Organization Productivity
Metrics
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2.1 The Findings
Table 1: Key study areas vs. Percentiles of Industry
Ratios N P25 P50 P75
Size of HR department
HR to Organizational Staff
Ratio (%)17 0.62 1.30 1.88
This ratio represents total number of HR employees against total number of employees i
an organization. HR staff includes all roles (specialists & generalists).
In this case at median scale (P50), for every 100 employees, there are 1.30 HR employees. Thisratio is a reflector of number of HR staff to deal with HR matters. Though it is a market
benchmark but it is recommended that this figure should not be taken as plea toincrease/decrease staff. It should rather be seen in the context of other organization factorsincluding overall HR scope of responsibilities, outsourced functions and use of technology etc.
Hiring & Retention Metrics
Recruitment Cost to HR Cost
Ratio (%)14 0.13 0.25 0.41
In this case, the Recruitment Cost includes sum of internal and external advertising,employee referral, travelling, lodging cost of applicants and hiring staff, relocation cost
plus hiring staff salaries and benefits; while HR cost is the sum of all HR Cost including
salaries, benefits, recruitment cost, training cost, and HR outsourcing cost etc.
On median scale, 0.25% of overall HR cost is spent on Recruitment and Selection of Employees.
Cost per Hire (Rs) 14 749.94 6,866.95 11,938.21
The average cost per hire is obtained by dividing shows total recruitment and selection
cost on total number of hires.
On median scale, organizations spend almost Rs. 6,867 for hiring an individual.
Time to Hire (Days) 16 30.00 35.00 51.00
According to the
survey, 50 % of the
respondent companies
were operating in Jan-
Dec business cycle
and remaining Jul-
Jun.
In 65% of the
respondent firms, the
senior most HR
person (HR Head)
reports to the CEO of
the organization.
This is an indication
that HR is regarded as
strategic function.
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Average Time-to-hire represents the number of days (calendar days, including weekendsand holidays) from when the job requisition was opened until the offer was accepted by
the candidate. This is obtained by calculating the time to hire for each position and
divide by total numbers hired.
On the median scale, 50% of the companies take more than a month (35 days) to hire acandidate.
Total Turnover Rate (%) 16 6.07 12.70 19.37
Annual overall turnover rate is the rate at which employees enter and leave a company
in a given fiscal year. Typically, the more loyal employees are to a firm, the lower the
turnover rate. It is calculated for each month by dividing the number of separationsduring the month by the average number of employees during the month and multiplying
by 100. The annual turnover rate is then calculated by adding the 12 months worth of
turnover percentages together.
On median scale, the total turnover ratio is 12.70%.
Voluntary Turnover Rate (%) 16 4.17 11.53 15.66
Annual voluntary turnover rate is the rate at which employees enter and leave a
company in a given fiscal year. This includes resignations.
According to the 50th percentile, the voluntary turnover ratio is 11.53%.
Premature Turnover (%) 16 0.18 0.97 3.95
This shows the number of separations (less than a year) against the average number of
employees in an organization. This is a possible indicator of unsuitable hiring, thoughreason for turnover could be any.
On median scale, the premature turnover ratio is 0.97%.
Internal Hiring Ratio (%) 17 0.00 9.09 23.81
This ratio shows number of internal hiring against total hiring. It is a reflector of home
grown people and bench strength of organization; if they have been hired without any
compromise on hiring criteria.
On median scale, 9.09% positions are being filled internally.
Training and Development Metrics
Training Cost to HR Cost
Ratio (%)15 0.16 1.14 3.70
This represents the portion of training spending out of total HR spending.
On median scale, Training cost to HR cost ratio is Rs. 1.14%
Training Cost per Employee
(Rs) 15 313.67 4,909.09 9,598.20
This is the average Training cost being spent per employee.
On median scale, Rs 4,909 are being spent on training of each employee.
Training Hours per Employee
(Hours) 150.19 2.46 10.21
Total training hours divided by the total number of employees in the organization.
Training hours exclude all the lunch breaks and tea times.
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On median scale, 2.46 hours training is given per employee during the year
Internal Trained Ratio (%) 15 73.48 88.23 93.98
Internally trained employees divided by total number of employees trained. Internally
trained means the use of internal resource person and NOT the venue. This ratio reflectsthe internal capacity of organizations to groom its employees.
On median scale, 88% out of employees are internally trained.
Training and Development
ROI14 0.25 11.60 78.91
Training ROI shows how much the company is getting in return for every rupee
investment in training of employees.
On median scale, Training ROI is Rs 11.60 for every single Rupee.
Employee Growth Metrics
Promotion Rate (%) 14 0.64 3.92 12.20
Total number of promotions against total number of employees in an organization.
Promotion means vertical change in grade and salary.
On median scale, Promotion rate is 3.92%.
Career Path Rate (%) 14 38.84 59.83 80.58
Total promotions divided by total movement (promotion + transfers).
On median scale, out of all movements, 59.83% were vertical and remaining horizontal. Due to
vertical pyramid organization structure, everyone cant be promoted; hence their horizontalrotation is an indicator for people development.
Workforce Demographics
Gender Ratio (%) 17 3.69 12.17 18.50Total number of female employees against total number of employees in an organization
On median scale, 12.17% are females.
Gender Ratio in Supervisory
Cadre (%)17 1.19 7.69 10.39
This indicates the total number of female employees in the supervisory cadre against
total number of employees in the supervisory cadre. Supervisor is anyone who is
managing 2 or more employees.
On median scale, the ratio is 7.69%.
Manager to Employee Ratio
(%)
17 15.22 18.18 32.50
Total number of employees in supervisory cadre to total number of employees in an
organization.
On median scale, the ratio is 18.18%.
Compensation and Benefit Metrics
Compensation to HR Cost
Ratio (%)14 93.61 98.19 99.42
Total compensation cost (Salaries & Benefits) divided by total HR cost.
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On median scale, the ratio is 98.19%.
Compensation Cost per
Employee (Rs)14 197,525.97 314,507.50 470,011.88
Total Compensation Cost divided by total number of employees in an organization.
On median scales, Rs. 314,508 are spent on salary and benefits of per employee.
Salary to Compensation Ratio
(%)14 70.57 77.41 89.27
Total cash payout Salaries (basic pay + utilities + house rent + bonuses + monetary
incentives) divided by total compensation cost.
On median scale, 77.41% of total compensation goes to cash payouts.
Human Capital ROI Metrics
HR Cost to Revenue Ratio (%) 14 11.62 25.51 31.90
Total workforce spending (salaries, benefits, recruitment, training, HR outsourcing)
divided by revenue.On median scale, the ratio is 25.51%
HR Cost to Operating Cost
Ratio (%)14 12.13 30.28 46.98
Total workforce spending (salaries, benefits, recruitment, training, HR outsourcing)
divided by operating cost (HR + non HR cost).
On median scale, the ratio is 30.28%
HR Cost per Employee (Rs) 15 163,666.49 322,880.45 509,924.36
Total spending per employee (Hiring + Salary + Benefits + Training + Other cost etc)
On median scale, organizations spend Rs. 302,881 per employee.
Human Capital ROI 14 0.84 1.51 2.98HC ROI shows the return on workforce spending (People benefit vs. people cost)
On median scale, Human Capital ROI is 1 to 1.51
Organizational Productivity Metrics
Operating Revenue per
Employee (Rs)15 1,027,127.84 2,283,288.26 8,144,665.48
This is organization top line indicator financial performance, also dependent on its
growth phase.
On median scale, it is Rs. 2,283,288 per employee
Operating Cost per Employee
(Rs)
15 923,638.77 1,905,024.48 5,450,690.72
This is organization cost management indicator, also dependent upon its growth phase.
On median scale, it is Rs. 1,905,025 per employee
Net Profit (After Tax) per
Employee (Rs)15 (47,443.10) 115,878.14 762,571.27
This is organization profitability indicator, also dependent on its growth phase.
On median scale, it is Rs. 115,878 per employee
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3. Conclusion
The key purpose of this project is to bring into lime light the need for quantifying the HR
Management function to make quality decisions pertaining to workforce management
According to financial analysts report, in todays knowledge centered economy, 35%
financial decisions are based on non financial information resources. Analysis of people
management data plays a crucial role in organization growth. Organizations can use key
benchmarks as part of annual business plan and use information in annual reports also.
Although the sample size in this research was small but it is a key step towards formallymeasuring the inputs and outputs of workforce. In the future, we can aim for a wider
research and also focusing on industry specific segments for better comparisons.
Disclaimer: This report is published by HR Metrics. The company does not accept responsibility for anyinadvertent errors or omissions or any legal liability resulting from the use or misuse of any such information. User is
advised to seek the advice of a competent professional in determining the exercise of reasonable care in any given
circumstances. Information covered by this publication may be available from other sources, which the user may wishto consult for additional views or information not covered by this publication.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written consent of the
copyright owner.
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HR METRICS also provides Consulting and Training:
We facilitate companies in measuringthe Efficiency, Effectivenessand Outcomeof HR operational and strategic performance in line with business objectives.
Help in quantifiable HR Benchmarkingand Action Planningto enhanceworkforce productivity index; and demonstrate HR contribution to the organization
bottom line in verifiable economic terms.
Using business friendly financial accounting principles for impact assessment andmanagement reporting
Values
Focus on HR Effectiveness and visible impact on bottom line. Cutting edge people performance optimization tools. Data driven solutions supported by local research.
Zahid Ali MubarakGPHR, HRMP is the CEO HR Metrics. He is the founder leader/President SHRMForum Pakistan, Member ISO Geneva Technical Committee on HR Standards and Chairman National
Mirror Committee HR Standards Pakistan.
Zahid@thehrmetrics.com
Durr ia Anjum Ahmed(MPM) is the Research Analyst for HR Metrics and has been working on Research &
D l j f HR M M i i P ki i 2011
Our Vision
Optimize business growth
through transformation to fact-
based analytical frameworks inworkforce management
decisions
Our Mission
To provide human capital
measurement tools to analyzeand leverage workforce
performance for sustainable
organizational growth.
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