The Human Capital Challenge Series

T he Value of Talent: Calculate your cost to hire and

learn how to reduce it

December 4, 2012 | Paula A. Soileau, CPA

©2012 Affintus, LLC

Challenges

Finding the right candidate takes too long• Who will be successful is not easy to determine: how do

managers know which candidates are best?• Internal processes may be inefficient• Social media results in lots of candidates

Employers settle for “good enough”• Difference between good and great employees is significant,

but hard to know who will be great

People have biases• People like people who are like themselves, but this

similarity does not reflect what is best for your job• People rely on subjective or self-reported information

Why does talent cost so much?

Factors That Affect Hiring Cost

Turnover rate Number of hires in a year Time to hire / time positions vacant Time to learn job Hiring process (efficient vs. inefficient) Average position salary

So which ones impact business results?

Turnover rate Number of hires in a year Time to learn job / ramp up Time to hire / time positions vacant Hiring process (efficient vs. inefficient) Average salary

Cost To Hire…a simple calculation

a) Number of Employees 2011

b) Estimated hiring in 2011

# of hires or placements

c) Average hiring rate %

= b / a

d) Average Annual Salary $

e) Average cost per placement 25%

% of salary

f) Cost of Placements 2011 $

= (.25 X d) X b

Cost To HireImpacts Business Results

a) Number of Employees 2011 100

b) Estimated placements in 2011

# of hires or placements 15

c) Average Turnover Rate 15%

= b / a

d) Average Annual Salary $ 50,000

e) Average cost per placement 25%

% of salary

f) Cost of Placements 2011

$187,500

= (.25 X d) X b

Cost by firm size

Blatter, Marc et al. 2009. The Costs of Hiring Skilled Workers. Working Paper No. 15. Bern, Switzerland: Institut fur Strategie und Unternehmensökonomik.

Time To HireImpacts Business Results

2 Formulas TF = RR – OD Time to acceptanceTS = RR – SD Time to start

TF = Time until offer acceptance TS = Time until new hire starts work RR = Date requisition received OD = Date offer accepted SD = Date new hire starts

Cost to InterviewImpacts Business Results

Formula Estimated Cost to Interview = C*($M*Mhr) + ($R*Rhr)+$Trav C = total number of candidates interviewed $M = mean manager salary per hour Mhr = mean number of hours manager spends on interview-related activity per hire $R = mean recruiter salary per hour Rhr = mean number of hours recruiter spends on interview-related activity per hire $Trav - expenses per candidate: total travel, meals, hotel

Note: if multiple employees are involved in interviewing, Mhr or Rhr in the formula should reflect the total number of hours all managers or employees spent on interview related activity.

Turnover Rate Impacts Business Results

Formula Turnover or Retention = (NSFY / AEFY) * 100

NSFY = Number of separations during the fiscal year AEFY = Average number of employees during the fiscal year

(Measure company-wide, by department, and by manager )

Productive WorkforceImpacts Business Results

Formula PW = HC – (%pNH)

PW = Productive Workforce HC = Head Count %pNH = New Hire Productivity Estimate

Human Capital MetricsDrive Business Results

FACT

OF NEW HIRES FAIL TO MEET TARGETS WITHIN 18 MONTHS48%

FACT MANY RESUMES CONTAINERRONEOUS INFORMATION

FACTFEW NEW HIRES BECOME HIGH PERFORMERS

Hiring is hard…

Better (and Faster) Hiring in 3 StepsClarify requirements and needs of the jobBe clear on what the job is and is not (don’t use a moving target or “figure it out later” approach)A Job Description is useful!Analyze top performers

Use objective criteria firstReduce reliance on the resume - self-reported, subjectiveUnderstand limitations of resumes and interviewsLook for “natural” talents and abilities; skills can be taught

Structure interviewBehavioral questions – example of when candidate did XTake notes, rate responses on a scale

Bonus Help managers plan the entire talent decision processSchedule interview time at the beginning of the process Use human capital metrics to improve results

Better Hiring ImpactsBusiness Results

10%10%

50%50%

More from Affintus onImproving Business Results

Dec 11 The Limits of Experience and Education: learn why skipping the resume results in better hiring

Early in their careers, most executives and managers learn that prior work experience and educational background are key factors in job success. But it turns out that it is not true! Neither experience nor education is related to future success on the job! In this session you will find out what factors you should look for in potential employees.

Jan 8 The Value of Behavioral Interviews: learn how to interview to find out what you really need know as fast as possible

You have probably read a lot about interviewing and how important it is to “get to know” the candidate face-to-face. The problem is that most interviews turn out to be a conversation rather than active fact-gathering. In this session, learn how to create the questions that really tell you what you need to know to make a good decision.

AffintusGreat people data. Great business results.

paula@affintus.com | Paula A. Soileau, CPA | 1-866-429-

4351

©2012 Affintus, LLC

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