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.
http://www.thehrmetrics.com/http://www.thehrmetrics.com/http://www.thehrmetrics.com/


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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.


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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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.

[email protected]

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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