Executives Turn to Employee ROI as HR Gauge

By Staff Report

Oct. 17, 2005

Most company executives plan to establish metrics to determine employee return on investment in the next several months to measure the effectiveness of their human resources departments, according to a recent survey conducted by Veritude, a Boston-based consulting firm.

The survey found that 81 percent of executives currently measure the effectiveness of their HR departments by examining employee turnover and labor costs as a percentage of revenue. Sixty-one percent, however, said they will soon look at a different major metric: employee return on investment.

This means that rather than looking at one factor, such as productivity or cost per hire, companies will roll all of these metrics together. That will let them see how much return they are realizing from their employees’ efforts, versus what’s spent on hiring and retaining them, says Jim Del Rosario, vice president of talent acquisition for Veritude.

“Over 50 percent of expenses at companies are people costs,” he says. Companies are getting squeezed harder and one of the things that they are looking at is whether they are getting the highest value from their workforces.

The survey, which was based on responses from 105 executives at companies with 10,000 employees or fewer, shows that companies are planning to use more complex analytics to measure the effectiveness of their human resources initiatives, Del Rosario says. “Companies are becoming much more sophisticated than they ever have been before.”

Jessica Marquez

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