Employee Turnover Cost: What It Is, How to Calculate It and How to Use It Employee turnover is expensive. A 2017 survey by Employee Benefit News estimated that a departing employee costs the employer on average 33% of their annual salary. Most of this cost comes from the required expenses to recruit, onboard, and train a replacement. Simply put, for each departed employee with a $60,000 annual salary the employer can expect to spend $20,000 in replacement costs. And this figure doesn’t include the lost productivity on the business or the salary of the new employee which is typically at a higher pay rate. ​ To help organizations improve turnover, we put together this beginner’s guide to everything you need to know about total cost of turnover, how to calculate it, and how to use it to discover cost-saving opportunities. What is Employee Turnover Cost? Why You Need to Monitor Your Employee Turnover Cost How to Calculate Your Employee Turnover Cost Employee Turnover Cost Best Practices What You Need to Know about Employee Turnover Cost Have Questions? Talk to Us What's Employee Turnover Cost? What is Employee Turnover Cost? A large portion of employee turnover costs are incurred to hire a replacement employee and train that replacement. Cost of turnover generally has some directly measurable or "hard" costs that negatively impact the organization but many costs or impacts typically associated with turnover are difficult to quantify for most organizations. ​ Examples of costs of turnover include but are not limited to absence and leave costs, recruiting costs for replacement hires, new hire orientation costs, initial new hire training costs, and internal vs. external hire compensation differential. ​ The cost of turnover can be broken into the following major categories: Pre-departure costs Departure and open position costs Replacement costs Offset costs Why You Need to Monitor Your Employee Turnover Cost Why You Need to Monitor Your Employee Turnover Cost Keeping business expenses under control is usually the go-to-answer for this question. The higher the employee turnover rate the higher the cost will grow. ​ Below are some of the top turnover questions companies are asking. You can find our completed list of the top 25 key human capital questions here . Are we losing the right people (low performers) or the wrong people (high performers or critical roles/skills)? What if the departed employee is a high performer? What if he or she is working in a critical and core position? ​ Smart companies aim to maintain overall turnover at the manageable level while keeping turnover of high performers, core positions and critical job roles to the minimum. How to Caluclate Your Employee Turnove Cost? How to Calculate Your Employee Turnover Cost Employee Turnover Cost Best Practices Employee Turnover Cost Best Practices Now that we have covered Employee Turnover Cost and how to measure it, the next step is to figure out how to use this metric to improve your workforce decisions and intervention plans. Below are two use cases of this metric: ​ Example 1: Integrate talent market data to show the cost savings from retaining talent Bringing your internal turnover and compensation costs together with external market data can help you understand your workforce like never before. ​ By comparing current average compensation with the market rate, users can measure, track, and correlate compensation gaps with turnover trends. With salary often cited as the #1 reason for leaving, this should be the first area HR needs to examine for possible drivers for turnover and retention. ​ Software like SOLVE™️ makes it easy for users to compare the compensation of departed employees with the average market rate and what it would cost to replace with a new hire. ​ As shown in figure 1, the average compensation of a departed sales staff is around $66,000 but it costs this company well over $87,000 to replace with a new hire. In other words, it costs them $21,000 MORE than what they are currently paying to replenish each departing salesperson. Figure 1: Comparing avg new hire compensation with avg compensation of departed employees These numbers can add up quickly since Sales is traditionally a role with a high turnover rate. With over 500 terminations last year, they can expect to spend $10 million more each year on replenishing departing sales staff. ​ While further investigation is required to pinpoint drivers of turnover, one of the first areas to investigate is the gap between current compensation and the average market rate. According to figure 2, there is a $12,000 or 18% gap in average compensation for those who departed. Figure 2: Comparing avg compensation of departed employees with avg market compensation Case Study Download Now Attrition Study at Public Storage Example 2: Use scenario modeling to find the best turnover intervention for your company Picking up where we left off in example 1, now that you know that there is a large compensation gap, the next step is to figure out what kind of increase in salary or improvement in other areas could reduce turnover rate and cost. One effective way you can do this is through scenario modeling. ​ As seen in figure 3, you should use an analytics model that can project your Total Cost of Turnover and Turnover Rate and compare to your goals based on changes to a series of input variables. Input variables can include current salary vs. market rate gaps, current benefit vs. market rate gaps as well as engagement, promotion, and much more. Using this modeling technique, you can find a set of interventions that are both cost-efficient and achievable. Figure 3: Forecasting turnover rate and total cost of turnover Want to See How Your Organization Can Benefit from Employee Turnover Cost? Let's Talk

Research Articles FORUM BLOG News Events Log in Welcome to the Human Capital Value & Reporting Community! Welcome ​ The Human Capital Value & Reporting Community was established to support management teams, boards and investors who increasingly see the critical importance of quantifying the value and potential risks of a firm’s workforce - frequently viewed as the most valuable asset and the driver of competitive advantage. The upcoming release of ISO 30414 guidelines for human capital reporting accelerates the internal and external demand for human capital performance metrics as companies evaluate how best to measure and share information about the impact of the workforce on business results. ​ ​ ​ Mission ​ The mission of the Human Capital Value & Reporting Community is to be the “go to” source for HR and business leaders, boards and investors to seek and share insights on how best to measure, quantify, evaluate and report the business impact of an organization’s human capital investments. We do this by providing original and curated expert content, sharing answers to need-to-know questions through our community forum, and bringing the community together through virtual and in person events. ​ ​ ​ Membership ​ There is no fee to join the Human Capital Value & Reporting Community, however to ensure a rich and open dialogue membership is reserved for HR and business executives, board members and investment professionals. We invite you to join us. Join the Community

Case Studies Bio-Tech Productivity Bio-Tech’s HR needed a firm understanding of its workforce impact on business results and ways to support new, rigorous organizational design activities, with a focus on increasing workforce productivity and controlling contingent costs. Bio-Tech engaged HCMI for a high level productivity analysis using advanced workforce productivity metrics from HCMI’s Human Capital Financial Statements (HCFS) as well as headcount, high level talent, and workforce cost data. Bio-Tech has 16,500 employees and 16,000 contingent workers: How is Bio-Tech’s productivity relative to competitors? Where are opportunities to optimize Bio-Tech’s workforce investment? Is Bio-Tech effectively managing and controlling human capital costs? Are there talent risks that could impact Bio-Tech’s business goals in the coming years? Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In

Job Classification Framework A Job Classification Framework or Job Architecture or Job Matching Framework is a series of progressively higher related jobs distinguished by levels of knowledge, skills, abilities (competencies) and other factors. Using a job classification framework makes it possible to identify critical roles, skills and promotional opportunities quickly and easily. It also supports deep job analysis for insights across the organization. A job classification framework is critical in building the foundation for workforce analytics and planning as it enables advanced segmentation and identification of trends and opportunities for particular workforce groups and isolation of cohorts for detailed analysis. While the value increases exponentially as organizations progress to more advanced analytics and planning, the immediate value is in the ability to slice across business units or divisions and identify all employees in a particular job role or function. FIND OUT WHY GREAT COMPANIES LIKE THESE HAVE CHOSEN US Have Questions? Talk to Us Benefits of Job Classification Framework Giving management the ability to measure and manage jobs, skills, experience Improving recruiting through better matching of competencies and skills Enabling more targeted interventions on training, career development and internal mobility Delivering critical role job classification analysis and management Setting standards while keeping flexibility in staffing and assigning job duties Creating reports and segmentation drill down into job category, job family, job role Quickly and easily grouping jobs for reporting, trending, and in-depth analysis Example Application of Job Classification Framework In the example below, the job classification framework makes it easy to identify the total HR population and how many analysts exist across all business units of the organization. With this information you can answer questions like “how many analysts do we have across the organization?” or “how many HR people do we have in the company?”. See below: HCMI Job Classification Framework HCMI Job Classification Framework includes over 86,000 unique job titles and built-in identification and matching capabilities. This allows for rapid job selection and matching by decision level and primary job function and provides quick access to critical roles for organization-wide job mapping. Contact Us Want to know more about our Job Classification Framework? Click on the button below to submit a contact form and we will get back to you shortly. Talk to Us Don't forget to share this post!

Human Capital ROI: What It Is, Why Use It and How to Calculate It Multiple studies have shown that a company’s workforce is responsible for more than 90% of its Market Value through intangible assets such as patents, trademarks, intellectual property and innovation. And for most organizations, labor costs also are the single largest operating expense. ​ For these reasons, understanding and quantifying the impact of human capital value and risk on the business is critical as companies look to emerge from the COVID-19 pandemic. Human Capital ROI is a leading performance metric that can transform how to measure, manage and optimize workforce productivity. ​ We created this guide is a primer on Human Capital ROI to explain what it is, how to calculate it, and how to use it to make better talent management decisions. What is Human Capital ROI? What’s wrong with traditional measurements? Findings from our workforce productivity study How to calculate Human Capital ROI Using Human Capital ROI to improve workforce productivity What You Need to Know about Human Capital ROI Have Questions? Talk to Us What is Human Capital ROI? What is Human Capital ROI? Human Capital ROI is a cost-based metric that reflects the return on investment in people in terms of the incremental Revenue an organization would be able to generate from an additional $1 investment into the workforce. ​ For example, a 2.5 Human Capital ROI ratio means that for each additional $100,000 an organization invested into the workforce, it should expect this investment to be able to generate an additional $250,000 in revenue. HR can also use this metric to measure the ROI from recruiting, training and nurturing talent vs. other forms of investments. Human Capital ROI is among three advanced productivity metrics that account for workforce costs in relation to company output (revenue/profit). The other two metrics are Return on Human Capital Investment (%) and Total Cost of Workforce (TCOW) . What’s Wrong with Traditional Measurements? What's wrong with traditional measurements? Traditional financial reporting contains minimal information on an organization’s talent management effectiveness and productivity in relation to revenue and profit. The recently released ISO #30414 Human Capital Reporting Standard addresses this deficiency with recommendations for disclosing certain advanced workforce productivity metrics. The U.S Securities and Exchange Commission Chairman has stated that he “would like to see more disclosure from public companies on how they think about human capital.” ​ Human Capital ROI solves the financial linkage challenge by quantifying overall changes in major expenses such as total labor costs to outputs such as revenue. The result is an output and input sensitive return on a series of cost-based workforce productivity metrics. Finding from our workforce productivit study Finding from Our Workforce Productivity Study HCMI’s early research and multi-industry study found that cost-based workforce productivity metrics predicted improvements and losses in overall market value. These findings held in the periods of recession, growth, and overall market stagnation. In 2020, we conducted a follow-up study of the top 41 North American banks to exam the industry’s workforce productivity trends from past years. As shown below, there is a significant gap in Human Capital ROI between the top and bottom quartile banks. This gap grew over 33% in 2019. Highlights of this study: Labor costs are the single largest operating expense driving the cost-to-income-ratio (CIR) banking metric Advanced metrics and measures used in the study link workforce investments to revenue and market value Top 5 bank “winners” grew in market cap by $20.5 Billion per bank on average vs flat market value for the others In 2019, the gap between the top and bottom quartile banks increased by 33% Prior studies suggest talent management decisions before, during and after financial crises significantly impact the likelihood and speed of recovery from COVID-19 WHITEPAPER Linking Human Capital to Business Performance Download Now How to calculate HC ROI How to Calculate Human Capital ROI 3 Examples of Using Human Capital ROI to Make Better Workforce Decisions 3 examples Example 1: Use Human Capital ROI to track the impact of workforce investment decisions ​ Including Human Capital ROI in your HR reporting can help management visualize and track the impact of workforce investment decisions. ​ We recommend tracking historical Human Capital ROI trends as they are a good predictor of organizational performance and show the direction and the rate at which your productivity is improving or declining. Where the data allows, filtering productivity data down to the business line and job category level provides insights for more precise interventions. ​ Here are the top workforce questions you can answer using Human Capital ROI: What is our workforce productivity? Is it higher than peers? What is the marginal return of one dollar invested in the workforce? Is the ROI on human capital higher than other investments? Is workforce productivity increasing, decreasing or static? How are we performing versus peers? Example 2: Benchmarking your workforce performance against the industry average and similar peers ​ When you’re done calculating your Human Capital ROI, you’ll want to compare your numbers against industry benchmarks. This is a great way to evaluate your performance relative to peers before looking for possible interventions. If your historical data and forecasts are close to industry benchmarks, you know that you are performing as well as other companies. If your score is well above or below the industry average, you may have differences in workforce strategies or the overall business performance. Comparing against specific peers with a similar business model, segment, size or geographical location can provide deeper insights. ​ An analytics tool like SOLVE can make this process quick and easy with data automation and pre-built industry benchmark data. Learn more about how you can benchmark your Human Capital ROI against peers. Learn More Workforce Productivity Benchmarking Examples 3: Create your workforce productivity report and disclosure Similar to how financial reports provide a snapshot of the financial health of your organization, Human Capital ROI along with Total Cost of Workforce and other advanced metrics provide a clear picture t with amazing details of your workforce costs, performance and distribution. Much of today’s talent management decision process is based on metrics and ratios. This type of report can be a tool for management to get timely and accurate information about workforce cost and productivity. ​ Human Capital ROI is also one of the recommended metrics in the ISO #30414 guideline. Even if getting certified might not be your organization's objective at the moment, it is a good idea to start familiarizing your team and management about this metric and evidence-based talent management in general. Below is an example of our workforce impact statement: Find out more about our HR Consulting Services. Want to See How Your Organization Can Benefit from Human Capital ROI? Let's Talk

Case Studies Attrition Study Public Storage built its first self-storage facility in 1972. Today it operates 2,700+ locations in the United States and Europe, totaling more than 142 million net rentable square feet of real estate. More than 20 factors were studied as a part of the analysis. Those factors that were predictive of a successful hire, were used to create a “candidate profile.” After analyzing pay rates for the Metropolitan Statistical Areas throughout various regions in which Public Storage operates, a slight increase in wages for property-level managers was found to improve retention. The findings from the analysis resulted in, decreased business HR and administrative costs, creating a costs savings of $290,000 to $455,000 within one years time. Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In

White Papers The War for Talent in the Tech Industry: Leverage External Data to Win The pandemic has forever changed the talent market. This is especially true for U.S. tech companies that are growing at a rapid rate. With the U.S. talent shortages at a 10-year high, hiring talents with desirable skills now comes with a hefty premium. For most this would be bad news, but for the HR teams that are ready to use data to make informed decisions, this is a golden opportunity. This report showcases how HR can leverage labor market data to win the recruiting war: hire talents where the supply is most abundant and competitively priced. Here Human Capital Management Institute (HCMI) analyzed job listing data of the top 41 U.S. tech companies spanning 138 unique countries to assess the current talent landscape within the tech industry. Download this research paper to see how labor market data can help answer the following recruiting questions: 1. How much are competitors hiring? 2. Where is the best location to hire, expand, or relocate? 3. What job roles are in the highest demand? 4. Will your current labor market meet expected demand? 5. What talent supply will be available? 6. Which critical job roles will be hardest to fill? Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In

Human Capital Valuation: Private Equity/M&A Due Diligence While Human Capital can be a differentiated value driver, most organizations face challenges in measuring and reporting its impact on the business. HCMI's Human Capital Reporting & Disclosure services set the global standards in leading and educating organizations on what to measure, what it means to the business, and how to report and disclose to meet voluntary and regulatory compliance standards. Talk to Us Find out why great companies like these have chosen HCMI Human Capital Valuation & ISO Reporting HCMI's Human Capital Financial Statement (HCF$) is a comprehensive reporting framework that values the business impact of human capital in every stage of the talent management lifecycle and provides the key metrics to meet the ISO Human Capital Reporting Standards. Talk to Us ➡️ Download Case Study HCF$ includes three unique statements: Human Capital Impact Statement Measures the quarterly or annual impact of human capital on financial performance Human Capital Asset Statement Quantifies the total value of the workforce by job category Human Capital Flow Statement Traces the flow of human capital showing where and how it is allocated and used What are the Benefits? HCF$ details the cost, impact and return on all areas of investment a company makes in its talent. It also meets the ISO Human Capital Reporting Standards. Use HCF$ to answer these questions: How can we model our workforce to optimize cost, profit and productivity? What is driving our Total Cost of Workforce and how is it trending? What is our workforce productivity? Is it increasing, decreasing or static? What is the differential human capital ROI of different job roles? Private Equity/M&A Due Diligence Private Equity portfolios and targets and are becoming heavily weighted with companies whose economic value is driven primarily by intangible workforce assets (e.g. intellectual property, innovation, leadership). ​ Yet, most firms don’t measure the impact of the workforce on business results beyond compliance risks and labor costs, which can result in substantial gaps in valuation in the diligence phase and missed opportunities in the growth and operations improvement phases. ​ HCMI designed its Private Equity Services to provide the resources to support decisions through each stage of the fund life cycle: Phase HCMI Resources Diligence Company valuation and deal go/no go support to quantify and benchmark material human capital risks and contributions to enterprise value. Human Capital Financial Statements (HCF$) Workforce Productivity Benchmarking On-demand analytics-as-a-service support Ongoing Operations Identify and monitor human capital operating improvement opportunities to drive gains in enterprise value. Human Capital Financial Statements (HCF$) Workforce Productivity Benchmarking SOLVE™ Workforce Intelligence Software On-demand analytics-as-a-service support Exit Company valuation support to quantify and maximize human capital contributions to enterprise value. Human Capital Financial Statements (HCF$) Workforce Productivity Benchmarking On-demand analytics-as-a-service support Make better go/no go and valuation decisions, improve ongoing operating gains, and drive higher valuations at exit. Let's Talk Ready to Talk? Get in Touch with Us. Let's Talk

Case Studies Workforce Planning for Business Success at a Mid-Sized Manufacturing Company This case study from the Human Capital Management Institute (HCMI) outlines the workforce planning success of Product Co., a mid-sized manufacturing company, in the post-COVID environment. Utilizing the SOLVE™ platform, Product Co. optimized its workforce strategy by integrating HR, financial, and operational data to effectively control costs and improve manufacturing output. The case study highlights the transition from manual, inefficient tools to a dynamic, data-driven approach, resulting in a feasible, strategic, and profitable workforce plan that supports sustained growth and operational efficiency. Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In

solve overview SOLVE™ - People & HR Analytics Software The Window into Your Workforce Schedule Demo See SOLVE™ in Action Find out why great companies like these have chosen SOLVE™ About SOLVE™ With best-practice expertise built-in, SOLVE™ provides a workforce decision hub transforming data from disparate HR and business systems into critical insights to drive business results today and build a workforce for tomorrow. Overview SOLVE™️ Answers Your Critical Workforce Questions GAIN OPERATIONAL EFFICIENCY One Source of Insights for all Data Provide secure role level access to key workforce performance metrics and drivers through a single point of access to an integrated set of enterprise-wide data. ENABLE TACTICAL EXECUTION Your Decision Hub for Talent Management On-demand access to dynamic visuals of pre-built best-in-class metrics provide a workforce decision hub for time sensitive and business critical actions. ACHIEVE STRATEGIC ADVANTAGE Linking Workforce to Financial Results Link workforce spending to business and financial outcomes to know where to cut waste and where to increase investment to deliver the best business results. Reduce Reporting Time by 95% Deliver higher value and more accurate information in a fraction of the time with SOLVE™ automated data collection, cleansing, integration and reporting. Score Results vs Benchmarks Compare your performance against industry average and peers with built-in benchmarks and labor market intelligence built into your reports and analyses. Align Workforce Plans with Business Needs Model workforce plans to align with multiple business financial scenarios to maximize flexibility to achieve the optimal workforce size, cost and productivity. See how SOLVE™️ helps you drive business results See SOLVE™️ in Action ➲ SOLVE™ Workforce Analytics Use SOLVE™ Workforce Analytics to measure, predict and optimize the financial and business impact of your workforce investments. With dynamic visualization, embedded analytics, and advanced query and slice-and-dice capabilities, SOLVE™ enables HR, business and analytics users to identify actionable insights for talent management interventions. ▶️ See SOLVE™️ in Action Workforce Analytics Workforce Productivity Measure or benchmark return on workforce investment with 10,000+ companies. Turnover and Retention Identify the key drivers of why people choose to stay or leave Recruiting Profile and optimize best talent sources via quality of hire index. Performance Discover and measure the value create by high performers. SOLVE™ Workforce Planning Use SOLVE™ Workforce Planning to model and optimize workforce supply and demand based on workforce cost, headcount, staffing levels, skills and financial projections. Create and save unlimited scenario models to find the optimal solutions to achieve financial targets and business objectives. ▶️ See SOLVE™️ in Action Key features Include: Demand Forecasting of future company and job level headcount demand based on organizational drivers and measured against Total Cost of Workforce (TCOW), total revenue and expense, and level of services provided across the organization. Supply Forecasting of talent incorporating account tenure, age, retirement projections, and historical employee movement through the organization with considerations of TCOW for the organization, job roles and functions. Retirement Calculator to project overall and job-level projected retirements with visual distribution of workforce segments by age and/or retirement eligibility. Workforce Gap Analysis to model and visualize overall supply and demand headcount gaps, map Profit per FTE against TCOW, and analyze headcount, cost, tenure, age, skills and engagement gaps against goals. Workforce Plan on a Page to provide a summary view of workforce optimization and key metrics for talent, labor cost, productivity, retention, hiring, engagement, and leadership impact. Workforce Planning Competitive Talent Intelligence SOLVE™ Competitive Talent Intelligence Get detailed insights into talent supply, demand, salary and competitor recruiting activities at the local market level with Competitive Talent Intelligence from SOLVE™. Competitor Recruiting Activities Local salary benchmark data Local talent supply and demand Learn More Ready to Talk? Get in Touch or Schedule a Demo Let's Talk

White Papers Human Capital Financial Statements HCMI’s Human Capital Financial Statements (HCFS) provide a standard means with which to measure, report and disclose a company’s human capital. A company’s workforce can finally be reported separately for what it is: a critical factor in the success of any organization. First, read more about the HCFS in the white paper. Learn how and why: HCFS need to be an integral part of business decision making. HCFS quantify human capital similar to traditional financial statements. The overall benefit of using HCFS for your company. Methods to utilize HCFS to make evidence-based business decisions. Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In

White Papers Examining HR Analytics Through the Lens of Finance Now more than ever, an organization’s success is tightly linked to its talent. Yet, the majority of talent spending decisions are made without business and financial ROI measures. In PWC’s 2019 Annual Global CEO Survey, CEOs affirmed that availability of key talent is among the top three business threats that affect their ability to innovate and lead to higher than expected workforce costs. This eBook provides HR and business leaders with a starting point for delivering actionable business insights into the talent investment side of their organizations. Download this eBook to learn the importance of using data to improve talent spending decisions by viewing HR analytics from a financial ROI point of view. Download Please create an account to view downloads: Sign Up If you already have an account, please log in: Sign In