We assist companies in MEASURING efficiency, effectiveness and outcome of HR practices, ACTION PLANNING and BENCHMARKING to improve workforce PRODUCTIVITY

and demonstrate contribution to bottom line in FINANCIAL terms

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 in combating future issues by focusing on leading indicators of performance rather than lagging indicators

HR professionals can upgrade their standing in the organization, pave way for their personal and professional growth

Numbers are the universal language of business and business leaders prefer to take decision on hard data rather than subjective and instinctive gut recommendations

Key Reasons for HR Measurement

Metrics quantify HR departments contribution to the overall bottom line in verificable financial terms Metrics help in assessing the economic viability of an HR investment in view of percieved measurable benefits

Metrics can be used as measurable KPIs of HR to determine the efficiency, effectiveness and outcome of HR practices in alignment with business

Metrics are helpful in quantfiable gap analysis, benchmarking and action planning to achieve and surpass industry standards

info@thehrmetrics.com www.thehrmetrics.com

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

2|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

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 IMPACT of their actions on the business, which is always measured in 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 that how 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 the logical 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 a mechanism 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 benchmarking data 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 rate with 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 want recruiting 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 change. For 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 strategic decisions that affect their organizations. In fact, benchmarking is more effective when
3 | Page

This report is intellectual property of HR Metrics. Its circulation without approval is unauthorized.

info@thehrmetrics.com www.thehrmetrics.com

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-term strategy. 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 organizations workforce. Thus, over the long term, the 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 the comparative figure is not necessarily favorable or unfavorable; it is merely an indication that additional analyses may be needed. Human capital measures that relate 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 executive summary, the greater the need for additional scrutiny. 2. In cases where you determine that large deviations do exist, it may be helpful to go back and calculate the same human capital measure for your organization over the past several years to identify any trends. 3. The information in this report should be used as a tool for decision-making rather than an absolute standard. Because companies differ in their overall business strategy, location, size and other factors, any two companies can be well managed, 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 reviewing these data, it is important to realize that business strategy, organizational culture, leadership behaviors and industry pressures are just a few of the many factors that drive various human capital measures. 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 to hard-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
4|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

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 the findings 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 may not 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 accounts for 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 or equal 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% are below it. Conversely, the 75th percentile is the point at which 25% of the data are above it and 75% are below it. Median (50th percentile): 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 all interpretations of the data.

2.

Statistics HCBMS 2012

Human Capital Measurement and Productivity Benchmarking studies are conducted by progressive economies in the world. In Pakistan, first such study was conducted during year 2011 by SHRM Forum Pakistan in collaboration with FAST School of Management. Total 44 companies participated in it. For year 2012, HR Metrics www.thehrmetrics.com took the initiative of conducting research to determine HR functional performance and workforce productivity in 28 key areas. The period covered for this report is year 2011, may it be from Jan 2011-Dec 2011 or Jul 2011-Jun 2012.

5|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

Areas of Measurement
Size of HR department
HR to organizational staff ratio 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 and Development Metrics

Training cost to HR cost ratio Training cost per employee Training hours per employee Internal trained ratio Training and development ROI

Employee Growth Metrics

Promotion rate Career path rate

Workforce Demographics Metrics

Gender ratio Gender ratio in managerial cadre Management span of control Compensation to HR cost ratio Compensation cost per employee Salary to compensation ratio HR cost to revenue ratio HR cost to operating cost ratio HR cost per employee Human Capital ROI Operating revenue per employee Operating cost per employee Net profit (After Tax) per employee

Compensation and Benefit Metrics

Human Capital ROI Metrics

Organization Productivity Metrics

6|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

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 17 0.62 1.30 1.88 Ratio (%) This ratio represents total number of HR employees against total number of employees in an organization. HR staff includes all roles (specialists & generalists).
According to the survey, 50 % of the respondent companies were operating in JanDec business cycle and remaining JulJun.

In this case at median scale (P50), for every 100 employees, there are 1.30 HR employees. This ratio 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 to increase/decrease staff. It should rather be seen in the context of other organization factors including overall HR scope of responsibilities, outsourced functions and use of technology etc.

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.

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

7|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

Average Time-to-hire represents the number of days (calendar days, including weekends and 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 a candidate.

16 6.07 12.70 19.37 Total Turnover Rate (%) 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 separations during 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, though reason 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 15 0.16 1.14 Ratio (%) 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%

3.70

Training Cost per Employee 15 313.67 4,909.09 (Rs) This is the average Training cost being spent per employee.
On median scale, Rs 4,909 are being spent on training of each employee.

9,598.20

Training Hours per Employee 0.19 2.46 10.21 15 (Hours) Total training hours divided by the total number of employees in the organization. Training hours exclude all the lunch breaks and tea times.

8|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

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 reflects the internal capacity of organizations to groom its employees.
On median scale, 88% out of employees are internally trained.

Training and Development 14 0.25 11.60 78.91 ROI 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 14 0.64 3.92 12.20 Promotion Rate (%) 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%.

14 38.84 59.83 Career Path Rate (%) Total promotions divided by total movement (promotion + transfers).

80.58

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 horizontal rotation is an indicator for people development.

Workforce Demographics 17 3.69 12.17 18.50 Gender Ratio (%) Total number of female employees against total number of employees in an organization.
On median scale, 12.17% are females.

Gender Ratio in Supervisory 17 1.19 7.69 10.39 Cadre (%) 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 14 93.61 98.19 Ratio (%) Total compensation cost (Salaries & Benefits) divided by total HR cost.

99.42

9|Pa g e

info@thehrmetrics.com www.thehrmetrics.com

On median scale, the ratio is 98.19%.

Compensation Cost per 14 197,525.97 314,507.50 470,011.88 Employee (Rs) 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 11.62 25.51 31.90 HR Cost to Revenue Ratio (%) 14 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 14 12.13 30.28 46.98 Ratio (%) 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%

15 163,666.49 322,880.45 509,924.36 HR Cost per Employee (Rs) Total spending per employee (Hiring + Salary + Benefits + Training + Other cost etc)
On median scale, organizations spend Rs. 302,881 per employee.

14 0.84 1.51 2.98 Human Capital ROI HC 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 15 1,027,127.84 2,283,288.26 8,144,665.48 Employee (Rs) 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 15 (47,443.10) 115,878.14 762,571.27 Employee (Rs) This is organization profitability indicator, also dependent on its growth phase.
On median scale, it is Rs. 115,878 per employee

10 | P a g e

info@thehrmetrics.com www.thehrmetrics.com

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 formally measuring 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 any inadvertent 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 wish to 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.

11 | P a g e

info@thehrmetrics.com www.thehrmetrics.com

HR METRICS also provides Consulting and Training:

We facilitate companies in measuring the Efficiency, Effectiveness and Outcome of HR operational and strategic performance in line with business objectives. Help in quantifiable HR Benchmarking and Action Planning to enhance workforce productivity index; and demonstrate HR contribution to the organization bottom line in verifiable economic terms. Using business friendly financial accounting principles for impact assessment and management reporting

Our Vision
Optimize business growth through transformation to factbased analytical frameworks in workforce management decisions

Our Mission
To provide human capital measurement tools to analyze and leverage workforce performance for sustainable organizational growth.

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 Mubarak GPHR, HRMP is the CEO HR Metrics. He is the founder leader/President SHRM Forum Pakistan, Member ISO Geneva Technical Committee on HR Standards and Chairman National Mirror Committee HR Standards Pakistan. Zahid@thehrmetrics.com
12 | P a g e Durria Anjum Ahmed (MPM) is the Research Analyst for HR Metrics and has been working on Research & Development projects of HR Measurement Metrics in Pakistan since 2011.