The latest jobs report from the U.S. Department of Labor (May 2017) reported 5.1 million unfilled jobs in the economy. We added more than 200,000 jobs, and hiring is brisk in technology and hospitality, and will continue to increase. That means the demand for – and the cost of – great talent will increase as well.
Labor has always been one of the major cost categories for businesses, small and large. And with growth in the cost, there will also be a demand from leadership to understand that cost and its impact. They will want a quantifiable explanation of that increase and, especially, the return on their investment.
As is frequently the case, determining ROI is not as simple as it sounds. As a base level, you divide your total profit by the total of your employee costs (salaries, benefits, training, etc.). But in the case of employees, that number would be very misleading: you must include intangible costs and benefits to get an accurate ROI. Karen Hsu, Vice President, Marketing, Badgeville includes three important factors to include as you calculate employee ROI:
- On average, workers spend a little more than 24 hours per week communicating or collaborating internally. Research estimates that companies using collaboration technologies can increase productivity 25% to 35%. A leading, global company shows that the benefits of increased collaboration can lead to annualized benefits of $5,661,562.50.
- According to the Society for Human Resource Management, absenteeism generates costs on several fronts: replacement hiring, costs from adjusting workflows, and productivity impact on co-workers.
- The Corporate Leadership Council found that highly engaged employees are 87% less likely to leave the organization. Through early identification of at-risk employees, companies can reduce turnover. Assuming average turnover costs are 38 percent of annual salary, the current turnover rate is 25 percent, and increasing employee engagement reduces turnover by 66 percent, a company of 1000 would realize $4,310,625 in savings.
However, in addition to the intangible costs and benefits of retaining engaged employees, you should also take into consideration their impact on customers when calculating employee ROI. As we have discussed in previous blogs, the Service Profit Chain clearly demonstrates the linkages between employees, customers, and profitability. Employees have a huge impact on service delivery, meeting customer expectations, and dealing with dissatisfaction. What’s the benefit of a longer-term, more loyal customer who buys more of your company’s products and services? Lower cost of sales, less volatility in operations, perhaps even higher prices. You must factor all of these into calculating the return on investment in employees.
With a quantifiable understanding of the impact employees (especially engaged employees) have on company performance, executives will have a greater trust for continued and even increased investment in employees. If increased investments result in continually improved engagement, the positive benefits delivered by committed employees will continue to flow in a virtuous circle.