2007 EXECUTIVE SUMMARY

Transcription

1 SHRM Human Capital Benchmarking Study 2007 EXECUTIVE SUMMARY Also available: SHRM Customized Benchmarking Service o Database of more than 3,000 organizations o To order a complete analysis of the results customized to your organization, please see pages Society for Human Resource Management

2 Contents 3 Introduction 5 Methodology 7 Using Benchmarking Data 10 Key Findings 10 HR Departments and Expenses 11 HR-to-Employee Ratios 13 Employment 22 Compensation 24 Organizational Data 27 Profile of Organizations Responding to the Survey 29 Conclusion 30 Human Capital Glossary of Metric Terms, Definitions and Calculations 35 Special: SHRM Customized Benchmarking Service SHRM Human Capital Benchmarking Study: 2007 Executive Summary 2

3 Introduction The hiring pendulum that soared so high in 2005 swung less dramatically in The number of positions that organizations filled decreased 23% to a median of 33 positions filled. Yet organizations still scrambled for talent even though hiring activity dropped. Due to consecutive years of high employee turnover in 2005 and 2006 (median annual turnover rate of 14% and 15%, respectively), organizations lost nearly 30% of their human capital in only 24 months. This meant employees with years of firm experience who had knowledge of embedded office routines and gained unique project skills were leaving just as new employees were joining. Human capital management is comprehensive because it includes not only human resource (HR) practices but also other work practices and people management strategies that increase organizational performance. The important distinction between human resource management and human capital management is that human capital extends well beyond the HR function to encompass the total people strategy of the organization. Human capital is owned by all of the business leaders and resides with everyone in the organization. 1 The advantage of this is that businesses are starting to understand what HR professionals have known for years that human resource programs and activities contribute to the bottom line. The purpose of the 2007 SHRM Human Capital Benchmarking Study is to provide HR professionals with key human capital measures. In business where the need to measure is strong, benchmarking can help identify an organization s human capital strengths and weaknesses, create a framework for managing change and encourage employees toward continuous improvement. Yet for some HR professionals, when it comes to measuring activities around human capital, concrete measures can feel elusive. Numbers that relate to the context of a specific business, particularly the same industry, employee size, organizational revenue and geographic location, are usually difficult to find. But it is precisely this organizational profiling that is most beneficial in order to enable similar organizations to compare themselves to each other. This executive summary contains key metrics from more than 900 organizations on HR departments and their expenses, HR-to-employee ratios, employment, compensation and organizational revenue. In addition, SHRM s database collection initiative in early 2007 yielded more than 3,000 additional organizations that together are part of the SHRM Customized Benchmarking Service, which is detailed on pages This executive summary and the SHRM Customized Benchmarking Service provide more than 100 benchmarks for many industries, so that comparisons can be made, when possible, within a similar industry. 1 Chartered Institute for Personnel and Development. (2004). Human capital reporting: An internal perspective. London: Author. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 3

4 Key Metrics and Data Collected (Number of organizations responding = 902) HR Departments and Expenses Total HR staff HR-to-employee ratio* Percentage of HR staff in supervisory roles or higher Percentage of HR staff in professional/technic al roles Percentage of HR staff in administrative support roles Reporting structure for head of HR HR Expenses HR expenses HR expense to operating expense ratio HR expense per FTE* Employment Number of positions filled* Time-to-fill* Cost-per-hire* Annual overall turnover rate* Annual voluntary turnover rate Annual involuntary turnover rate Compensation Annual salary increase* Salaries as a percentage of operating expense* Target bonus percentage for nonexecutives Target bonus percentage for executives* Organizational Data Revenue Revenue per FTE* Net income Net income per FTE* Tuition/Education Data Annual maximum tuition/education reimbursement allowed Percentage of employees participating in tuition/education Expectations for Change in 2007 Expectations for revenue change in 2007 Expectations in HR hiring in 2007* Expectations for changes in hiring in 2007* *Metrics reported in this executive summary. For information about additional metrics, please see a sample customized report on page. A glossary of metric terms, definitions and calculations is available on page. Industries Surveyed Accommodations, food and drinking places Agriculture, forestry, fishing and hunting Biotechnology Construction, mining, oil and gas Educational services Finance Government Health care services High-tech Insurance Manufacturing (durable goods) Manufacturing (nondurable goods) Pharmaceutical Publishing and broadcasting Real estate Services (nonprofit) Services (profit) Telecommunications Transportation and warehousing Utilities Wholesale/retail trade Other SHRM Human Capital Benchmarking Study: 2007 Executive Summary 4

5 Methodology Purpose The 2007 SHRM Human Capital Benchmarking Study was conducted in order to collect human capital metrics across various industries. The study collected data on human resource departments and expenses, hiring trends, compensation and turnover. In addition, organizational data, such as revenue, expenses and employee size were obtained. Data were collected for 2006, along with expectations for change in Survey The survey was created by SHRM s Strategic Research Program and was revised from the prior year s survey instrument. The results of the 2006 SHRM Human Capital Benchmarking Study led to several revisions to the questions asked, as well as to reformatting of several questions. This survey was also reviewed by the SHRM Human Capital Measurement/HR Metrics Special Expertise Panel. The Panel is made-up of SHRM member who are experts in the field of human capital measurement and metrics. Participants SHRM members who were HR managers, assistant or associate directors, directors, assistant or associate vice presidents, vice presidents or presidents were included in the sample. The members had to meet the following criteria: have a valid address and business phone number, have not been selected to participate in a survey with SHRM in the past six months and be residents of the United States. Procedure In February 2007, an that included a link to the SHRM Human Capital Benchmarking Survey was sent to 4,965 randomly selected SHRM members who were senior HR professionals. Of these, 4,545 s were successfully delivered, and 902 senior HR professionals responded on behalf of their organizations, yielding a response rate of 20%. The survey was accessible for a period of seven weeks. In an effort to encourage participation in the study, respondents were informed that they would be entered in a drawing to be one of 40 respondents to receive a $25 American Express gift certificate. In addition, participants received an all-industry report that consisted of 20 metrics. Four reminders were sent over six weeks, and participants who had not responded received follow-up telephone calls. Quality Control Every effort was made to ensure the accuracy of the data. At the completion of data collection, the data were checked for duplicate responses. The data were then put through a rigorous accuracy check process. 2 The survey included many quantitative questions that 2 Due to the nature of the data in the current study, only data that were three standard deviations above the average were excluded. No data fell below three standard deviations below the average, and therefore, none were excluded. In other words, this includes data in which 99.5% of the data fell below the given data point. Extreme outliers can skew the results, leading to higher (or lower) averages among the measures. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 5

6 were checked to ensure that they were understood by respondents and the data submitted were consistent. For example, the number of HR full-time equivalent employees (FTEs) had to equal the sum of the categories of HR FTEs, and the number of HR FTEs had to be less than the total number of FTEs in the organization. The HR expenses had to be less than the total organizational expenses. Overall, there were few inconsistencies identified within the data. When inconsistencies were identified, participants were contacted to clarify and resolve the discrepancy. If the data could not be verified and appeared inaccurate, they were excluded from the analysis. This was done to ensure that the highest quality data were included in the study. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 6

7 Using Benchmarking Data Benchmarking is rapidly becoming an indispensable tool for HR professionals and other business executives. 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 company s 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 organization s health care costs to similar organizations to see if the discrepancy is large enough to 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 organization s 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. For example, if the HR professional wants to alter an organization s 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 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 as part of a longterm 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 organization s workforce. Thus, over the long term, the knowledge and skills of the organization s human capital start to lag behind the market, and the organization loses its competitive advantage to successfully compete. Understanding the Data As you compare your own data against other organizations, keep the following in mind: 1. A deviation between your 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 organization s 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 SHRM Human Capital Benchmarking Study: 2007 Executive Summary 7

8 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 that may exist. 3. The information in this executive summary 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 executive summary is designed to be a tool to help you evaluate decisions and activities that affect your organization s 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 nonskilled labor, such as construction, may have less costly benefits packages than the high-tech industry that 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 in order to attract 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 level exists. Other measures, for example, might be your organization s 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 each table 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 from one table to another or within a table. Confidence level and margin of error: A confidence level and margin of error give readers some measure of how much they can rely on survey responses to represent all of SHRM member organizations. Given the level of response to the survey, SHRM Research is 95% confident that responses given by all responding organizations can be generalized to all SHRM members, in general, with a margin of error of approximately 3%. For SHRM Human Capital Benchmarking Study: 2007 Executive Summary 8

9 example, 80% of the responding organizations reported that they were for-profit. With a 3% margin of error, the reader can be 95% confident that between 77% and 83% of SHRM members come from for-profit organizations. It is important to know that as the sample size decreases, the margin of error increases. Minimum respondents for summary calculations: No summary calculations were made for items with fewer than 10 participating organizations. Tables illustrating 25 th percentile, median and 75 th percentile should be interpreted with caution when the number of responding organizations is small. Extreme values dropped: Due to the nature of the data in the current study, data that were three standard deviations above the average were excluded. In other words, 0.5% of the data were omitted from the analyses. The extreme outliers, or data anomalies, can skew the results, leading to much higher averages among the measures. Table and figure percentages: Where relevant, data depicted in tables and figures may not add to exactly 100% due to rounding. In addition, percentages may exceed 100% due to multiples response options (i.e., several organizations may respond to more than one category for the same question). Other categories: In some cases, participating organizations included other as a response to a survey question. Efforts were made to examine the verbatim content of the other responses and recategorize them into the categories listed. Oftentimes, verbatim content was distinctive to the organization, making it impossible to recategorize. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 9

10 Key Findings HR DEPARTMENTS AND EXPENSES HR expense per FTE, which represents the amount of human resource dollars spent per fulltime equivalent (FTE) in the organization, increased to a median of $1,200 in 2006, up from $1,072 in the previous year. Organizations made additional investments in human resources perhaps because they did not expect their recruitment and retention problems to abate. Twenty-five percent of the responding organizations anticipate hiring additional HR staff in 2007, an indication that some HR professionals expect this investment to continue. Administrative support and generalist roles are the top positions that organizations expect to hire in These positions also made up the bulk of expected HR hiring in 2006, therefore continuing the trend that organizations anticipate hiring HR professionals with broad human resource backgrounds and providing them increased administrative support. Table 1 lists the areas of HR in which hiring is expected in Table 1: Areas of HR in Which Hiring Is Expected in 2007 (n = 211) Areas of HR Generalist 45% Administrative support 41% Recruiting 30% Training 12% Director or above 12% Benefits 11% Compensation 9% Organizational development 7% Other* 6% *This category included, but was not limited to, HRIS, health and safety, and others. Note: Percentages do not total 100% as multiple responses were allowed. Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 10

11 HR-TO-EMPLOYEE RATIOS While the median number of FTEs for the HR department in 2006 was two, the average was 10. The large difference between median and average values indicates that some HR departments reported a large number of staff. However, a more manageable way to compare HR staffing levels between organizations is to use the HR-to-employee ratio. This ratio represents the number of HR staff per 100 employees in an organization supported by HR. The number is calculated by dividing the number of HR FTEs by the total number of employees (FTEs) in the organization and multiplying the outcome by 100: HR-to-Employee = Total number of HR FTEs x 100 Ratio Total number of employee FTEs Table 2 shows how HR-to-employee ratios change by organizational size. The data suggest that organizational size is the primary driver in HR-to-employee ratios. This ratio can be helpful for understanding the number of HR FTEs that are typically supporting a specific size organization. To use the HR-to-employee ratios in Table 2, first locate the size of the organization that is being compared and then find the corresponding ratios located in the same row. The ratios are listed by the 25 th, median and 75 th percentiles. Although the median ratio will be used in this example, if the HR department has a larger scope of responsibilities, then using the ratio for the 75 th percentile may be considered. Conversely, if the HR department has a narrow scope of responsibilities, using the ratio for the 25 th percentile may be appropriate. Here is an example of how to compute the number of HR FTEs for a typical organization with 85 employees. Table 2 indicates that the median HR-to-employee ratio that corresponds to an organization with 85 employees is The actual calculation is as follows: 85 (FTEs) x 2.41 = 2.04 (HR FTEs) 100 This calculation indicates that for an organization with 85 FTEs, the median number of HR FTEs is While this approximates that two FTEs may be appropriate for some organizations of this size, it is not always the case. For example, if the HR department has significant initiatives to undertake or if the organization must increase its recruiting efforts to hire a large number of employees, then more HR staff may be required. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 11

12 Table 2: HR-to-Employee Ratios (by Organizational Size) 25th 75th Organizational Size n Median Percentile Percentile Total Fewer than to to to ,000 to 2, ,500 to 7, ,500 or more Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 12

13 EMPLOYMENT In 2006, organizations decreased their hiring by 23% from the previous year. The median number of positions filled was 33, compared with 43 in Filled positions include both internal and external hires. While hiring decreased, SHRM/Rutgers Leading Indicator of National Employment (LINE TM, www. shrm.org/line) noted an increase in recruiting difficulty and new-hire compensation in the manufacturing sector over the previous year. Table 3 illustrates the percentage of positions filled as a proportion of total employees and the actual number of employees hired by industry. When used in combination with the actual number of positions filled, the data allow an organization to compare its hiring activity level with others in its industry. Health care services, accommodations, food and drinking, and telecommunications industries had the top three highest medians for percentages of positions filled in Health care services, retail/wholesale trade and telecommunications were the industries with the highest number of actual hires. HR professionals projected hiring to stay strong for Of the organizations responding, 43% expected an increase in hiring over As indicated in Table 4, hightech, services (profit) and telecommunications were the top three industries that expected hiring to increase in Table 3: Industry Hiring Activity for 2006 Percentage of Positions Industry Filled in 2006 Actual Number of Positions Filled in th 75 th 25th n Percentile Median Percentile n Percentile Median All industries % 20% 33% th Percentile Accommodations, food and drinking 29 19% 27% 50% places Construction, mining, oil and gas 29 14% 23% 34% Educational services 17 0% 10% 10% Finance 27 13% 24% 30% Government 31 9% 16% 30% Health care services 63 16% 28% 39% High-tech 46 14% 21% 35% Manufacturing (durable goods) 86 8% 16% 27% Manufacturing (nondurable goods) 38 6% 12% 26% Publishing and broadcasting 22 10% 26% 32% Services (nonprofit) 67 13% 22% 34% Services (profit) % 21% 34% Telecommunications 16 15% 27% 48% Transportation and warehousing 23 8% 15% 29% Wholesale/retail trade 49 9% 24% 35% Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 13

14 Industry n Percentage of Positions Filled in th Percentile Median 75 th Percentile n Actual Number of Positions Filled in th Percentile Median 75th Percentile Government agency (all industries) 37 8% 12% 20% Nonprofit organization (all % 22% 33% organizations) Privately organization owned for-profit (all % 20% 33% industries) Publicly owned forprofit organization (all industries) % 22% 33% Note: Industries with fewer than 10 organizations were omitted from the table. They were: agriculture forestry, fishing and hunting; biotechnology; insurance; pharmaceutical; real estate; and utilities. Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary The median cost-per-hire and time-to-fill data were $1,250 and 30 days, respectively. Although these figures reflect the median figures for all organizations that responded to the study, the actual averages were higher $2,915 and 35 days respectively. The large difference between median and average values indicates that some HR departments reported high cost-per-hire data. Cost-per-hire may differ even within the same industry, depending on the level of position being hired. For example, organizations that filled many executive-level positions that involved relocation costs would have a significantly greater cost-per-hire that those that did not. Table 4: Industry Hiring Projections for 2007 Industry n Hiring Projections in Hiring Projections for All Industries Increase 44% All industries 800 Stay the same 38% Decrease 18% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 14

15 2007 Hiring Projections for Accommodations, Food and Drinking Places Increase 32% Accommodations, food and drinking places 34 Stay the same 44% Decrease 24% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Construction, Mining, Oil and Gas Increase 42% Construction, mining, oil and gas 33 Stay the same 36% Decrease 21% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Educational Services Increase 33% Educational services 18 Stay the same 61% Decrease 6% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 15

16 2007 Hiring Projections for Finance Increase 50% Finance 32 Stay the same 25% Decrease 25% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Government Increase 42% Government 33 Stay the same 33% Decrease 24% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Health Care Services Increase 47% Health care services 66 Stay the same 42% Decrease 11% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 16

17 2007 Hiring Projections for High Tech Increase 63% High-tech 54 Stay the same 20% Decrease 17% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Manufacturing (Durable Goods) Increase 30% Manufacturing (durable goods) 87 Stay the same 40% Decrease 30% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Manufacturing (Nondurable Goods) Increase 28% Manufacturing (nondurable goods) 40 Stay the same 45% Decrease 28% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 17

18 2007 Hiring Projections for Publishing and Broadcasting Increase 30% Publishing and broadcasting 23 Stay the same 48% Decrease 22% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Services (Nonprofit) Increase 42% Services (nonprofit) 67 Stay the same 42% Decrease 16% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Services (Profit) Increase 54% Services (profit) 157 Stay the same 36% Decrease 11% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 18

19 2007 Hiring Projections for Telecommunications Increase 53% Telecommunications 17 Stay the same 24% Decrease 24% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Transportation and Warehousing Increase 40% Transportation and warehousing 25 Stay the same 36% Decrease 24% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Wholesale/Retail Trade Increase 42% Wholesale/retail trade 55 Stay the same 44% Decrease 15% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 19

20 2007 Hiring Projections for Government Agency (All Industries) Increase 36% Government agency (all industries) 39 Stay the same 41% Decrease 23% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Nonprofit (All Industries) Increase 42% Nonprofit organization (all industries) 128 Stay the same Decrease 16% 41% 0% 20% 40% 60% 80% 100% Percentage of Respondents 2007 Hiring Projections for Privately-Owned For Profit (All Industries) Increase 44% Privately owned forprofit organization (all industries) 432 Stay the same 38% Decrease 18% 0% 20% 40% 60% 80% 100% Percentage of Respondents Continued on next page SHRM Human Capital Benchmarking Study: 2007 Executive Summary 20

21 2007 Hiring Projections for Publicly-Owned For Profit (All Industries) Increase 47% Publicly owned forprofit organization (all industries) 199 Stay the same 33% Decrease 20% 0% 20% 40% 60% 80% 100% Percentage of Respondents Note: Industries with fewer than 10 organizations were omitted from the table. They were: agriculture, forestry, fishing and hunting; biotechnology; insurance; pharmaceutical; real estate; and utilities. Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 21

22 COMPENSATION For all organizations, the median expected annual increase for salaries was 3.5% in 2007 the same amount as reported in In addition, new data collected for this executive summary indicate that the median annual target bonus for executives was 18% in Table 5 indicates that annual target bonus percentage for executives becomes larger as organization staff size grows. This may occur because executives who run larger organizations typically have greater profit & loss responsibility and face more organizational complexities than executives at smaller organizations. In addition, smaller organizations may be more resource-limited and therefore do not have extensive bonus plans in place for executive level staff. Table 5: 2007 Target Bonus Percentage for Executives (by Organizational Size) 25th 75 n Median th Percentile Percentile All sizes % 18% 30% Fewer than % 15% 25% 100 to % 14% 20% 250 to % 23% 30% 500 to % 20% 30% 1,000 to 2, % 23% 30% 2,500 to 7, % 25% 40% 7,500 or more 16 18% 28% 40% Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary Salaries as a percentage of operating expense are related to two important factors that drive any business. These are the base salary costs associated with human capital and all other costs that are required to operate the business and keep it running. While operating expenses do include salary, they also include other expenses, such as parts and supplies, rent, printing, travel and capital depreciation. Table 6 indicates that the median increase for all industries in 2006 was 50%, which was higher than the figure of 42% for This increase may be the result of two consecutive years of strong hiring activity, which pushed salary expenses higher than operating expenses during the same period. Table 6 indicates that publicly owned for-profit organizations had slightly lower median salaries as a percentage of operating expense than did nonprofit organizations, privately owned for-profit organizations or government agencies. Because publicly owned for-profit organizations face greater scrutiny from the investor community, they may keep total salary costs low in order to keep profitability up and stock values high. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 22

23 Table 6: Salaries as a Percentage of Operating Expense in 2006 (by Profit Status) 25th 75th n Median Percentile Percentile All industries % 50% 67% Government agency (all industries) 15 38% 60% 87% Nonprofit organization (all industries) 58 35% 50% 67% Privately owned for-profit organization (all industries) % 50% 70% Publicly owned for-profit organization (all industries) 69 30% 46% 60% Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 23

24 ORGANIZATIONAL DATA Total gross revenue and total net income are strategic financial indicators of performance for most organizations. When total revenue is divided by total employees (FTEs), the resulting number is a marker of efficiency. 3 This ratio, termed revenue per FTE, conceptually links the time and effort associated with the firm s human capital to its revenue output. To illustrate, for an organization that has $100 million in revenues and 300 FTEs, the calculation yields a ratio of $333,333 per FTE. If the revenue per FTE ratio increases, it indicates that there is greater efficiency and productivity because more output is being produced per FTE. If the ratio decreases, it indicates less efficiency and productivity. The ratio of net income per FTE also follows a similar logic. It calculates efficiency by taking net income before taxes, which is the difference between gross revenue and expenses, and divides it by the number of FTEs. Since net income per FTE comprises two factors, it is best examined over time. 4 Both metrics, however, are basic measures that look at productivity in terms of employees and financial performance. Although one is not a better indicator than the other per se, revenue per FTE is a more sensitive indicator because it consists of only one factor revenue. Standing alone, without comparisons within a specific industry or other organizational characteristics, these metrics may not have much value. But used over time, they present a way for HR professionals to track relationships in operational issues and financial performance to employee productivity. The overall median for revenue per FTE was $200,000, which represented a 40% increase over the previous year. The top three industries with the highest medians for revenue per FTE were transportation and warehousing, pharmaceutical and retail/wholesale trade. Net income per FTE for all industries was $18,889, representing an 86% increase over the previous year. Educational services, retail trade and manufacturing (durable goods) were the industries with the highest median net income per FTE. Tables 7 and 8 provide a breakdown of revenue per FTE and net income per FTE for all industries. 3 Fitz-enz, J., & Davison, B. (2002). How to measure human resources management (3rd edition). New York: McGraw- Hill. 4 Ibid. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 24

25 Table 7: Revenue per FTE (by Industry) 25th 75th n Median Percentile Percentile All industries 828 $88,497 $200,000 $539,087 Accommodations, food and drinking places 34 $43,478 $72,140 $400,000 Biotechnology 10 $90,909 $267,857 $448,430 Construction, mining, oil and gas 31 $125,000 $274,725 $555,556 Educational services 17 $73,171 $150,000 $261,216 Finance 30 $38,462 $155,956 $904,762 Government 34 $125,000 $241,270 $564,972 Health care services 71 $71,429 $140,167 $448,430 High-tech 55 $97,959 $208,421 $787,402 Manufacturing (durable goods) 95 $146,990 $264,368 $625,000 Manufacturing (nondurable goods) 44 $153,406 $287,088 $603,198 Publishing and broadcasting 22 $94,076 $166,667 $518,129 Pharmaceutical 12 $70,378 $312,927 $792,398 Retail trade 58 $111,111 $311,741 $614,704 Services (nonprofit) 70 $67,692 $128,606 $425,532 Services (profit) 161 $100,000 $200,000 $535,714 Telecommunications 16 $92,151 $112,401 $431,115 Transportation and warehousing 29 $90,909 $358,852 $600,000 Government agency (all industries) 40 $80,179 $239,048 $508,444 Nonprofit organization (all industries) 136 $68,934 $123,833 $394,560 Privately owned for-profit organization (all industries) 444 $107,787 $236,255 $655,914 Publicly owned for-profit organization (all industries) 206 $66,667 $195,890 $460,829 Note: Industries with fewer than 10 organizations were omitted from the table. They were: agriculture, forestry, fishing and hunting; insurance; real estate; and utilities. Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 25

26 Table 8: Net Income Before Taxes per FTE (by Industry) 25th 75th n Median Percentile Percentile All industries 367 $2,854 $18,889 $50,000 Accommodations, food and drinking places 13 $12,500 $28,889 $53,229 Construction, mining, oil and gas 17 $5,802 $11,364 $48,000 Educational services 10 $9,125 $47,250 $100,000 Government 13 $0 $0 $16,667 Health care services 35 $0 $3,526 $22,857 High-tech 25 $10,000 $27,778 $73,684 Manufacturing (durable goods) 42 $13,592 $29,281 $70,391 Manufacturing (nondurable goods) 15 $7,519 $18,889 $46,243 Retail trade 23 $10,000 $45,918 $245,604 Services (nonprofit) 47 $0 $2,276 $8,696 Services (profit) 65 $10,000 $25,000 $40,000 Transportation and warehousing 13 $5,618 $11,962 $75,000 Government agency (all industries) 17 $0 $2,857 $40,000 Nonprofit organization (all industries) 81 $0 $417 $6,667 Privately owned for-profit organization (all industries) 193 $10,417 $25,463 $66,600 Publicly owned for-profit organization (all industries) 75 $9,091 $35,556 $143,684 Note: Industries with fewer than 10 organizations were omitted from the table. They were: agriculture, forestry, fishing and hunting; biotechnology; finance; insurance; pharmaceutical; publishing and broadcasting; real estate; telecommunications; and utilities. Source: SHRM Human Capital Benchmarking Study: 2007 Executive Summary SHRM Human Capital Benchmarking Study: 2007 Executive Summary 26

27 PROFILE OF ORGANIZATIONS RESPONDING TO THE SURVEY The makeup of organizations that responded to the survey varied greatly. Factors such as workforce size, industry, revenue and geographic location all affect the way in which the HR department aligns its activities to support the organization. The profile of organizations responding to this executive summary is also comparable to the makeup of organizations responding to the 2006 SHRM Human Capital Benchmarking Study, except for the number of service (profit) organizations and government agencies responding. A higher number of service (profit) organizations responded to the survey in 2007 than in 2006, 20% and 7% respectively. On the reverse, however, fewer government agencies responded in 2007 that in 2006, 5% and 13% respectively. Tables 9 through 14 provide a breakdown of the range of employers that responded to this survey. Table 9: HR Department Level (n = 902) Corporate (companywide) 63% Business unit/division 19% Facility/location 18% Table 10: Industry (n = 902) Accommodations, food and drinking places 4% Agriculture, forestry, fishing and hunting 0% Biotechnology 1% Construction, mining, oil and gas 4% Educational services 2% Finance 4% Government 4% Health care services 9% High tech 6% Insurance 1% Manufacturing (durable goods) 11% Manufacturing (nondurable goods) 5% Pharmaceutical 1% Publishing and broadcasting 3% Real estate 1% Services (nonprofit) 8% Services (profit) 20% Telecommunications 2% Transportation and warehousing 3% Utilities 1% Wholesale/retail trade 7% Other 2% Note: Percentages do not total 100% due to rounding. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 27

28 Table 11: Number of FTEs for the Organizational Level (n = 843) Fewer than % 100 to % 250 to % 500 to 999 7% 1,000 to 2,499 13% 2,500 to 7,499 7% 7,500 or more 4% Note: Percentages do not total 100% due to rounding. Table 12: Organizational Revenue in Fiscal Year 2006 (n = 497) Under $5 million 21% $5 million to $24.9 million 29% $25 million to $99.9 million 23% $100 million to $999.9 million 18% Over $1 billion 10% Note: Percentages do not total 100% due to rounding. Table 13: Region (n = 902) Southeast (Alabama, District of Columbia, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, West Virginia) North Central (Illinois, Indiana, Iowa, Michigan, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin) Northeast (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont) Southwest Central (Arizona, Arkansas, Colorado, Kansas, Louisiana, Missouri, New Mexico, Oklahoma, Texas, Utah) Pacific West (Alaska, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, Wyoming) Note: Percentages do not total 100% due to rounding. 23% 22% 20% 17% 15% Table 14: Profit Status (n = 892) Privately owned for-profit organization 53% Publicly owned for-profit organization 27% Nonprofit organization 16% Government agency 5% Note: Percentages do not total 100% due to rounding. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 28

29 Conclusion As stocks climbed in 2006, 5 so did revenue per FTE and net income per FTE skyrocketing more than 41% and 86%, respectively, over the previous year. Although hiring remained steady, organizations hired less robustly than in 2006, even though high employee turnover continued. Knowing that the rise of the knowledge economy makes know-how itself a competitive advantage and looking for ways to shore up its most critical asset, executives began investing in their human capital through increased HR budgets, spending 12% more than the previous year. With such attention on human capital, HR professionals may want to seize the moment by focusing on a least one new initiative that can help their organizations sustain their competitive advantage. Choosing an initiative that helps solve a current business issue is the best way to gain internal support and buy-in from line executives. For example, if revenue is being lost because projects are being delayed due to high employee turnover, the HR professional may want to direct solutions to retaining staff. While there may be enough anecdotal data to suggest what might be causing employee turnover, the HR professional may also seek resources to conduct an employee survey and then work with department heads to help improve areas where the survey revealed lower satisfaction. Like other business disciplines that launch specific endeavors, HR will eventually need to account for the return on investment of its programs and initiatives. In the example above, tracking the reduced amount of turnover and relating that reduction to saved recruiting costs, meeting deadlines and resulting sales might be the next step to take. The focus on human capital issues in organizations also presents an opportunity for HR professionals to help educate their organizations and provide a context about HR that line managers may not currently have. One way to achieve this is to provide objective benchmarking data that they can use to compare their organization s human capital measures against similar organizations within the same industry. They represent one of the first steps to uncovering the links between human capital management practices and firm performance. When used wisely, benchmarking data can protect programs that are performing well, create support for organizational change and help executives in HR and other disciplines make strategic decisions that affect their organizations. Care must be taken, however, not to use benchmarking data as merely justification for cutting costs. A better way to gain support is to relate how investments in HR help support the business strategy. Otherwise, HR may find itself excessively defensive of its costs, as opposed to demonstrating how it contributes to an organization s bottom line. 5 Dow Jones, SHRM Human Capital Benchmarking Study: 2007 Executive Summary 29

30 Human Capital Glossary of Metric Terms, Definitions and Calculations Statistical Definitions Median (50 th 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 when the average and median are discrepant. Average The average is the sum of the responses divided by the total number of responses. It is also known as the mean. This measure is affected more than the median by the occurrence of outliers (extreme values). For this reason, the average reported may be greater than the 75 th percentile or less than the 25 th percentile. Percentile The percentage of responses in a group that have values less than or equal to that particular value. For example, when data are arranged from lowest to highest, the 25 th percentile is the point at which 75% of the data are above and 25% are below it. Conversely, the 75 th percentile is the point at which 25% of the data are above and 75% are below it. n Letter n in tables and figures indicates the number of respondents to each question. Therefore, when it is noted that n = 25, it indicates that the number of respondents was 25. FTE FTE is an abbreviation for full-time equivalent. Full-time equivalents represent the total labor hours invested. To convert part-time staff into FTEs, divide the total number of hours worked by part-time employees during the work year by the total number of hours in the work year (e.g., if the average work week is 37.5 hours, total number of hours in a work year would be 37.5 hours/week x 52 weeks = 1,950). Converting the number of employees to FTEs provides a more accurate understanding of the level of effort being applied in an organization. For example, if two employees are job-sharing, the FTE number is only one. Organizational Data Revenue In business, revenue is the amount of money that a company actually receives from its activities, mostly from sales of products and/or services to customers. To investors, revenue is less important than profit, or income, which is the amount of money the company has earned after deducting all of its expenses. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 30

31 Revenue per FTE Revenue per FTE is the total amount of revenue received during an organization s fiscal year divided by the number of FTEs. This ratio conceptually links the time and effort associated with the firm s human capital to its revenue output. If the revenue-per-fte ratio increases, it indicates that there is greater efficiency and productivity because more output is being produced per FTE. If the ratio decreases, it indicates there is less efficiency and productivity. Net Income Before Taxes Net income before taxes is the amount of revenue received during the fiscal year minus the operating expenses during the fiscal year. Net Income Before Taxes per FTE Net income before taxes per FTE is the net income before taxes divided by the number of FTEs. It calculates efficiency by taking net income before taxes, which is the difference between gross revenue and expenses, and divides the outcome by the number of FTEs. Unlike revenue per FTE, which has only one factor--revenue, net income per FTE comprises two factors, and it is best looked at over time. HR Department Data Total HR Staff Total HR staff is the actual number of employees supporting the HR function for an organizational level. HR-to-Employee Ratio The HR-to-employee ratio provides a more manageable way to compare HR staffing levels between organizations. It represents the number of HR staff per 100 employees supported by HR in the organization. The number is calculated by dividing the number of HR FTEs by the total number of FTEs in the organization and multiplying the outcome by 100: Total number of HR FTEs HR-to-Employee Ratio = x 100 Total number of employee FTEs in the organization Percentage of HR Staff in Supervisory Roles Percentage of HR staff in supervisory roles is calculated by taking the number of HR staff in supervisory positions (FTEs) and dividing that by the total number of HR staff (FTEs). Because positions in this category supervise others, they often are called supervisor, manager, director or above. Percentage of HR Staff in Professional/Technical Roles The percentage of HR staff in professional/technical roles is calculated by taking the number of HR staff in professional/technical positions (FTEs) and dividing that by the total SHRM Human Capital Benchmarking Study: 2007 Executive Summary 31

32 number of HR staff (FTEs). Positions in this category are generally exempt and do not supervise others. They may be called recruiter, benefits administrator, HR generalist, etc. Percentage of HR Staff in Administrative Support Roles The percentage of HR staff in administrative support roles is calculated by taking the number of HR staff in administrative support positions (FTEs) and dividing that by the total number of HR staff (FTEs). Often, but not always, positions in this category are nonexempt. They may be called coordinator, assistant, etc. Reporting Structure for the Head of HR Reporting structure for the head of HR indicates to what position within the organization the head of HR reports. Occasionally in very small companies the head of HR may report to the CFO or head of an operating unit. In larger organizations the head of HR usually reports to the President of CEO. Expectations for HR Hiring The expectations for HR hiring indicate the types of HR positions that organizations anticipate hiring in HR Expense Data HR Expenses Human resource expenses represent HR s total costs for a given fiscal year. HR Expense to Operating Expense Ratio HR expense to operating expense ratio is calculated by dividing the organization s total HR expenses by the operating expenses for a given fiscal year. This ratio depicts the amount of HR expenses as a percentage of total operating expenses, which is an indication of the amount of dollars an organization invests in its HR function. HR Expense to FTE Ratio HR expense by FTE ratio represents the amount of human resource dollars spent per FTE in the organization. It is calculated by taking the HR expenses for a given fiscal year and dividing that by the number of FTEs in the organization. Compensation Data Annual Salary Increase Annual salary increase is the percentage of increase in salaries that an organization expects to provide to its employees for a given fiscal year. Salaries as a Percentage of Operating Expense Salaries as a percentage of operating expense is calculated by taking the total amount of employee salaries divided by the operating expense for a given fiscal year. SHRM Human Capital Benchmarking Study: 2007 Executive Summary 32

33 Target Bonus for Nonexecutives The target bonus for nonexecutives represents the average percentage of base pay that is targeted to be paid out in cash to nonexecutive staff during a given year. Target Bonus for Executives The target bonus for executives represents the average percentage of base pay that is targeted to be paid out in cash to executive staff during a given year. Tuition/Education Data Maximum Reimbursement Allowed for Tuition/Education Expenses per Year The maximum reimbursement allowed for tuition/education expenses per year is the average amount in dollars the organization paid per employee for tuition/education. These expenses do not include training expenses for seminars that are not part of a college- or university-level undergraduate or graduate course(s). Percentage of Employees Participating in Tuition or Education Reimbursement Programs The percentage of employees participating in tuition or education reimbursement programs is the percentage of employees who participated in tuition reimbursement programs. These do not include reimbursements for seminars that are not part of a college- or university-level undergraduate or graduate course(s). Employment Data Number of Positions Filled Number of positions filled reflects the number of open positions for which individuals were hired during the fiscal year. Open positions could be filled either by internal or external candidates. Hired means the individual accepted the position during the fiscal year, but may not have started until the following year. This would occur mostly with those candidates who accepted positions during the last month of the organization s fiscal year. Time-to-Fill Time-to-fill represents the number of days from when the job requisition was opened until the offer was accepted by the candidate. 6 This number is calculated using calendar days, including weekends and holidays. Cost-per-Hire Cost-per-hire represents the costs involved with a new hire. These costs include the sum of advertising, agency fees, employee referrals, travel cost of applicants and staff, relocation costs, and recruiter pay and benefits 7 divided by the number of hires. 6 Kluttz, L. (2003). SHRM/EMA 2002 staffing metrics survey: Time to fill/time to start. Alexandria, VA: Society for Human Resource Management. 7 Society for Human Resource Management. HR metrics toolkit. Retrieved from SHRM Human Capital Benchmarking Study: 2007 Executive Summary 33

34 Annual Overall 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. A 100% turnover rate from year to year means that as many employees left the company as were hired. To calculate annual turnover, first calculate turnover for each month by dividing the number of separations during the month by the average number of employees during the month and multiplying by The annual turnover rate is then calculated by adding the 12 months worth of turnover percentages together. Annual Voluntary Turnover Rate Annual voluntary turnover rate is the rate at which employees enter and voluntarily leave a company in a given fiscal year. To calculate annual voluntary turnover, first calculate the voluntary turnover for each month by dividing the number of voluntary separations during the month by the average number of employees during the month and multiplying by 100. The annual voluntary turnover rate is then calculated by adding the 12 months worth of voluntary turnover percentages together. Annual Involuntary Turnover Rate Annual involuntary turnover rate is the rate at which employees enter and involuntarily leave a company in a given fiscal year. Involuntary terminations, for example, occur when the organization asks the employee to leave the company. They usually occur as a result of poor performance, layoffs or other reasons. To calculate annual involuntary turnover rate, first calculate involuntary turnover for each month by dividing the number of involuntary separations during the month by the average number of employees during the month and multiplying by 100. The annual involuntary turnover rate is then calculated by adding the 12 months worth of turnover percentages together. Expectations for Revenue and Organizational Hiring Percentage of Organizations Expecting Changes in Revenue in 2007 compared to The expectations for revenue change indicate whether HR professionals anticipate their organization s revenue to increase, decrease or stay the same in 2007 as compared to Percentage of Organizations Expecting Changes in Hiring in 2007 compared to The expectations for changes in hiring indicate whether HR professionals anticipate their organization s hiring activity to increase, decrease or stay the same in 2007 as compared to Society for Human Resource Management. HR metrics toolkit. Retrieved from SHRM Human Capital Benchmarking Study: 2007 Executive Summary 34

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