Five Fi e HR Metrics That Matter June 12, 2007

Agenda
Welcome & Introduction The HR Measurement Journey Five Metrics that Matter Average Headcount Age Staffing Breakdown Average Workforce Tenure Termination Rate Employee Engagement Index Reference Information and Learning Opportunities Questions

Todays Presenters
Paige Menge The Infohrm Group Brian Kelly The Infohrm Group

The Infohrm Group

Global leader in on-demand workforce reporting, analytics & planning solutions Three primary offices: Brisbane, AU; Washington, DC; London, UK Founded in 1982 Original partner in CLC Metrics Program; acquired Corporate Executive Boards interest in 2006; ongoing research relationship Focus on public & private sector Goldman Sachs, EMC, Charles Schwab, ING, Time Warner, Aetna, MetLife, The Hartford, Starbucks, Lowes

Infohrms Core Capabilities: A Partnership Model

Our Capabilities
Business Information Business Intelligence Business Impact

Our Expertise
Business Reporting Services Workforce Reporting Services g Workforce Planning Business & Employee Surveying Human Capital Management ROI B i Business & Workforce A l ti l S i W kf Analytical Services Metrics & Benchmarking Strategic HR Consulting

Flexible Solutions
Programs Tools Consulting Professional Development

Representative Client List

The HR Measurement Journey

Vision of Human Capital Measurement

Most HR Measurement Initiatives Aspire to Align HR and Corporate Strategy and to Enable Managers to Make Better Workforce-Related Decisions
Primary Goals of HR Measurement y
70%

Percentage of Survey Respondents Citing Each Item as One of the Top Three Goals of HR Measurement Efforts
60%

45% 33% 33%

35%

31% 27% 23% 12% 11%

8%

0%

Better Align HR Strategy with Corporate Strategy

Enable Managers to Make Better Decisions Regarding Workforce Management

Control HR Cost

Demonstrate the BottomLine Impact of Specific HR Practices/ Programs

Prioritize HR Investments and Actions

Support Identify Respond to Organizational Opportunities Measurement Strategic For HR Impact Pressure Planning from Senior Management

Provide Justification for HR in the Organization

Create Line of Sight for Employees

Source: CLC, Exploring the Measurement Challenges (2001). n=278 companies

Many Obstacles Block the Road

While the Following Challenges Have Taken Precedence in Establishing a Human Capital Measurement System for HR
Primary Challenges of HR Measurement y g
70% 61%

Percentage of Survey Respondents Citing Each Item as One of the Top Three Challenges of HR Measurement Efforts
55% 50%

35%

29% 25% 20% 18% 15% 10% 6%

0%
Quantifiably Linking HR and Business Goals Identifying ValueAdded HR Metrics Lack of Technology Integrating HR and Corporate Measurement Subjectivity of HR Metrics Obtaining Raw Data HR Staff Skills Gap Accountability for Metrics Access to Metrics Tying Incentives to HR Metrics

Source: CLC, Exploring the Measurement Challenges (2001). n=278 companies

The Journey: Four Stages of Value Creation

Transform HR from Service Provider to Business Driver
High Consistent HC Reporting Note: The first two levels of business impact are enabled by a successful rollout strategy. Enabling the third and forth levels requires significant cultural and behavioural change in the HR function. Business Insight HC Metrics Embedded

Phase 4 Phase 3
Business Partner Integrate HC data into planning processes Identify problematic HR trends Business Driver Build a data-driven HR function Manage core HR processes with data Quantify impact of HR interventions e e o s Analytically determine HC drivers of business success Focus organization on right HR measures Build data-driven business case for HR interventions High

Phase 2 Business Impact Phase 1

Service Provider Respond to ad-hoc requests t Prepare performance reports Maintain HR databases d t b Business Enabler Support data selfservice Ensure data consistency Provide automated reports

Low Low

Time / Sophistication
Source: CLC and InfoHRM Research

10

A Balancing Act: Common Concerns vs Unique Strategies

Pattern of KPI Selection Reflects Both Common Human Capital Concerns and Unique Corporate Strategies
Portion of Members Selecting Each Measure
100% 90% 80% 70% Penetra ation Rate 60% 50% 40% 30% 20% 10% 0%

Common Concerns The Gold Standard: 60% or greater penetration: Termination Rate Staffing Rate (by gender, ethnic background, ) The Silver Standard: 40% to 59% penetration: Employees at Risk Factor Employee Engagement Managerial Bench Strength The Bronze Standard: 30% to 39% penetration: Revenue per FTE Net Workforce Growth P fit per FTE Profit C t of Turnover Cost f T Performance-Based Pay Differential Training Investment per FTE Management Performance ROI of Training Successor Pool Coverage New Hire Failures Long t il suggests diff L tail t differentiation of company strategies. ti ti f t t i

2 6

16

KPI's Selected

207

Source: Infohrm, 207 measure across 88 workshops.

11

Five Metrics That Matter

The Struggle to Focus on HR Measures that Matter

Most organizations are capturing thousands of pieces of data about their workforce, and it can be hard to focus on what really matters

20 Workforce Metrics

8 Organizational Units

5 Departments in Each Org Unit

10 Demographic Dimensions

6 Categories in Each Dimension

48,000 measures , to analyze!

Five Metrics That Matter

1. Average Headcount 2. Age Staffing Breakdown 3. Average Workforce Tenure 4. 4 Termination Rate 5. Employee Engagement Index

Format for Remaining Measures

1. 1 Formula and Importance of Measure 2. Case Study 3. Limitations of Measure 4. Related Measures

Average Headcount
Formula: Why it s its important:
Rolling daily headcount average

1.

Serves as the denominator for many workforce measures, including: Termination Rate Promotion/Demotion/Transfer Rate External/Internal Hire Rate Training Expense per Employee End of period/Start of period headcount can be misleading due to seasonal termination patterns

2.

Company size

Average Headcount Case Study

Most companies use End of Period Headcount (EOP), Start of Period Headcount (SOP), or (EOP + SOP)/2 as a proxy for average headcount when calculating termination rate, external hire rate, etc. Day 1 HC = 12 Day 2 HC = 10 Day 3 HC = 15 SOP HC = 12 EOP HC = 12 (EOP + SOP) / 2 = 12 Average HC = 12.8 g Day 4 HC = 15 Day 5 HC = 12

Average Headcount Limitations

Does not detail demographics, skill levels, or experience of the g p p workforce Does not reflect churn within the workforce Does not indicate internal movement patterns p

Average Headcount Related Measures

Age Staffing Breakdown End of Period Headcount External Hire Rate Organization Tenure Staffing Breakdown Promotion Rate Staffing Rate High Potential Termination Rate Transfer Rate

Age Staffing Breakdown

Formula: Why it s its important:
End of Period Headcount.[Age] / End of Period Headcount * 100

1.

Generational differences Employee motivations Employee attitudes about work Employee benefits Capability within company to execute on strategy Training and development Career paths

2.

Experience

3. 3

Risk of talent and kno ledge drain d e to retirement knowledge due

Age Staffing Breakdown Case Study #1

Insurance Company concerned about their aging workforce
Finding #1: The Company does have an aging workforce Th number of employees eligible t retire h iincreased from around 15% iin The b f l li ibl to ti has df d 2003 to around 20% in 2006; at the same time, the percent of those eligible to retire who actually do retire has also increased Finding #2: The i Fi di #2 Th aging workforce d kf does not th t the business in the short term t threaten th b i i th h t t Management employees over the age of 60 only represent about 6% of total company leadership Current staffing levels should be able to accommodate the admin/technical employees eligible t retire within th next fi years l li ibl to ti ithi the t five Advances in technology will mitigate the risk from office and special services employees eligible to retire Finding #3: By changing policies, the threat can be further reduced By implementing policies that reward employees to remain with the Company until age 65 rather than age 60, the number of employees eligible to retire shrinks from 18% of all employees to 6% through 2011 p y g

Age Staffing Breakdown Case Study #2

Financial Services Company analyzing career paths within accounting department Created a matrix of age and job grade for professional, exempt employees

Age Staffing Breakdown Case Study #2

Age Grade 6 Grade 7 Grade 8 Grade 9 Grade 10 Grade 11 Grade 12 Grade 13 Grade 14 Total

21

21-25 8 14 1

26-30 5 7 15 9 1 1

30-35 2 4 4 8 6 1 1

36-40 2 4 2 2 2

41-45 4 5 4 1 1 1

46-50 6 2 2 1

51-55 5 6 3 2

56+ 1 1 3

Total 27 47 29 27 10 5

2 1 3 2 12 16 12

4 4 2 155

23

38

26

12

16

Age Staffing Breakdown Case Study #2

Age Grade 6 Grade 7 Grade 8 Grade 9 Grade 10 Grade 11 Grade 12 Grade 13 Grade 14 Total

21

21-25 8 14 1

26-30 5 7 15 9 1 1

30-35 2 4 4 8 6 1 1

36-40 2 4 2 2 2

41-45 4 5 4 1 1 1

46-50 6 2 2 1

51-55 5 6 3 2

56+ 1 1 3

Total 27 47 29 27 10 5

2 1 3 2 12 16 12

4 4 2 155

23

38

26

12

16

Age Staffing Breakdown Limitations

Does not account for age p g profile of those entering and leaving the g g organization Does not provide information on cost of retirements (pensions, defined (pensions benefit vs. defined contributions, etc) Does not indicate the skill set, knowledge base, or tenure of employees

Age Staffing Breakdown Related Measures

Average Workforce Age Benefits Satisfaction Index Educational Attainment Breakdown Employee Engagement Index External Hire Rate Organization Tenure Staffing Breakdown Successor Pool Coverage Termination Rate Training Course Content Breakdown

Average Workforce Tenure

Formula: Why it s its important:
Total Workforce Tenure / End of Period Headcount 1. Determine knowledge base about company 2. Evaluate state of culture and innovation 3. Inform development needs p performance 4. Research impact of tenure on certain jjobs and p

Average Workforce Tenure Case Study

Financial Services Company researching indicators of branch profitability
Finding #1: Top performing branches have managers with high average tenure Finding #2: Employee allegations of fraud were twice as likely to come from branches with two or more managers in the past 18 months Finding #3: Managers who terminated with short tenures were often promoted to manager due to high sales, not leadership s s o a age o g sa es, o eade s p skills

Average Workforce Tenure Breakdown Limitations

Does not inform the range or distribution of tenure above and below the average Not an indicator of general work experience, skill level, or functional knowledge Only looks at tenure of employees in the organization, not tenure within the current position

Average Workforce Tenure Related Measures

Age Staffing Breakdown Average Annual Salary per FTE Average Termination Value Employee Retention Index External Hire Rate Manager Quality Index Organization Tenure Staffing Breakdown Termination Rate Termination Reason Breakdown Total Compensation Expense per FTE Training Course Content Breakdown Work Units per FTE

Termination Rate
Formula: Why it s its important:
Terminations / Average Headcount * 100 1. Monitors adequacy of employment offer 2. Indicates effectiveness of staffing function 3. Represents costs to the company g p Cost of hiring replacement Lost productivity during vacancy and training g g Training and onboarding costs Lower morale and increased workload

4. Low turnover can show stagnation of ideas

Termination Rate Case Study #1

Companys Sales Department concerned about high termination rates
Finding: Sales regions which terminated low performers had lower profitability than those branches who kept low performers Low performers were those employees with the shortest tenure Branches who kept low performers and gave them time to grow into their roles saw higher long-term profitability

Termination Rate Case Study #2

Company concerned about Call Center turnover
Finding #1: Non exempt terminations are high Non-exempt Involuntary terminations overwhelmingly driven by failure to pass licensing exam, so need better upfront screening Voluntary terminations driven by better opportunity, but can be mitigated by retention better opportunity bonuses, and promotion and development opportunities
160% 140% Voluntary Involuntary

Termin nation Rate (%)

120% 100% 80% 60% 40% 20% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

months of tenure

Termination Rate Case Study #2

Company concerned about Call Center turnover
Finding #2: Non exempt termination rates vary greatly by call center location Non-exempt Further research needed to determine whether caused by labor market, competition, type of work, management, etc.
61% 37% 10% 15% 16% 13%
Voluntary Termination Rate

Call Cen Locations nter

42% 34% 32% 22% 29% 19% 14% 6% 6% 11% 10%

Involuntary Termination Rate

Termination Rate Case Study #2

Company concerned about Call Center turnover
Finding #3: High non exempt termination rates may be caused by low exempt non-exempt termination rates Few opportunities for advancement if there are no managerial positions opening Long tenure in exempt position could mean managers are very far removed from the challenges of the non-exempt role

Termination Rate Limitations

Does not indicate voluntary vs. involuntary termination Does not show specific reasons for termination (better opportunity, manager, compensation, returning to school, etc) Does not reflect who is leaving or how those employees are being replaced to demonstrate true impact on the workforce composition

Termination Rate Related Measures

Average Termination Value Compensation Satisfaction Index Employee Retention Index External Hire Rate Involuntary Termination Rate Manager Quality Index Market Opportunity Index Offer Acceptance Rate Operating Expense per FTE Organization Tenure staffing Breakdown Return on Human Investment Ratio Termination Breakdown by Performance Rating Voluntary Termination Rate

Employee Engagement Index

Formula: Why it s its important:
Derived from survey methodology 1. Helps measure employee discretionary effort to the firm 2. Leading indicator for turnover 3. Leading indicator for customer satisfaction

Employee Engagement Index Case Study

Major retail chain in the food service industry determining link between employee engagement (in the company) and store profitability Finding #1: Employee engagement is linked to customer satisfaction Finding #2: Employee engagement is linked to store profitability

**For each graph the differential in percentage points from low engagement to For graph, high engagement is 6% Finding #3: When combined with manager stability, average workforce tenure, and satisfaction with pay, employee engagement accounts for a 4% variance pay in financial profitability

Employee Engagement Index Limitations

Value of the measure depends on the effectiveness of survey design and delivery Survey answers can reflect temporal events Engagement is only one aspect an employees opinion about/ relationship with the company

Employee Engagement Index Related Measures

Age Staffing Breakdown y Voluntary Termination Rate Employee Commitment Index Employee Retention Index Employment Brand Strength Internal Hire Rate Manager Quality Index Market Opportunity Index Offer Fit Index Organization Tenure Staffing Breakdown Promotion Rate Promotion Speed Ratio

Reference Information and Learning Opportunities

The Metrics Standard

A Detailed Guide of 200+ Metrics
A rating system for easy application.
Retention Turnover Cost of Employee Turnover Engagement

Interpretive text describes what is measured, the importance of the measure, and the impact of high or low results.

Category and subcategory provided for easy reference.

Captures the lessons learned from CLC Metrics members experience ith e perience with this metric.

Provides a listing of variations and interrelated measures for those on the hunt for the most appropriate metric or set of metrics f a given set of for f circumstances.

Workforce Analytics and Workforce Planning Workshops

March 7-8 Los Angeles, CA* March 13-14 New York, NY , April 17-18 Boston, MA* Boston MA April 24-25 Washington, W hi t DC June 12-13 San Francisco, CA* June 19-20 Chicago, IL Sept. 27-28 Washington, DC g , Nov. 6-7 Dallas, Dallas TX Nov. 13-14 Atlanta, Atl t GA

*Workforce Analytics Only

2007 Infohrm Human Capital Analytics Conference Keynote Speakers Include:

Thomas Manley, Cognos Norm Smallwood, University of Michigan Corbette Doyle, Aon Jonathan Terrell, The Infohrm Group

September 25-28, Washington DC

Workforce Planning Summit

With presentations by:
Dr. Dr John Sullivan San Francisco State Sullivan, University Dan Hilbert, Valero Energy , gy Jeff Higgins, Countrywide Financial Kari Trost & Merryl Rees, The Hartford Peter Howes, Infohrm Group Anastasia Ellerby, Infohrm Asia Pacific

The Infohrm Group

Thank you for your time! For more information, please visit: www.infohrm.com www infohrm com

Or contact Duncan Scott at: Duncan.Scott@infohrm.com Duncan Scott@infohrm com 202.589.2664