4 Ways to Calculate the Value of Your Employee Programs
by Open Work
Arm yourself with these online calculators to measure the cost of turnover, the value of engagement and more.
While a tight job market makes smart recruitment and retention efforts more important than ever, human resources teams are also called upon to substantiate the value of “soft” benefits and culture policies, such as flexibility, engagement programs and unlimited leave. As Reward Gateway points out, HR leaders should always be prepared to answer the question, “Why spend the money, time and effort on this new HR program?” whether that means in terms of tangible ROI (return on investment), such as revenue or sales, or less tangible VOI (value of investment), such as improved engagement and morale.
To help substantiate the whys of your employee programs, we’ve assembled this calculator toolkit. Simply plug in your relevant data points, and watch the benefits of your benefits come to light.
1. Calculate the Cost of Turnover
By far, the biggest financial impact of unhappy or disengaged employees is the cost it takes to replace them. Human resources media outlet ERE Media has put together an extensive process for calculating turnover costs on a granular level, from the lost productivity once an employee has decided to leave through to the impact of the vacancy, plus the cost to hire and train a replacement. While the impact of these real costs is quite clear, ERE Media also provides a list of 27 less tangible ways that turnover negatively affects companies, including damage to customer relationships, loss of innovation and the departure of potential future leaders.
2. Calculate the Benefits of Engagement
“Engagement” is the most oft-used buzz word in the human resources space having long overtaken the term “productivity.” Aside from putting the focus on people, rather than output, positive employee engagement encompasses a much wider range of company benefits than mere productivity. Sure, engaged employees are more productive, but they’re also less likely to quit (see above), less likely to be absent and more likely to drive positive company sentiment in the marketplace. Employee feedback software firm 15Five takes these far-reaching gains and costs into account with its downloadable engagement calculator. In the sample data for a 128-employee company with $31 million in annual revenue, the calculated annual ROI for an engaged workforce is a whopping $6 million! If engagement is a problem at your company, check out OpenWork’s six tips for implementing employee engagement programs that really work.
3. Calculate the Cost of Disengagement
On the flip side of engagement and productivity, you have disengagement and attrition. LinkedIn’s The Learning Blog offers another downloadable calculator focusing on these costs, providing a solid double-check for the engagement benefits above. In their example of a firm with 5,000 employees earning $60,000 on average, the LinkedIn calculator estimates the cost of disengagement at an alarming $17 million. To suss out the causes of disengagement and poor morale among your staff, read OpenWork’s recommendations for finding out what employees really want.
4. Calculate the Lifetime Value of Employees
Rather than taking a one-time snapshot of people ROI, many industry leaders stress the importance of looking at employee value over the long-term and focusing on improving that value. Recruitment platform Greenhouse offers a downloadable ELTV (Employee Lifetime Value) Kit that enables users to examine the rate at which employees become fully contributing members of the team, maximize employee output and lengthen employee tenure. Often, the process of boosting ELTV starts with revolutionizing the recruitment and hiring process. OpenWork recently profiled four great companies doing just that.
Once armed with the proper data to validate the need for and benefits of employee programs, the focus can turn to implementing policies and maximizing their effectiveness.