Recruiting, Retention, and Returns

Everyone believes good HR policies affect the bottom line. Southwest Airlines, GTE, and A.C. Nielsen can quantify it.

The discipline is hampered by its legacy as a service provider. HR, says David White, CEO of Cambridge, Massachusetts-based Human Capital Technology, which customizes systems to track such areas as recruiting and performance measurement, is used to saying, ” ‘Let me please you,’ as opposed to ‘Let me measure you and act as a consultant to drive the organization forward.’ ” In addition, says Edward L. Gubman, a global practice leader at Hewitt Associates, HR sometimes hides behind the excuse that the measurement would be inexact and therefore not worth the effort.

Recent research, however, indicates that it is indeed worth the effort. A 1999 study by Watson Wyatt Worldwide, for example, surveyed companies on the quality of their human capital practices, creating a human capital index of 1 to 100. Companies reporting best practices in such areas as communications integrity and creation of a collegial, flexible workplace saw a 28 percent shareholder return in the first six months of 1999, versus a 12 percent return for companies in the two middle quartiles. The biggest driver? A strong recruiting function, says Bruce Pfau, author of Watson Wyatt’s study. Companies benefit, he says, from having a “clear model for looking for whom they hire” and a “clear way of creating criteria against which individuals will be judged.” Southwest clearly falls into that category with its selection process. Another example is Microsoft Corp., which rigorously trains its recruiters to screen the more than 3,000 résumés the company receives daily at its Internet site against specific job skill sets.

“We also evaluate whether a candidate is smart, passionate, interested in technology, and results-oriented,” says Norman Tonina, senior director, finance development, at Microsoft. Hiring to fit Microsoft’s intellectually challenging culture, he adds, is exhausting, but worthwhile. It has helped lead to a turnover rate that is “half the industry average,” he claims. To foster these results, Microsoft and other highfliers, like Dell Computer Corp., track such recruitment metrics as cost per hire, time to fill, and offer-acceptance rate.

Of course, retaining employees once they are hired is equally important. And the evidence shows that retention is a complicated animal, driven by a host of factors, not simply compensation. In fact, competitiveness of rewards ranked third in Watson Wyatt’s survey of what drives employee commitment — behind “trust in senior leadership” and the “chance to use [one's] skills.” Consequently, it is routine for many companies to focus on keeping the talent they have, by slicing and dicing retention rates by unit, job title, performance rating, and years of service. Which measures work best, however, is a factor of industry, size, and strategy. And, ultimately, what is measured depends on “what you can affect,” says Hewitt’s Gubman.

Satisfaction Guaranteed

One metric that can be affected is employee satisfaction. Just ask Robert Chrenc, CFO of A.C. Nielsen. According to Chrenc, the Stamford, Connecticut-based market-research firm was in bad shape at the time of its 1996 spin-off from Dun & Bradstreet, having lost hundreds of millions of dollars between 1993 and 1995. It was clear to Chrenc, after spending 28 years at Arthur Andersen LLP, with its orientation toward cultivating employees, that Nielsen had to shore up its human capital. To document just how low morale had sunk, the company began exploring employee attitudes through a 50-question survey. The news wasn’t good: Only 42 percent of employees were satisfied with their jobs and the way the company was being run.

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