Main Measures of Employee Effectiveness
Absenteeism Percentage of staff who are absent from work
LabourProductivity
Output per Employee
Staff Turnover Percentage of staff who leave during a period
StaffTurnover
Measuring Workforce Effectiveness
What this topic is about
• Methods of measuring workforce effectiveness
• Calculation and interpretation
• Measures to improve workforce effectiveness
Employee Retention
• All businesses lose staff– Retirement / Maternity / Death / Long-term Illness– Unsuitability– Changes in strategy (e.g. closure of locations)
• Staff turnover needs to be managed if the business is to succeed
• Employee retention = the ability of a business to convince its employees to remain with business
What is Labour Turnover?
The percentage of the workforce (employees)
that leave a business within a given period
(usually a year)
Labour Turnover Formula
Labour turnover is calculated using this formula:
Number of employees leaving during period
Average number employed during period
X 100
Labour Turnover Example
Labour turnover =
Number of employees leaving (15)
Average number employed (80)X 100
Surridge Porridge is a manufacturer of breakfast cereals. In 2008 it employed an average of 80 staff. During 2008, the business
recruited 12 staff to replace 15 who left.
= 18.75%
Problems of High Staff Turnover
• Higher costs– Increased recruitment & training costs
• Increased pressure on remaining staff• Disruption to production / productivity• Harder to maintain required standards of
quality and customer service
Factors that Affect Staff Turnover (1)
• Type of business– Some businesses have seasonal staff turnover (e.g.
holiday parks)– Some businesses employ many temporary staff (e.g.
hotels)
• Pay and other rewards• Working conditions• Opportunities for promotion• Competitor actions• Standard of recruitment
Factors that Affect Staff Turnover (2)
• Quality of communication in business• Economic conditions– Downturn often leads to lower staff turnover– Buoyant economy – staff more likely to leave
• Labour mobility– How transferable are staff skills– What other jobs are available?
• Employee loyalty
Ways to Improve Staff Turnover
• Effective recruitment and training– Recruit the right staff– Do all you can to keep the best staff (role for training &
other motivation tools)
• Provide competitive pay and other incentives– Competitive pay levels & non-financial benefits
• Job enrichment• Reward staff loyalty– Service awards, extra holiday etc
Why Labour Productivity Matters
• Labour costs are usually a significant part of total costs
• Business efficiency and profitability closely linked to productive use of labour
• In order to remain competitive, a business needs to keep its unit costs down
LabourProductivity
Factors influencing labour productivity
• Extent and quality of fixed assets (e.g. equipment, IT systems)
• Skills, ability and motivation of the workforce
• Methods of production organisation• External factors (e.g. reliability of
suppliers)
Labour Productivity Formula
Labour productivity is calculated using this formula:
Output per period (units)
Number of employees at work
The answer from the formula is usually expressed in terms of output per employee
e.g. 1,000 units per employee
Labour Productivity Example (1)
Labour productivity =
Labour hours per month (1,250)
Units produced per month (5,000)
Marcouse Plastics makes 5,000 widgets each month. Total monthly labour hours are 1,250. What is labour productivity
(hours per unit)?
= 0.25hrs / unit
Ways to Improve Labour Productivity
• Measure performance and set targets• Streamline production processes• Invest in capital equipment (automation +
computerisation)• Invest in employee training• Make the workplace conducive to
productive effort
Absenteeism
Absenteeism Formula (1)
Absenteeism calculated using this formula:
Number of staff absent during period
Number employed during periodX 100
Number days taken off for unauthorised absence (during period)
Absenteeism Formula (2)
An alternative formula uses the total number of days worked over a period (usually a year)
Total days worked by workforce over the period
X 100
Comments on Absenteeism (1)
• A significant business cost– Sickness absence costs UK businesses around £600
for each worker per year (BusinessLink)
• Key to understand reasons (genuine / not)– Genuine sickness, bereavement, bullying, stress– Some employees simply “playing the system”
• Often predictable– Monday / Friday or End of Shift Pattern– Main holidays
Tackling Absenteeism
• Understand the causes• Set targets and monitor trends• Have a clear sickness & absence policy• Provide rewards for good attendance• Consider the wider issues of employee
motivation
Absenteeism Example
Absenteeism =
Days Absent (560)
Total potential working days (4000)X 100
Anderton Alarms employs 20 staff and makes ready-meal pies for supermarkets. In 2008, the total available working days were
4000. Unauthorised absence for 2008 was recorded at 560 days
= 14.0%
Measuring Workforce Effectiveness