Measuring Workforce Effectiveness

Labour Productivity Labour productivity = output per period number of employees per period If output per month is 20,000 units and 40 people are employed during that month to produce the goods, labour productivity is 500 units per worker (20,000/40)

Increasing labour productivity HRM policies Recruitment & selection of suitably skilled & trained employees Provision of training to enhance skills & attitudes of existing employees Appropriate remuneration & non-financial benefits that improve motivation & effort Improved working practices Improved technology & capital equipment

Advantages to the firm Lower labour cost per unit (assuming wages stay the same) Charge a lower price – gain market share Enjoy a higher profit margin NB labour productivity is a crucial measure Direct connection between productivity of a workforce & competitiveness of a firm because labour costs are such a high proportion of total costs for most firms

Labour Turnover Rate of labour turnover = number leaving a business over a given period x 100 average number employed over a given period e.g. if the average no. of staff employed last year was 250 and 10 employees left the firm, labour turnover would be 4% - (10/250) x 100

How good a measure is this? Useful as a benchmark Includes redundancy & retirement Also includes temporary workers Is there a better measure?

Stability index = number of leavers with more than 1 year’s service x 100 total number of staff in post 1 year ago

Causes of high labour turnover Internal factors Ineffective leadership & management techniques Poor communications Wages & salaries that are lower than other firms offering comparable jobs in the area Poor selection procedures – the wrong people are appointed to the wrong jobs Unchallenging jobs that lack career & developmental opportunities Poor working conditions & unpopular working practices Low more & motivation as a result of the above

Causes of high labour turnover External factors Increase in vacancies for more attractive jobs Better pay Better training & working conditions More interesting & challenging Closer to home or easier transport links

Problems of high labour turnover High recruitment & selection costs High induction & training costs Need to redesign jobs Reduced productivity Low morale among existing workers

What is the ideal labour turnover rate? It depends! Wide variations by occupation & by industry Private sector turnover is 22%, compared to just under 14% in the public sector Highest rates overall found in retailing, hotels, catering & leisure (over 30%) – why? Typically employs students & seasonal workers Higher proportion of low-skilled jobs

How would you improve labour turnover? Monitoring & benchmarking Exit interviews Recruitment & selection Induction & training Reducing turnover of long-term workers NB Knowing how & why rate of labour turnover is changing is as important as the figure itself

Absenteeism The proportion of employees not at work on a given day = number of staff absent on 1 day x 100 total number of staff e.g. if 21 people out of a workforce of 300 are absent on a given day, absenteeism rate is 7% (21/300) x 100

Annual rate of absenteeism = total number of days lost due to absence during the year x 100 total number of days that could be worked x number of employees

Absenteeism due to health & safety = number of working days lost per year due to health & safety x 100 total number of possible working days per year

Causes of absenteeism Illness Transport problems Poor motivation & commitment Ineffective management & communication

Problems of absenteeism It depends on the extent & whether work can be covered by those present Expensive – cost to cover those absent Delay production Demotivate workers who are present & have extra work

How can absenteeism be reduced? Introduce more flexible working practices Ensure jobs are interesting & challenging Improve working conditions Improve relations between employers & employees Introduce attendance bonuses