Time-to-fill, offer acceptance rates vary relative to vacancy rates

There was a strong theme that echoed around the 13th World Human Resources Congress held in Montreal in September. “Insight-driven” was identified as one of the practices of top HR leaders by researchers from the Boston Consulting Group and the Chartered Institute of Personnel and Development. That theme was reinforced by the CEOs of Molson and Rio Tinto Alcan, who say they are looking for a more proactive contribution from the HR function based on its unique perspective.

The need for more evidence-based decisions in HR is not news. However, one of the key challenges to making progress in this area has been access to regular, reliable and consistent data. The HR Metrics Service, a not-for-profit HR benchmarking service, was created precisely to fill this gap. Established 18 months ago by the British Columbia Human Resources Association and now joined by Ontario and Manitoba’s HR associations, it is starting to generate the type of insight that will support better decision-making and more proactive contributions to employers.

Succession planning, vacancy rates

Using the data, trends can be spotted in key metrics such as the succession planning rate. A high level of ready successors has been linked to higher revenue per full-time employee, according to the 2007 Workforce Intelligence Report by Jac Fitz-enz.

The trend in this metric has been rising steadily in 2009 and 2010, suggesting those who choose to track succession are making a difference. Related to this, the actual age of retirement has stayed constant across the six quarters of data, indicating not everyone is delaying their retirement plans because of the recession.

Analyzing the relationships among multiple metrics provides even more valuable insight. One area where the HR Metrics Service is generating valuable knowledge is the behaviour of the labour market. Everyone knows the labour market is volatile. Those who are constantly recruiting are well aware of the faster and slower times.

Look at the data for 2009 (see chart). The volatility within vacancy rates went from a median rate of 1.2 per cent of headcount in the first quarter to a peak of 1.9 per cent in the third quarter (a 60-per-cent increase) before settling back down to 1.3 per cent of headcount in the fourth quarter.

Looking at other metrics for the same time period reveals how the time-to-fill and external offer rates vary relative to the vacancy rate. As the vacancy rate increases, so too does the time-to-fill. The more jobs that are available, the longer it takes to land a candidate.

Another thing to note is the offer acceptance rate varies inversely to vacancy rate. At the peak vacancy rate in the third quarter, offer acceptance dropped to 88.3 per cent. This means the higher the vacancy rate, the less likely it is a chosen candidate will accept an offer. Intuitively, this makes sense — the more opportunities that are out there, the less likely a company is to get its first choice of candidate.

One last thing to note about these specific metrics is the variation is synchronous, indicating candidates have as much knowledge of the variation in the labour market as recruiters do. Candidates know when there is more opportunity and, therefore, they feel confident declining offers. A higher vacancy rate is directly linked to fewer people accepting the first offer, leading to longer times to fill and, hence, the potential for negative effects on an organization’s performance as key roles remain open longer.

While it is important to know this type of information, the knowledge gained becomes more valuable when it is used to support your organization. One way to do this, for example, is to track the vacancy rate and then adjust the recruiting approach depending on the phase of the market. In the first and second quarters of 2010, the vacancy rate has been on the rise.

Cost of absenteeism

Many organizations track absenteeism and focus on reducing this number as a way to minimize paying for unproductive time. By tracking absenteeism on a quarterly basis and being able to compare private and public sectors, as well as the best and worst organizations, metrics can help organizations quantify and drive real change relative to this key productivity metric.

According to data in the HR Metrics Service, the median labour cost (including all compensation and benefits, excluding stock options) is about $72,000 per year. Since an average work year has about 220 days, the median labour cost per employee per day is $327.

Using that figure, it’s possible to calculate and compare the cost of absenteeism across industries and sectors. For example, the difference between median absenteeism in the private and public sectors is 1.7 days or an additional $560 per employee. Across 100 employees, this means an additional cost of $56,000 per year related to absenteeism for a public sector organization.

Here are more numbers to crunch: The difference between the best organizations and worst organizations is 7.9 days per year, which equates to an extra cost of about $2,600 per person. Across 100 employees, this is an additional total cost of more than $250,000 related to absenteeism for the worst-performing employers.

The best organizations demonstrate what is possible and set a level of performance for others to work towards. Quantifying the cost difference provides a clear business case for investing in programs or approaches that directly reduce absenteeism and save unnecessary costs.

By quantifying outcomes and targeting HR investments towards the elements a business views as important, HR is not just claiming its position at the strategic table but demonstrating its capacity to add value to an organization. The work of HR Metrics Service is positioning practitioners to move beyond the talk of strategic impact and enabling them to deliver on their organization’s results.

Ian Cook is director of research and learning at the British Columbia Human Resources Management Association (BC HRMA) and the visionary and architect responsible for the development of the HR Metrics Service. For more information on the service, visit www.hrmetricsservice.org or contact [email protected].

By the numbers

Recruitment snapshot for 2009

Mining the data in the HR Metrics Service reveals a relationship between vacancy rates, time-to-fill and offer acceptance rates in the four quarters of 2009