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