Report shows rise in hiring costs

Despite efforts to control costs and a growing labor pool in the U.S., companies in 2001 paid an average 18 percent more per new hire than during the previous year, according to the 2001 Workforce Diagnostic System Surveys and Benchmarking Reports recently conducted by Saratoga® Institute, a world leader in the measurement of human capital and a subsidiary of Spherion Corporation. This increase of total cost per hire is one of the largest seen in some time, stated Robert Morgan, president of the Human Capital Consulting Group.

The comprehensive 2001 Benchmarking Reports reflect responses from over 800 companies in 20 industries throughout the United States. Participants responded to questions in areas including: Staffing and Hiring, Compensation and Benefits and Retention and Separation.

The 2001 Staffing and Hiring Benchmarking Report also revealed that companies are failing to find and retain the right talent to improve their competitiveness. "Hiring mistakes can have a huge impact on a company's bottom line," said Morgan. "Yet we found that over

66 percent of companies who responded to questions in this particular study do not measure the quality of their new hires and cannot determine their best hiring source, therefore preventing them from knowing if they're spending too much on wrong hires."

Talent retention is still a significant issue for companies, according to Saratoga Institute's Report on Retention and Separations. Less than half of survey respondents said they have a corporate retention strategy and only 35 percent have specific retention or turnover goals. Only 12 percent measure the results of their retention strategy. Because Saratoga Institute estimates that employee costs often exceed 40 percent of organizational expense, Morgan notes that measuring and managing human capital and retention is critical to maximizing business results.

"Now is not the time to take a break from your retention efforts," warned Morgan. "The fact remains that companies seeking top performers are encountering shortages and only those that successfully hire and retain quality staff will come out on top."

The Compensation and Benefits Survey found that linking pay to organizational performance is still a key issue. A vast majority of participants (70 percent) indicated they have a formal pay for performance system and 63 percent feel that they do a good job of tying pay to performance. However, compensation for all full-time and part-time employees as a percent of total operating expenses increased from 22.8 percent to 29.3 percent in 2001. The median salary increase last year was 4.0 percent and participants project an increase this year of just under that figure. However, many companies are budgeting higher increases for their key employees.

Healthcare costs and containment are still major issues for employers. Costs increased in 2001 and are expected to continue to rise as employees are being asked to take on more of the burden. Regardless of this passing of additional costs to employees, the average total employer's share of benefits costs increased in 2001, from $14,534 per employee to $16,347.