One of the key sticking points in the HR and finance relationship is data. More specifically, CFOs spend a significant portion of their professional lives focusing on data. HR leaders factor in a number of variables when doing their jobs and making decisions, but many of those variables are not easily quantified.
Therefore, CFOs should welcome any sign that HR professionals are heeding the call for more data-driven HR decision-making. One such sign is the development of a new standard for calculating the cost per hire in order to more accurately track recruitment costs and return on recruiting investments. The standard was developed by a group of HR leaders with the support of the Society for Human Resource Management. The resulting standard was approved by the American National Standards Institute.
As Jeremy Shapiro, the cost-per-hire workgroup chairman and executive director of Morgan Stanley, put it, "The team wanted to create a standard that would be both accepted by the CFO's office and practical to implement by HR. I think we hit the mark."
To that end, the cost-per-hire metric is designed to ensure the quality of the data and process used in this calculation while also ensuring that this data is transparent and comes from appropriate sources. Here is the basic cost-per-hire (CPH) metric:
CPH = (External Costs) + (Internal Costs) / Total Number of Hires in a Time Period
The cost-per-hire standard defines each variable in the equation. External costs include all recruitment-related spending directed outside the organization, such as advertising, recruiting agency fees and travel costs. Internal costs focus on the use of internal resources during the measurement period, including the entire cost of salary and benefits for the internal recruiting team and the infrastructure costs for recruiting, such as technology costs. Finally, the total number of hires, not surprisingly, reflects the number of hires completed during the measurement period regardless of position or level in the organization.
The standard also defines three additional metrics:
1. The internal cost-per-hire metric focuses on incorporating those elements and data points that reflect the unique attributes of that particular organization.
2. The comparable cost-per-hire metric uses data that is more likely to be commonly available across many organizations. This, in turn, generates a more standardized number that can be more easily benchmarked against others organizations' results.
3. The recruiting cost ratio is designed to define a formula and methodology that allows organizations to compare their total cost of hiring against the pay for the positions filled as represented by the total compensation of the newly hired individuals in the first year of their employment.