The 1997, the Florida Marlins were the first baseball team to win the U.S. World Series from a “wild card” slot in the playoffs. That season, 2.3 million fans came out to the team’s new Pro Player Stadium, more than 100,000 above the National League average.
During the following off-season, the management of the Marlins unloaded their top players in an effort to reduce costs. The thinking was that people would still come to experience the new park and its attractions while watching a baseball game. It was a terrible miscalculation.
The Marlins went from a winning record in 1997 to finishing last in their division in 1998. Attendance plummeted to 1.7 million, 30 percent less than the average for National League clubs that year.
The moral of the story? Talent does matter. And just as the Marlins paid a heavy price for their penny-pinching, your business could too.
Volatile economic conditions make labor markets uncertain, so many companies are tempted to reduce or eliminate investments in their employer brands. After all, people are fearful of losing their jobs, so why spend capital trying to attract and retain them when dread of unemployment will do the same thing for free?
Simplistic reasoning such as this overlooks the fact that organizations with strong employer brands get better performance out of their workforces. They also get first pick of the talent that does become available in the labor marketplace.
While measuring a sports team is relatively straightforward and supported by reams of statistics, it is far more difficult to gauge how well your business is doing and how attractive you are to the top players in your field. So here are some basic ways to assess the strength of your employer brand to make sure that you are on top of your game.
The connection between employer brand and profitability
The very discussion of how to measure an employer brand begs the question, What value does the employer brand have? Ultimately, a strong employer brand should contribute to the performance and success of the organization. For businesses, that metric is usually profit.
Lowell Bryan, in an article titled “The New Metrics of Corporate Performance: Profit per Employee” in the McKinsey Quarterly, theorizes that “intangible capital” such as the workforce is the real driver of profits in today’s business world. He points out that from 1995 to 2005, the top 30 corporations in the world saw their profits increase fivefold, driven mostly “by a more than 100 percent jump in profit per employee and a doubling in the number of employees. By comparison, these companies’ ROIC (Return On Invested Capital) increased…by only a third.“ Profit per employee for these 30 firms increased by nine percent over the decade while ROIC rose by only three percent. When you examine the balance sheets of the companies on the “100 Best Companies to Work For” list published by Fortune magazine, you will see that they have a consistently higher profit per employee ratio than firms not on the list.
To calculate your profit per employee, divide your firm’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by the number of employees (full-time equivalents, or FTEs).
Are your employees net promoters?
Another way to measure the strength of your employer brand is to look at the percentage of new hires that come from employee referrals. If your current workforce is willing to refer their friends and neighbors to opportunities at your firm, that’s a good indicator of a strong employer brand. A rule of thumb should be that 30 percent or more of your new employees come from employee referrals. (You can have too high a percentage, which can lead to a form of “in-breeding” and deter an inclusive workforce. A referral rate above 50 percent is cause for concern.)
If your rate of employee referrals is low, it may be because the process is too complicated or employees do not get any feedback. Examine your procedures for handling referrals and ask for feedback from your workforce to make sure that you are treating their referrals as VIP candidates. Poor handling of employee referrals is not only a waste of money (employee referrals are the least expensive source of new hires after walk-ins), but also can damage morale and weaken your employer brand.
Voting with their feet
A third way to measure your employer brand is to look at the percentage of workers who leave voluntarily. This turnover percentage varies by industry—retailers and restaurants typically see annual turnover of 100 percent or more because of the transient nature of their workforces. High-tech firms and financial institutions usually see turnover percentages in the mid-teens to low twenties. If your turnover is significantly above the norm, it’s a good indicator that something is wrong with your employer brand.
Best-in-class employers such as Starbucks and Southwest Airlines, for example, have substantially lower turnover rates than their competitors. Thus they are able to deploy workers who usually know their jobs better (they’ve been doing them longer) and often know their customers individually (frequent flyers or latté sippers). In The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value, Frederick Reichheld conducted a study to determine what makes successful companies thrive. He found that the largest single factor is a stable workforce. In retail banking, for example, branches with managers with seven or more years’ tenure had US$1 million more in surplus revenue each year than those that did not.
Keep your stars to keep winning
As we learned from the 1997 Marlins, you cannot compete effectively without top talent. In times of economic uncertainty, the people who will have the easiest time finding new employment are your superstars. After all, they have the record of achievement that employers crave. What would happen to your organization if a sizable portion of them leave? You might wind up replicating the Marlins’ sad “first to worst” record of the late nineties.
Use these measures of your employer brand strength to gauge how well you are doing in attracting and keeping the best. If you are lacking, it’s time for some drills to get your team back into winning form.