Survey ROI orWhy You Can’t Afford NOT to Pay Attention to the Market

Warren Heaps,Partner

Birches Group LLC

John Palien

ORC Worldwide

The Challenge – How do organizations justify paying for annual survey participation? Is it really necessary?

The Solution – HR must demonstrate the value from survey participation

in clear financial terms – Survey ROI

Let’s take a look at some ways to show how surveys help organizations manage their business more efficiently

Fundamentals• Remember Economics 101 – the law of

supply and demand• Employers set their salaries according to

the cost of labor, not the cost of living• The “market” (however defined) is

dynamic, and responds to many external conditions and events

• Developing country markets are volatile and subject to even more change

What is ROI?• ROI = Return on Investment

– A financial measure which illustrates the benefits of making an investment

• Example– A company purchases a new machine which increases the

output on the manufacturing line from 1,000 pieces per hour to 2,000, with no additional staff required

– The cost of the machine is recaptured through additional profits and steady labor costs over 7 months

• Can this be applied to salary costs?

Compensation Factors to Consider• Staff compensation is one of the largest

administrative items in most NGO budgets

• What is the cost of paying your staff– Too much?

– Too little?

Measuring the Financial Impact• Suppose your overall compensation scheme is set just

0.5% to 1% higher than the market• Potential Savings:

Salary Budget

0.5% Savings 1% Savings

$250K

$500K

$1.0MM

$2.5MM

$10.0MM

$1,250

$2,500

$5,000

$12,500

$50,000

$2,500

$5,000

$10,000

$25,000

$100,000

Measuring the Financial Impact• So, you would only have to realize a 0.5% savings on a

payroll of $180K to break even!• Now lets consider the savings if you are 10 to 15% off

your target market position which is not atypical:Salary Budget

10% Savings 15% Savings

$250K

$500K

$1.0MM

$2.5MM

$10.0MM

$25,000

$50,000

$100,000

$250,000

$1,000,000

$37,500

$75,000

$150,000

$375,000

$1,500,000

Defining Survey ROI• Survey costs are minimal compared to any world-class survey

while LiNGO provides more detailed information than any other survey on the market.– LiNGO is just $900

• Add the cost of staff time to submit data, analyze the results, and determine the organization’s market position

• Determine how you would move your salary budget for the year (COLA adjustment across the board?) if you did not have an updated survey

• Let’s look at a simple example

AssumptionsSalary budget 2,500,000 Assumed COLA 5.0%Budgeted increase 125,000

Market Movement 4.2%Revised increase % 3.9%Revised budgeted increase 97,500

Gross savings 27,500 Survey cost (900) Staff time (3,000) Net savings 23,600

ROI CalculationInvestment Survey cost 900 Staff time 3,000 Total 3,900

Savings 23,600

ROI (savings / investment) 605.1%

In this example, having access to survey data and doing a proper analysis results in a savings of over $23,000, or more

than six times the survey cost!

ROI is easy if there is savings

But what if there’s added costs?

Even if costs are higher, there is still positive ROI

• Suppose your organization matched the market in 2005, and then regularly adjusted the salary budget by 2% per year for COLA for 2006-2008

• Market movement over the same period has been averaging 6% per year

• This has eroded your organization’s competitive position, particular for mid-level skilled professionals

Eroding Market Position

100.0

96.2

92.6

89.1

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000

2005 2006 2007 2008

An

nu

al C

om

pe

nsa

tion

82.0

84.0

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

102.0

Co

mp

a-R

atio

Your Compensation Market Compensation Compa-Ratio

2% Annual Increases

6% Annual Increases

Compa-Ratio Drops!

Savings Results from Reduced Turnover• If staff have to be recruited to replace those who leave for

higher salaries:– There are costs associated with recruitment– There are costs associated with onboarding and training– Costs associated with the period prior to voluntary

termination when workers tend to be less productive.– In some cases costs associated with the communication of

proprietary procedures and skills to competitive organizations.

– It’s likely that new hires will be successfully recruited only at rates closer to the actual market, causing internal equity and compression issues

Savings Results from Reduced Turnover

• Typical turnover costs are estimated at between 25% and 200% of annual salary.

• Using a conservative estimate of turnover costs, the cost of the LiNGO survey is equal to avoiding the turnover of one employee earning $3,600 per year.

Regular Survey Participation Reduces Overall Costs

• An annual process which includes– Regular market surveys

– Analysis of market position

– Adjustment of salary scales to match market movement as well as internal issues

• Results in higher morale, less turnover and real savings

Regular Survey Participation Reduces Overall Costs

• “But my project budgets are on a two-year cycle so I only need data every other year.”– You still bear the financial risk of being under or over

market in the interim years.– Not all organizations are on the same cycle. Thinking

this way makes it difficult for the sector to build stable and consistent market references if participants swing from year to year.

– Annual LiNGO survey provides better information at lower cost than a custom survey of similar quality every two or three years.

Other Benefits of Survey Participation• Organizations have or are developing global employment

brands• Part of the global brand is consistency of practice with

respect to remuneration– Consistent position against the market across countries– Consistent policies with respect to compensation

elements provided• Global employment brand brings equitable approach and

reinforces team cohesion across organization.• You need market intelligence to deliver this consistency

Why LiNGO?• Tailored solution to your markets

– Country coverage– NGO-specific jobs included in the survey

• Consistent methodology across all countries

• Right balance of cost and utility

• An effort by your community to serve your community

• Talk to your CFO• Talk to your CEO• Talk to your Programme Leads and

Country Directors

• Show them the numbers• Demonstrate the ROI• Act strategically as a business partner

Take the Lead!