2011 Cambridge Business & Economics Conference ISBN : 9780974211428 June 27-28, 2011 Cambridge, UK Accounting for the costs of recruiting and training Cambridge Business and Economics Conference (CBEC) 27 – 29 June 2011 Linda Twiname, Helen Samujh and Steven Rae, Senior Lecturer Senior Lecturer Student [email protected][email protected][email protected]Waikato Management School, The University of Waikato, New Zealand ABSTRACT We investigate the investments made by accounting firms into recruiting and training new employees into entry-level positions. This includes developing a model to capture both the direct and indirect investments/ costs associated with recruitment and training. We quantify time, effort, resources, and associated opportunity costs, on entry-level recruits. The model was converted into a quantitative questionnaire and administered to accounting firms. We administered it to twelve accounting firms. The findings from this study build upon earlier studies (Bliss, 2001; Hansen, 1997; Phillips, 1990) which estimated the cost to recruit and train new employees at approximately 150% of their annual salary. Results revealed that the true investment in recruitment and training is significantly greater for the accountants in our study. On average accountants in our study invest an additional 241% of new employees’ annual salary. The findings provide insight into the true financial investments firms make during recruitment and the first year of employee training for entry-level positions. Our model is a simple tool which managers can use to quantify their investments in new employees during their first year of employment. It has proved insightful for accounting firms and has potential for use in other industries. Further, we found that generally new employees do not reach full productivity within their first year of employment. This highlights the importance for employers to retain new employees to maximise their returns on investment.
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Accounting for the costs of recruiting and training
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2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
Accounting for the costs of recruiting and training
Cambridge Business and Economics Conference (CBEC) 27 – 29 June 2011
Waikato Management School, The University of Waikato, New Zealand
ABSTRACT
We investigate the investments made by accounting firms into recruiting and training new employees into entry-level positions. This includes developing a model to capture both the direct and indirect investments/ costs associated with recruitment and training. We quantify time, effort, resources, and associated opportunity costs, on entry-level recruits. The model was converted into a quantitative questionnaire and administered to accounting firms. We administered it to twelve accounting firms. The findings from this study build upon earlier studies (Bliss, 2001; Hansen, 1997; Phillips, 1990) which estimated the cost to recruit and train new employees at approximately 150% of their annual salary. Results revealed that the true investment in recruitment and training is significantly greater for the accountants in our study. On average accountants in our study invest an additional 241% of new employees’ annual salary. The findings provide insight into the true financial investments firms make during recruitment and the first year of employee training for entry-level positions. Our model is a simple tool which managers can use to quantify their investments in new employees during their first year of employment. It has proved insightful for accounting firms and has potential for use in other industries. Further, we found that generally new employees do not reach full productivity within their first year of employment. This highlights the importance for employers to retain new employees to maximise their returns on investment.
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
1
Accounting for the costs of recruiting and training
We investigate the investments made by accounting firms into recruiting and training new employees into entry-level positions. This includes developing a model to capture both the direct and indirect investments/ costs associated with recruitment and training. We quantify time, effort, resources, and associated opportunity costs, on entry-level recruits. The model was converted into a quantitative questionnaire and administered to accounting firms. We administered it to twelve accounting firms. The findings from this study build upon earlier studies (Bliss, 2001; Hansen, 1997; Phillips, 1990) which estimated the cost to recruit and train new employees at approximately 150% of their annual salary. Results revealed that the true investment in recruitment and training is significantly greater for the accountants in our study. On average accountants in our study invest an additional 241% of new employees’ annual salary. The findings provide insight into the true financial investments firms make during recruitment and the first year of employee training for entry-level positions. Our model is a simple tool which managers can use to quantify their investments in new employees during their first year of employment. It has proved insightful for accounting firms and has potential for use in other industries. Further, we found that generally new employees do not reach full productivity within their first year of employment. This highlights the importance for employers to retain new employees to maximise their returns on investment.
INTRODUCTION
We investigate the investments made by accounting firms into recruiting and training new
employees into entry-level positions. Our work enables deeper understanding of the costs
associated with recruiting and training new employees through the development of a model
that captures relevant costs. It enables deeper insight into human resource management
(HRM) issues facing the accounts.
The traditional approach to recruitment in the accounting profession follows a pattern. “Public
accounting firms have focused their recruiting efforts largely on the traditional college-aged
student, usually with a bachelor’s degree in accounting” (Wall, 1989, p. 24). Multi-national
firms implement universal procedures to enhance global harmonisation (Hooper, Davey,
Liyanarachchi, & Prescott, 2008). We suggest, failure to understand the time and costs of
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
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recruiting and training may lead to ineffective and inefficient decision making. Bliss (2001),
Hansen (1997) and Phillips (1990), provide a general indication of the cost to recruit and train
new employees. Phillips (1990) calculated turnover costs at “about 1.2 to 2.0 (averaging about
1.5) times the annual salary of the position in question” (p. 58). However, Aamodt (2010),
suggests these studies are outdated and based on generic research in the manufacturing sector.
Across the world, there has been a general move away from manufacturing towards service
Garcia, B. L., & Kleiner, B. H. (2001). How to hire employees effectively. Management
Research News, 24(6/7), 35-42.
Hansen, F. (1997). What is the cost of employee turnover? Compensation and Benefits
Review, 29(5), 17-18.
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
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Hooper, K., Davey, H., Liyanarachchi, G., & Prescott, S. M. (2008). Conceptual Issues in
Accounting: A New Zealand Perspective. South Melbourne, Victoria: Cengage
Learning.
Lengnick-Hall, M. L., & Lengnick-Hall, C. A. (2003). Human Resource Management in the
Knowledge Economy. San Francisco, CA: Berrett-Koehler.
Lin, Y.-F., & Kleiner, B. H. (1999). How to hire employees effectively. Management
Research News, 22(9), 18-25.
Lobel, S. A., & Faught, L. (1996). Four methods for proving the value of work/life
interventions. Compensation and Benefits Review, 28(6), 50-57.
Lombardo, C. A. (1989). Do the benefits of training justify the costs? Training and
Development Journal, 43(12), 60-64.
Murray, L. W., & Efendioglu, A. M. (2007). Valuing the investment in organizational
training. Industrial and Commercial Training, 39(7), 372-379.
Noe, R. A., & Wilk, S. L. (1993). Investigation of the factors that influence employees'
participation in development activities. Journal of Applied Psychology, 78(2), 12.
Noe, R. A., & Winkler, C. (2009). Employee Training and Development for Aust/NZ. Nth
Ryde, NSW: McGraw-Hill.
Phillips, J. D. (1990). The price tag on turnover. Personnel Journal, 69(12), 58-61.
Rynes, S. L., Orlitzky, M. O., & Bretz, R. D., Jr. (1997). Experienced hiring versus college
recruiting: Practices and emerging trends. Personnel Psychology, 50(2), 309-339.
Sanford, J. (2005). Making cents out of the hiring process. Strategic Finance, 87(6), 41-45.
Sekaran, U. (2003). Research Methods for Business: A Skill-building Approach (4th ed.).
New York: John Wiley & Sons.
Sheppeck, M. A., & Cohen, S. L. (1985). Put a dollar value on your training programs.
Training and Development Journal, 39(11), 59-62.
Tang, T. (2005). Human resource replacement cost: Measures and usefulness. Cost
Engineering, 47(4), 14-21.
Taylor, T. (1993). The true cost of turnover and how to prevent it. Journal of Property
Management, 58(6), 20-22.
Wall, J. H. (1989). Human resources in an accounting firm: Recruiting is only the beginning -
Part II. Massachusetts CPA Review, 63(2), 24-26.
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
APPENDIX A
Copy of the questionnaire administered to each accounting firm.
Dear Sir/Madam We ask that one senior representative of each firm complete the following documents on behalf of their organization. This material contains a request for ethical approval and some pages titled “Accounting for the HRM function”. Please complete this material on behalf of the organization that you work for. (We would also like you to complete “The Accounting HRM Nexus” questionnaire as an employee of your organization). There are two possible methods for processing these documents. Either download this adobe file and completing the survey filling in the space on your computer and saving the file. When the survey is completed please email it to Linda Twiname at [email protected]. Alternatively, these pages can be printed off and completed in paper version and posted to Linda Twiname at the address given above. Once you have completed and returned the surveys, we will assume that you have given your consent to take part in this research and the data generated using your responses will be incorporated in the overall results. Individual responses are confidential and will remain confidential. Only the three researchers (named below) will have access to the questionnaire responses. Further, no individual participants will be identified or identifiable. We expect the findings of this research to be presented at conferences, used to enhance our teaching and discussed in journal articles. Overall the findings will inform accounting firms and the accounting profession of your views and will assist government in making policy on employment strategies. If you would like to receive a summary of our results please email Linda Twiname at [email protected], this can be emailed to you once the results are available. The research is being conducted by two senior lecturers from the Waikato Management School and supported by a research assistant. Our contact details are listed below:
If you have any questions about the research, or the questionnaire, please contact Linda Twiname (Phone: 07 838 4694) Thank you for your participation, Linda, Helen and Steven.
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
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The Accounting HRM Nexus Survey Questionnaire ‘Accounting for the HRM function’
We would like one senior representative of your organisation who is responsible for the HRM function to complete this section on behalf of your organisation. We will not identify your organisation in our published work without first gaining your written consent. If any information requested in this questionnaire is sensitive and you do not wish to disclose it, please leave your response blank. Please state the name of your organisation: How many employees are there at your organisation? How many new recruits or university graduates do you employ each year? What is your average salary for trainers? $ How many trainers do you employ? What percentage of their time do they spend training? What is your annual graduate promotion budget? $ How much is directly spend on advertising graduate positions? $ What is the approximate salary of administration staff? $ Acquisition Costs Please provide details regarding your annual recruitment of accounting graduates for junior accounting positions. Please complete the section below. However, if you do not have all information either fill in the table or disclose a total (or estimate) cost for that activity. Please indicate as appropriate. Acquisition Costs Staff Classification Chartered
Acct Senior Acct/ Manager
Partner Other:
Pre advertising and decision making Which staff and how many are involved in creating and defining junior accountant positions? How much time is spent, in hours per person, on the pre-recruitment decision making process? (i.e. decisions regarding the number of positions to advertise, job descriptions, position requirements etc) Grand Total if known $ During decision making Which staff and how many are involved in narrowing down the pool of applicants? How much time is spent, in hours per person, narrowing down the pool of applicants? Which staff and how many are involved in the applicant screening process? How much time is spent, in hours per person, in the applicant screening process? How much administration time is spent during the recruitment process? Grand Total if known $ Post decision making Which staff and how many are involved after the selection process through the orientation process? How much time is spent, in hours per person, after the selection process through the orientation process? (including contract preparation, informing unsuccessful applicants)
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
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How much administration time is spent after the recruitment process through the orientation process? Grand Total if know n $
If ‘Other’ column is used, please state the position and charge out rate:
Orientation Costs Please specify any payments that are made to new employees: Dress $ Scholarships $ Computer $ Other: $ Please Specify: Please indicate the approximate first year costs per new graduate employee
Not provided
Local Office
Offices within a Geographic Area
All offices in single central location
Other: please specify:
Initial orientation $ $ $ $ Initial training $ $ $ $ Additional training $ $ $ $ On-the- job training
$ $ $ $
Please indicate the percentage of the on-the-job training which is directly chargeable to clients % If there additional new graduate orientation costs please specify the nature and amount: (e.g. training and travel) $ $ Learning Costs Training Costs at local office What is the average annual salary for a first year accounting graduate employee? $ Please complete the fields in the table below with the approximate time in months that ‘average’ new
graduates spend at each efficiency/productivity level in their first year of employment. Productivity of New Employee During the First Year of Employment Efficiency/Productivity Level Months operating at given level 0-25% 25-50% 50-75% 75-100% (Phillips, 1999, p.59) Inefficiencies and Opportunity Costs Please complete the fields in the table below:
2011 Cambridge Business & Economics Conference ISBN : 9780974211428
June 27-28, 2011 Cambridge, UK
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Position Level Charge out rate to clients
Hours spent with each first year employee on average per week (If the time varies significantly between the first and second half of the year please separate, alternatively use the total column)
First six months Second six months Total
Junior Accountant(s)
$
Accountant(s)
$
Senior Accountant(s) /Manager(s)
$
Partner(s)
$
Other training costs What is the approximate value of additional costs incurred during the training process for manuals and print outs or similar? $ Any other costs not specified above? Please identify the nature and amount: $ $ $ General Please tell us a little about yourself by indicating as appropriate in the following: please select one Junior Acct. Chartered Acct. Senior Acct. Manager Partner Other: please specify Do you have any further information/ detail/ explanations that you would like to add?
Thank you for completing this survey. Your support is acknowledged with gratitude. We would also appreciate it if you would take responsibility to encourage staff at your organisation to complete the online survey ‘The Accounting HRM Nexus’. If you would like to receive a summary of our results please email Linda at [email protected], this can be emailed to you once the results are available.