Net Hire Ratio: Net Hire Ratio = (Hires / Terminations). Net Hire Ratio is a simple glance at whether your headcount is growing or shrinking. If the result is greater than one, you are increasing the number of employees. If it is less than one, you are decreasing the number of employees. If the result is equal to one, your headcount is remaining the same. Managers are drawn to this metric as they can quickly understand the net result of hires and terminations without having to compare two rates.
However, Net Hire Ratio becomes more interesting when you look at it for certain segments of the workforce. For example, you can look at the number of minority hires over the number of minority terminations to quickly understand whether you are growing or shrinking in absolute numbers of minority staff.
You can also use Net Hire Ratio to model what your company may look like moving forward if it continues to gain and lose employees at its current rate. Simply multiply the Net Hire Ratio by the current headcount to project one year forward (and continue to multiply forward for subsequent years). For example, let’s say you currently have 1,000 females and 1,000 males. Therefore, females are 50% of the workforce (1,000 / 2,000 total employees). If the Net Hire Ratio for females is 1.15, then in one year, you will have 1,150 females (1,000 x 1.15). In two years, you will have 1,323 (1,150 x 1.15). If the Net Hire Ratio for males is 1.05, then in two years, you will have 1,103 (1,000 x 1.05 x 1.05). So, in two years, females will grow in representation from 50% of the workforce to 54.5% (1,323 / 2,426 total employees) of the workforce.
Modifications: The concept of Net Hire Ratio can be applied to understand the net changes within management ranks in your company with a modification: [(Hires + Internal Movements In) / (Terminations + Internal Movements Out)]. You don’t have to worry about whether the movement was within management or into management – the formula is designed so that only absolute increases or decreases will factor into the result.
Tags: diversity, HR Analytics, HR measurement, predictive metrics
Hi – I’m not sure that these calculations are correct. For the headcount to increase as a multiplier of the NHR, you would have to assume that the entire headcount has terminated from the organisation (as the NHR is the number of new hires to each separation), and been replaced by x number of people. In the example above, that means that all 1000 of your females must leave in order for the projected headcount to reach 1150.
If I understand the metric correctly, it should be used with current separation trends to project headcount – so for instance if the annual Total Termination Rate for females is 15%, then 150 females will leave. They will be replaced by on average 1.15 females each, leading to a projected headcount of 1172.5 in the next year.
Emma – Thank you for your comment. You are correct – the Net Hire Ratio should be multiplied by the number of terminations, then added back to the headcount. This is because of the nature of a ratio – a New Hire Ratio of 2 (2 hires over 1 termination) could mean just that – 2 hires and one termination or 200 hires and 100 terminations or 2,000 hires and 1,000 terminations. Each of these outcomes will have a dramatically different impact on headcount, so you must first understand how many terminations occurred.
One element to consider – because of this, be careful when you “play” with different termination rates to determine the impact on your workforce. A new termination rate will mean a change in the number of terminations which will in turn change the Net Hire Ratio. You must make the adjustment on both metrics.
Are you aware of any HR Metrics Workshops?
Infohrm is the market leader in presenting workshops on HR metrics. For more information go to the Infohrm web site (http://www.infohrm.com/) and look for the workshop links.
Hi Emma & Paige … i am not sure if I agree to both your calculations. If the Net Hire Ratio is 1.15 then the total projected headcount will be 850 + 150(1.15) = 1023 ….. what do you say? Should the base not be 850 instead of 1000?
Sorry its again me …. in continuation … which means 850 + 173 the number you have hired … which makes the Net Hire Ratio an irrelevant number … you views