Is Russian HR more effective than its foreign counterpart?

PricewaterhouseCoopers annual survey of HR management system effectiveness

11 February 2008 — PricewaterhouseCoopers (PwC) presents the results of its regular annual survey of HR management system effectiveness, the HR Benchmarking Survey 2007, whose purpose is to help assess HR's contribution to a business’s success and establish reference points for its further improvement.

With the growth of the Russian economy and the country’s integration into the global economic sphere, appraising human capital — one of a company's main competitive advantages — and raising its effectiveness are becoming priorities not only for HR specialists, but also for a company’s management and shareholders.

Today, shareholders and potential owners are interested not only in stable financial results, but also in detailed information about how these results were obtained, whether further growth is possible, and what advantages and potential risks are associated with a company’s personnel.

The survey’s primary conclusions

• The results of 2007’s survey show that companies operating in Russia on average surpass their European colleagues in the return on investment in human capital (HC ROI) metric. According to data from PwC’s survey, for every dollar invested in staff compensation, companies received $2.30. This is two times higher than what a survey of Western European companies revealed — $1.16.
• In companies with an officially formalised human resources strategy, the revenue per employee is almost three times higher, and the return on investment in human capital is almost 70% greater, than in companies with a strategy that is not specified in any document.
• The survey’s results indicated that employee productivity and the effectiveness of investment in human capital depend on an HR manager’s role and position in the company’s organisational structure. In companies whose HR managers report immediately to the general director, the return on investment in human capital and the revenue per employee are higher than in other companies.
• Revenue per employee in both Russia and in Western Europe is, on average, at the same level — $210,000 and $214,000 per year, respectively.
• Companies’ average costs per employee in Russia, at $112,000 per year, are almost two times lower than in Western Europe, at $203,000 per year.
• The share of personnel costs in a company’s total expenses is 15.7% on average, whereas in Europe, it approaches 25%.
• Variable performance-based rewards are markedly higher in Russia than in Europe for all categories of employees under study. A good example of this is that in Russian companies, performance-based rewards for management, on average, make up almost three times more of their overall monetary remuneration (26%) than in Europe (11%).
• The staff turnover rate of foreign companies operating in Russia is 26% lower, at 20%, than in Russian companies. The proportion of dismissals to voluntary resignations is higher in foreign companies, who in this way part with every third employee, than in Russian companies, who thus part with every fifth.
• In the companies with the highest return on investment in human capital, the staff turnover rate, at a little less than 12% on average, is two times lower than in companies with a low HC ROI. These companies use internal candidates to fill vacancies 70% more often. The correlation between the given metric and the external recruitment rate bears witness to the fact that the leading companies use the “personnel reserve” tool more actively.
• HR staff in foreign companies operating in Russia on average make up over 9% of overall employees (one HR specialist for every 64 employees), while in Russian companies, this ratio is 6.5% (one HR specialist for every 95 employees).

The survey's results provide a unique opportunity to study and evaluate effectiveness measurements while taking into account industry specifics and a company’s size and development rate. In the course of the survey, substantial differences among several industries were identified:

• The average portion of personnel costs in total expenses was highest in the financial sector (33%) and lowest in the energy and mining sector (5%).
• The sectors with the highest staff turnover rate, according to the survey, are retail (49% on average) and consumer goods (30% on average). The lowest staff turnover rate was in the energy and mining sector, where the average rate was not greater than 12%.

Information for the editor

1. For additional information, please contact PR Manager Vera Totskaya or PR Assistant Manager Anna Aristova.
2. Methodology. Forty-eight companies provided their own data for the survey, collected on more than 150 quantitative metrics. Of the companies that participated, 14 were from the financial sector, ten were from consumer goods, nine were from industrial production, four were from energy and mining, and there were three representatives each from retail and telecommunications. The remaining participants represented the automobile sector, the service industry and pharmaceuticals.
3. PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.