Employee return on investment increased by 19 percent in Romania in the past two years, PwC study shows

Employee return on investment (HC ROI) increased by 19 percent in Romania in the past two years, as shows the PwC Saratoga Romania 2010 study. This indicator measures the human capital return on investment, which shows the pre-tax profit produced by an employee for every euro, dollar, or RON paid out in remuneration.

Moreover, the costs of labour, as a percentage from the total costs of the companies, decreased from 12.2 percent before the crisis to 9.3 percent. At current levels, the Romanian costs of labour are more than half the labour costs incurred by companies in Western-Europe.

“With a 1.53 average rate of human capital return on investment (HC ROI), Romania has a similar standing with the United States and is 30 percent above the Western European ranking from this point of view. This should not be understood as the result of higher productivity levels in Romania, but it’s the result of the lower remuneration/revenue indicator in Romania”, explains Peter de Ruiter (in picture), Tax and Legal Services Leader, PwC Romania.

The economic crisis has lead to a stagnation in the labour market, a fact highlighted by the falling rate of resignations, which decreased from 18.3 percent in 2008 to just 8 percent last year. Companies have sought to maintain their existing employees and the external recruitment rate dropped by 75 percent compared to the 2008 levels. Yet, the involuntary termination rate increased seven times, reaching 7.3 percent.

“Romanian companies have a lower rate of internal recruitment – 1.3 percent compared to the European average of 4.3 percent. This indicator shows a significant decrease as compared to the 2008 level, when Romanian internal recruitment rate was 11.1 percent, which means that companies have sought to maintain their existing labour force, but have also significantly reduced the number of promotions or lateral movements within the firm. Decreasing of revenue and lack of promotion opportunities influenced employees’ morale, a fact that results in higher absenteeism, lower engagement rate and an increase in unproductive behaviours”, added Peter de Ruiter.

The telecom and technology sector reported the highest revenue per employee, counterbalanced by a high costs per employee. This industry has also a low rate of absenteeism (just 3.2 percent), yet a higher than average staff turnover rate, especially in the case of specialists (14.3 percent).

There is also a growing tendency for companies to externalize their human resource activities (a 70 percent increase in the number of companies using outsourced human resource services), which lead to a decrease in the cost of the Human Resource department within the companies’ total costs, from 0,32 percent in 2008, to just 0,17 percent in 2010.