Tuition reimbursement can improve employees' lives and help increase talent in your workforce. Investing in your employees' continued education isn't just a benefit cost, but rather a valuable investment. The ROI of tuition reimbursement programs is not only found in the potential to reduce human capital costs by improving retention and engagement, but it could actually lead to increases in revenue, as well.
According to the ADP Research Institute® report, The Evolution of Work: The Changing Nature of the Global Workforce, 65 percent of employees react positively to the notion that constant role shifting will require learning new skills quickly, and 45 percent believe this trend of role shifting and having to learn new skills will impact them personally.
In competitive industries where finding and retaining talent is a challenge, the promise of tuition assistance should improve retention and lead to a noticeable positive impact on acquiring and retaining talented people.
Considering a Program's ROI
According to CFO.com, 60 percent of organizations offer tuition assistance. Some organizations limit reimbursement to $5,250 per year in line with federal tax limitations on withholding taxes, according to the Society for Human Resource Management (SHRM). However, some businesses invest much more. For example, advertising and marketing agency Dixon Schwabl compensates up to $30,000, according to Great Place to Work. The CFO.com article mentioned above also notes that Cigna offers tuition reimbursement of $12,000 per year for strategically important educational pursuits like data analytics, digital marketing and global leadership.
However, only around 5 percent of organizations evaluate an educational programs' economic ROI, according to CFO.com. This is a low number considering the large investment that tuition assistance requires. Organizations might be missing out on a vital opportunity if they don't treat education programs as an investment that will lead to future positive returns.
Using Employee Turnover as a Metric
Cigna found a 129 percent return on investment from tuition reimbursement programs related to savings from employee promotions, retention and transfers, reports CFO.com. There are two main ways to calculate the ROI of tuition programs.
First, organizations can use cost savings realized in the talent management function to calculate the return. In Cigna's case, the main savings were from reduced recruiting expenses. As retention increased, recruiting expenses fell. The same principle applied to promotions and transfers. For example, recruiting costs are higher for upper level jobs, so the more organizations can promote from within, the fewer high-level jobs need to be recruited.
Second, finance leaders could focus on increased revenue as a return from the investment in tuition. The challenge will be to link tuition assistance to increased revenue, factoring out other influences on revenue growth. This is a much larger challenge than focusing on costs savings in talent management. Cigna considered but chose not to use revenue figures as a potential return to measure, electing to focus only on the human capital cost savings. With at 129 percent ROI, the cost savings was enough to show that tuition was having a positive impact on the business.
Treating Tuition Like an Investment
Tuition programs have the potential to have a significant positive impact on future financial returns. By treating tuition assistance as an investment to be managed, finance leaders could recommend raising tuition assistance limits as a means for attracting and retaining highly skills employees — driving down talent management costs while increasing innovation and growth.
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