- HR Metrics Definition Part 1
- 8 Main HR Metrics and Examples of Their Use Part 2
- 5 Tips How to use HR Analytics Effectively Part 3
What Are HR Metrics?
HR metrics help companies understand how personnel efforts are optimizing their business, and reveal vulnerabilities that leaders need to address. Do you know the return on investment of your HR programs? How much is each worker worth? Have you put a number on your company’s human resource efforts? HR metrics help leaders get a handle on the cost and benefits of HR management.
Measuring the success of HR’s programs is essential to understanding how capable the company is at acquiring and keeping talent. They add value to an organization’s business strategy and help leaders develop a sense of how effective the HR department is in helping the company meet agreed upon goals and objectives.
Leaders may have a sense of company profit and performance, but these statistics are a lot more meaningful if they also understand the characteristics of the workforce that are making these numbers happen.
HR metrics provides the story behind the turnover and onboarding percentages, as well as training costs per worker.
- Even if turnover is high, is the company benefitting because the lowest producing workers are the ones leaving?
- Are higher training costs per employee resulting in increased revenue?
Percentages don’t tell the whole story, but pairing them with real-time data can give leaders a better understanding of how HR impacts the company.
Productivity and revenues can suffer if good people leave, and the hope is that HR information gained from HR metrics can prevent this from happening.
This information can also help leaders develop an HR strategy to attract and retain excellent talent.
8 Main HR Metrics and Examples of Their Use
There is a famous American idiom that says, “people vote with their feet.” Places of employment can be victims of this ideology. When people are unsatisfied, they are likely to “vote” by leaving. That is why this statistic will give leaders a sense of how well their company is doing in keeping individuals engaged enough to stay. This metric is usually calculated by taking the number of employees who left within 12 months and dividing them by the average actual number of employees during the same period. Some leaders will compare this number to companies who are in a similar industry.
The cost of an employee does not disappear if they decide to leave. In fact, it may even temporarily increase. Companies need to understand the value of keeping employees on staff because there are several expenses associated with their departure. Leaders can crunch the numbers by taking the total cost of separation and adding costs for vacancy, recruitment, and training.
Since we know high turnover can yield high cost, it is helpful for leaders to find out how long workers are staying with the company. Many will probably already have a sense of this about the turnover rate, but leaders may be surprised to see how long the majority of employees are choosing to stay at the company. If rates are low, this can help facilitate a conversation with HR about what may cause workers to want to leave so soon. Are there not enough opportunities for promotion? Are salaries stagnant? Is a competitor stealing workers away? Tenure is calculated by taking the average number of years of service across the whole company. To get even more in-depth insight, leaders should take the tenure of various age groups to see how the number changes. This can help leaders understand how generational changes may be impacting the length of service at their organization.
Percent of Performance Goals Met or Exceeded
Are employees meeting or exceeding goals and objectives? If this number is high, then kudos! If it is not, then leaders have to drill into the story behind the numbers to understand what may be hindering employees. It could be outdated technology, a lack of clear communication, bad hires, or a simple lack of motivation. This number will help leaders work with HR to develop a plan to get performance numbers back on track. The formula for this metric is taking the number of performance goals met or exceeded and dividing it by the total number of company goals.
Engagement or Satisfaction Rating
This is one where leaders can hear directly from employees. HR can capture this metric by taking the percent of employees engaged or satisfied overall. This statistic will likely tie in with turnover, tenure, and percent of performance goals met or exceeded. If a large percentage of employees are disengaged, this will spill into other areas that leaders need to be aware of. Results will help leaders get a sense for how many initiatives they need to establish to raise low engagement numbers.
Average Days Absent
How often are employees not showing up to work? What are the reasons they have to take vacation or sick time? This information can be invaluable to leaders because it can reveal a lot more information. Are there parents who need time off to deal with family obligations? Are there employees who are juggling school and work? Leaders can work with these individuals to develop work schedules that better accommodate them and can even suggest remote work programs. Average days absent is calculated by taking an average of all employee absent days.
Compensation or Benefit Revenue Ratio
How much is the company spending on salaries and benefits in relation to revenue? Can the company sustain offering raises or a more detailed benefits package? These numbers will give leaders a benchmark to know what they can offer to new and existing talent. Leaders can take compensation or benefit costs and divide by total revenue to find the ratio.
HR Cost per Employee
For HR, this information can inform the strategy of metric keeping. How much is HR spending per employee? This calculation can include the software needed to keep the metric, training and development, and programs. This number will help leaders calculate ROI as well. Leaders and HR professionals can calculate this number by taking the total number of HR costs and dividing it by the number of employees.
5 Tips How to Use HR Analytics Effectively
We can discuss the various types of metrics human resource departments should capture and talk about their importance. However, leaders and departments cannot yield adequate results if they do not understand how to use this data in a practical way that informs HR strategy. Here are some ideas that leaders can keep in mind when using HR metrics to make well-informed decisions.
Only Track What Aligns with Business Objectives
If the company’s mission is tied to customer service and innovation, then HR should establish metrics that address these qualities. Leaders need to understand where they need to improve so they can incorporate metrics that optimize business objectives.
Make Sure All Relevant Stakeholders Get the Information They Need
Some leaders may have different needs for specific information, but all stakeholders need to be satisfied so they can make better business decisions. Even though the metrics are related to HR, the finance department may need to be aware of costs per employee, and the operations department might need absentee numbers to know how absences impact production.
Combine HR Metrics with Business Metrics
As stated earlier, HR metrics are only part of the story. Combining performance data with personality assessments can reveal common characteristics that are associated with high (or low) performance. Data can even show if a salary increase was effective in increasing productivity. Leaders need to understand how personnel decisions impact overall business activities.
Always Ask “Why”
Leaders have to become inquisitive about HR metrics and the reason why results may come out a certain way. Why did the salary increase seem to have a limited impact on productivity? Why is tenure low among workers ages 25 to 35? Why are workers leaving to go to a competitor? Asking “why” does not always have to accompany a negative issue. Leaders should be equally concerned about the reason for successes so they can make calculated strategies to keep the progress going.
Decide What Is Essential for Your Company’s Culture
Is cost per hire low, but turnover high? Is work-life balance a significant reason for dissatisfaction even though profit may be high? Leaders have to decide how important these factors are to their business and determine how they want employees to interact with the organization. To understand the actions leaders should take to address these issues, they first have to decide what type of company they want to be. If they have not established values or an informal culture, then this needs to happen before taking a measured approach regarding personnel issues.
Human Resources is no longer a field that professionals can “feel” their way through. Leaders have to encourage human resource professionals to understand the importance of data and strategy. It is hard to improve what is not measured, and with so many factors impacting how and why workers decide to stay with an organization, it is even more necessary to have metrics in place to understand the complexities of a workforce.