One of HR’s essential functions is to act as an organization’s eyes, observing internal and external information crucial for business improvement.
HR metrics serve as indispensable glasses, bringing clarity to workplace data. Through these metrics, organizations can decipher patterns and discrepancies, enabling informed decision-making processes.
The evolving role of HR signifies a shift in the importance of HR metrics. Company leaders recognize that workforce happiness and productivity are foundational to success. As work dynamics change, HR is gaining recognition as a strategic partner crucial for organizational success.
With more companies involving HR in strategic discussions, a new level of responsibility emerges. Executives now look to HR to enhance operational efficiency, boost retention rates, and leverage corporate values to attract top talent. This necessitates HR departments to collect metrics that support long-term decision-making.
What are HR Metrics?
HR metrics are Key Performance Indicators (KPIs) on people operations. Businesses track them to measure and improve performance, engagement and productivity.
Why should you track HR Metrics?
Consistently tracking HR metrics and acting on the results can bring significant benefits to organizations. It can help improve labor resource allocation in areas such as scheduling, bidding, hiring, and compensation. Furthermore, it enables the prediction of outcomes related to proposed changes in actions like personal time-off policies, benefits adjustments, team composition, and additional shifts or locations.
In addition, tracking HR metrics can aid in decreasing compliance risks associated with various aspects, including overtime, minimum wage, exempt vs. non-exempt classification, payroll-based journal, Family Medical Leave Act, and the Affordable Care Act. This proactive approach can significantly mitigate potential risks and ensure adherence to regulations.
Moreover, leveraging HR metrics can enhance the return on investment in HR programs such as engagement initiatives, wellness programs, financial planning services, and performance management strategies. By analyzing data and making informed decisions, organizations can optimize their HR processes and initiatives to drive better outcomes and overall performance.
The Benefits of HR Metrics
1. Identify Areas for Improvement
You can't fix a problem if you don’t know that it exists. HR metrics play a crucial role in helping HR teams identify areas for improvement and develop effective business strategies. For instance, measuring employee satisfaction can uncover issues that, if left unaddressed, may lead to low retention and high turnover rates.
By tracking employee satisfaction, you gain insights into your team's well-being and can implement strategies to enhance job satisfaction and engagement. This proactive approach not only retains great talent but also fosters a positive work environment.
In essence, HR metrics provide the necessary awareness to pinpoint and address areas that require enhancement, empowering you to make informed decisions that benefit both employees and the organization.
2. Cost Savings
HR metrics play a crucial role in managing people efficiently. However, when utilized correctly, they can also aid companies in managing costs effectively. For instance, tracking the cost per hire can unveil unexpected expenses, prompting a review of recruitment processes to eliminate unnecessary costs, such as streamlining the interview process.
Similarly, observing an increase in absenteeism and turnover rates post the return-to-office mandate, coupled with decreased engagement metrics, can signal the need to consider transitioning back to a remote or hybrid model. This strategic move not only boosts employee satisfaction but also saves costs by enhancing productivity and reducing turnover.
Ultimately, HR metrics not only optimize human capital management but also serve as a vital tool in cost-saving initiatives.
3. Retain Top Talent
In today’s hyper-competitive labor market, retaining top talent is more important than ever. And a great way to ensure top talent stays with your company? You guessed it — HR metrics.
HR metrics play a crucial role in keeping employees with your organization. This is especially true of HR metrics around employee engagement and experience.
For example, let's say employee satisfaction and engagement are key metrics for your HR team. And when those metrics are lower than you'd like, you take steps to improve them. This shows your employees you're invested in them. It creates a better employee experience for your team members — which increases the likelihood they’ll stay with your company.
The Best Way to use HR Metrics
For HR teams, simply having data and employee metrics on hand is just the start, but it can be half the challenge to achieve. If your organization is light on data collection, look for ways to collect new data or to interpret existing, unused data through statistics. Collecting data doesn’t have to mean encroaching on employee privacy. It can be as simple as aggregating data on employee bonuses in one centralized place, for example, such that patterns can be tracked and more bonuses can be awarded where they’ll count. Another great place to start is the simple employee survey, which can be surprisingly illuminating.
Look for the areas where your company is most interested in seeking unknown information—evaluating candidates during the hiring process is usually a big one, as are the many factors that can boost or hinder employee productivity. Many companies are also more “in the dark” than one might assume about what factors drive retention and attrition. Whatever the case, a data-driven approach through HR metrics beats speculation.
One of the best ways to use HR metrics is by overlaying several of them to build a bigger picture. Many of the metrics listed here provide decent information by themselves but impart real insight and directives for change when combined. For instance, employee compensation metrics such as salary averages and salary range penetration simply allow HR to see who gets paid what. Compare this data side by side with employee satisfaction metrics such as eNPSs (Employee Net promotor Scores) or turnover rates and patterns may emerge, answering questions about how effectively (or ineffectively) compensation tools are increasing retention and where raises can be most efficiently applied.
Top HR Metrics
Cost Per Hire (CPH)
This tried-and-true HR hiring metric, Cost per Hire (CPH), remains as relevant in 2024 as ever. CPH reveals how much a company spends on average to acquire a new employee. By dividing total hiring dollars by total new hires within a specific time frame, CPH offers a simplified cost-benefit ratio in one easily comparable figure.
HR departments rely on CPH to assess the efficiency of the hiring process. Unlike simply tallying expenses, CPH is more descriptive. Notably, this metric encompasses costs associated with reaching out to all potential employees, even those not ultimately hired. While this approach may seem counterintuitive, it provides a less variable and more illuminating perspective on cost-effectiveness, making it much more practical to calculate.
Time to Hire (TTH)
Understanding the time to hire metric in HR is crucial for assessing the efficiency of the talent acquisition process. This metric measures the time from a prospective employee's engagement with the recruiting process to their acceptance of a position. A lengthy time to hire could indicate issues in job posting reach or candidate filtering. It's a sign that prospective employees may not be sufficiently engaged, leading them to competitors or causing dissatisfaction with the hiring process.
Defining the start of the time-to-hire period varies across HR resources, some using the first contact with a candidate, while others consider the submission of an application. Regardless of the definition, time to hire is different from time to fill, which starts with a job request and ends with a candidate accepting an offer.
Understanding these distinctions is key to optimizing recruitment processes and ensuring a smooth transition from identifying talent to securing their commitment.
Quality of Hire (QOH)
Perhaps one of the most comprehensive metrics in the realm of recruitment, "quality of hire" stands out as a super-metric encompassing various employee indicators.
Unlike metrics like cost per hire and time to hire, its focus is on showcasing the value that an employee brings to a company, emphasizing the return on investment rather than the efficiency of the hiring process itself. Described by SHRM as the "holy grail" of recruiting metrics, quality of hire delves deeply into employee value compared to other metrics.
The calculation involves summing up the values from selected indicators and dividing the total by the number of indicators used.
Rehire Rate
If your organization faced layoffs or furloughs due to the pandemic, you may now be rehiring former employees. Tracking your rehire rate can show how often you rehire versus bringing in new hires. Rehiring former employees is quicker and cost-effective, saving time and resources on recruiting.
Employee Net Promotor Score (eNPS)
An eNPS measures how much a group of employees would recommend or not recommend employment with their company to others. It’s relatively easy to measure and serves as a good, though general, proxy for overall employee satisfaction.
An employer surveys employees by asking, on a scale from zero to ten, how likely they are to recommend the company to others as a place to work. For calculation purposes, respondents who choose a nine or ten are categorized as “promoters,” those indicating a seven or eight are “passives” and those with a six or below are “detractors.”
To calculate an eNPS, subtract the number of detractors from the number of promoters, divide the result by the total number of respondents and finally multiply this figure by 100.
Absentee Rate
Absenteeism, which usually refers specifically to unscheduled absences from work, can have a variety of causes. It may indicate employees’ challenges with health and well-being, rather than with commitment or workplace dissatisfaction. Either way, collecting attendance data is important to HR, both for evaluating the costs and patterns of missed time and for better understanding employees’ needs.
To calculate an absenteeism rate, divide the number of unexcused absences by the total number of expected workdays within any set amount of time. Then, multiply the result by 100 to reach a percentage. The closer to zero, the better.
Employee Growth Rate
Sometimes referred to as “company growth rate,” this metric indicates how much a company is either growing or shrinking its number of employees. It describes this change over any given period of time—perhaps a quarter, a year, five years—by using a headcount at the start of the period (“Point A”) and at the end (“Point B”).
To calculate employee growth rate, begin by subtracting the head count at Point A from the head count from Point B. (If there was a net loss in employees, this value will be expressed as a negative number, making the end result negative as well.) Next, divide this figure by the head count at Point A. Finally, multiply the result by 100 to represent it as a percentage.
Employee Turnover Rate (ETR)
True to its name, employee turnover rate (ETR) reveals the number of employees who resign or are let go within a given time period (often a month or a year).
At its core, the figure is simply a ratio comparing employee departures to total employees. As such, it can be calculated by dividing the number of departures by the number of employees at the outset of the time period in question and multiplying the result by 100 to reach a percentage.
Early Turnover Rate
Early turnover – the percentage of recruits leaving in the first year – is arguably the most important metric to determine hiring success in a company. This early leaver metric indicates whether there is a mismatch between the person and the company or between the person and his/her position.
New hire turnover is also extremely expensive. It usually takes 6 to 12 months before employees have fully learned the ropes and reach their Optimum Productivity Level. The cost of replacing an employee can be as much as 2x the employee’s annual salary, especially for more senior roles.
Performance & Potential Rate
There are many qualitative and quantitative ways to measure employee performance. Metrics include Employee Net Promoter Score (as mentioned above), management by objectives, number of errors, 360-degree feedback, and forced ranking.
Another useful tool is the 9-box grid, which assists in measuring and mapping both an individual’s performance and potential in three levels.
This model shows which employees are underperformers, reliable team players, high potentials, or exceptional talent:
Communications Reach & Engagement
Your goal here is to find out how employees prefer to communicate. (Hint: it’s probably not email.)
You need to understand your internal comms reach to know which modes of communication our people respond to most. That way you can meet them where they are, rather than trying to push them into using comms channels that aren’t a good fit.
To do this, you’ll need to track metrics like email read receipts, intranet logon data, internal text message volume, and total Slack messages. All of these are good metrics to show you where people are exchanging information and which parts of your communications infrastructure reach people most efficiently.
Comms engagement is the next step in the communications process. It’s important that people receive your messages. But it’s also important that people understand, engage with, and take action on those messages.
The best way to measure engagement is to track responses, comments, and follow-up action. This tells you if your messages are landing and which types of messaging employees respond to best.
If you find that people rarely respond to or comment on your messages, or if you struggle to get employees to take action, it’s a sign that you may need to adjust how you communicate.
Workforce Diversity
To support your diversity and inclusion goals, you need to understand your starting point and progression over time. Tracking this HR metric is helpful for companywide EEO and diversity reporting, and it gives you an overall sense of your ability to attract and retain a diverse workforce.
There are many ways to track workforce demographics, including by gender, ethnicity, age, and length of tenure within your organization. To measure your progress against diversity goals, you can also conduct employee surveys to track employee views of your diversity and inclusion efforts.
Training Completion Rate
The number of employees who completed a given training divided by the number of employees who attended the training. Multiply the answer by 100 to get the training completion percentage.
The great thing about tracking the training completion rate is that it gives you a single data point for evaluating many aspects of employee training.
Training completion rate is a high-level indicator. It shows that there’s an issue with a training program, but you’ll have to talk to the employees and check some more granular metrics to diagnose the exact problem.
Though it’s worth noting that training completion rate is a strong enough metric that many companies simply scrap or overhaul a training program that has low completion rates.
Low completion rates suggest that the training may not be delivered well, or employees may not feel it gives enough value for their time. Also, if employees are not completing a training, that training has zero effective value, regardless of their reasons for quitting.
Retention Metrics
Once HR has hired new talent, they want to keep them with the company — which is why they measure employee retention.
Some common retention metrics include:
Retention rate measures how many employees stayed with the organization during a period of time.
Employee turnover is the opposite of the retention rate. It measures how many employees left the organization during a given period. Turnover rate measures all employees that leave the organization — no matter what the reason was for their departure. Voluntary turnover rate measures employees that left the organization voluntarily.
Overtime Expense
For some roles, overtime is a regular occurrence. In fact, some employees welcome extra overtime as a way to increase their earnings. But when overtime becomes excessive, it can increase your payroll expense considerably.
Understanding your overtime expense can help you identify areas where process improvements or systems can keep overtime at a manageable level. Once you know how much overtime is costing you, you can determine if it would be more or less costly to hire additional employees as an alternative.
Productivity
Measuring employee productivity isn’t just for positions with a physical output, as in manufacturing. For employees in service roles, productivity can also be calculated by measuring performance against goals in a given quarter.
Once you have a better idea of employee productivity (and changes over time), you can use those metrics to drive employee performance ratings and incentive compensation.
Use of Employee Assistance Program (EAP)
As a result of the pandemic, employees may seek mental health support due to stressors such as their physical health, the sudden shift to remote work, or general worry about the pandemic.
Employees who need support for their mental wellbeing may seek additional help through your company-provided EAP, which can provide referrals or other mental health resources.
Track your organization’s EAP usage to determine the rate at which employees are using available services. If the EAP usage rate is low, you can take steps to make sure employees know what’s available and how to use the service.
So now that you know a little more about HR metrics, where do we close off?
HR metrics are essential for businesses to measure their success and progress. They provide valuable insights into the performance of HR processes, the effectiveness of HR strategies, and the overall efficiency of HR operations. By tracking and analyzing HR metrics, businesses can identify areas of improvement and set realistic goals to achieve your highest-priority outcomes.
HR metrics are an invaluable resource for companies to ensure their HR strategies and performance management processes align with organizational goals — helping people be productive, efficient, and engaged.
How far along your measurement journey are you?
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