Human resources (HR) departments have become an increasingly important part of a business, as they are involved with making strategic decisions that can influence a company’s success or failure. They are responsible for gauging what is working well, what isn’t working, and where to invest the business’ future efforts. A recent survey shows that one-third of the company executives want to see more reports from HR departments, with more than 80% agreeing that HR metrics are useful measurements for the company.
Many companies now use HR metrics to help measure their human capital-related costs and understand their contribution towards the overall performance. HR metrics and analytics can also be used to establish a baseline when tracking training, productivity, revenue, engagement, absenteeism, and more. These HR metrics examples are extremely useful for companies, as they can determine the next steps and develop business strategies by analyzing trends from each HR metric, which in turn helps HR professionals locate problems and produce solutions before costing the business talent or money.
HR metrics are indexes that help HR professionals measure and track a business’s performance. These HR measurements allow different aspects of the business to be analyzed, ultimately supporting business decisions made at the executive level. There are different types of HR metrics available, which can be categorized into a list of HR metrics below. While the examples of HR analytics below are not all-encompassing, they are the most prevalent HR measurements used in the field.
This HR metric measures the time between a candidate applying for a job and accepting a job offer. It is an important metric as it allows HR departments to determine their recruitment efficiency and candidate experience. This HR metric is usually measured in days or weeks.
Understanding recruitment efficiency will allow the speed at which a candidate is processed through the recruitment stages, from completing assessments and attending interviews to accepting offers, to be analyzed. If the time to hire is long, this reflects that your recruitment process is inefficient, which can be due to slow response from hiring managers or too many staff involved in the decision-making process, for example. This can also demotivate candidates from remaining in the process or accepting the job offer, as high-quality candidates are in high demand and would usually prefer to start sooner rather than later.
A common mistake is to confound this HR metric with the time to hire metric. This is a HR measurement looking at the time between a job requisition being approved and a candidate accepting the job offer. It measures a wider period of time in comparison. The key difference here is that this HR metric looks at the entire hiring process, allowing HR departments to determine whether there are any slacks that can be improved, for instance, where jobs are posted on the wrong sites or that more personnel are needed to process the number of applications.
Similarly to time to hire, this measurement helps HR departments determine how much it costs the company to hire a new employee. While this HR metric can be tedious to work out, the standard formula considers both internal and external costs incurred during the hiring process, as shown below.
This is generally selected for the desired period to be measured, such as a particular month and year. Having this HR metric also indicates the efficiency of the company’s hiring process.
This is said to be one of the key HR metrics, as it indicates whether a company’s hiring process is successful. A high early turnover shows that there is possible mismatching between the candidate and the company or the role or that there is insufficient training and support given to new hires to help them grasp the ropes and reach their full potential. Early turnover can also be costly for companies, so it is best to keep this recruiting metric low.
A successful and growing company should have clear development in either company resources or a number of employees. By looking at this measurement, HR teams can analyze its employee growth pattern and plan appropriate recruitment strategies.
This HR metric can also be calculated for a particular group within the company, for example, a department, team or service line. By comparing this HR measurement, the headcount pattern can also indicate the growth rate of the entire company or each particular group.
The second type of HR metric is measuring the revenue gained from hiring. The first example of this HR metric is revenue per employee, which looks at the financial value an employee brings to the company.
A higher value of revenue per employee indicates higher employee productivity and better utilization of employees. In an ideal situation, it is important to make sure this HR metric is substantially higher than the pay per employee to ensure they are bringing in more value than it costs to hire them.
This HR metric is one of the strongest indicators of a company’s performance, which is mostly used in companies providing professional services, such as law, consultancy, and accounting firms. It shows the number of hours worked by an employee that can be billed to the client. The more billable hours per employee means the higher the revenue is being produced by the company.
By comparing this HR metric across different departments or employee groups can also help gauge the performance level and utilization rate of each.
It is generally recognized that a more engaged workforce leads to better performance and stronger motivation. Engagement rating is also often seen as the most important ‘soft metric’ for HR departments, as it allows employment satisfaction to be determined, and hence how successful the internal engagement strategy is.
How this is calculated will depend on the criteria the company uses to measure employees’ experience working in the firm, but can often be seen in the form of company-wide surveys.
Another key metric that concerns HR departments is employee retention, as it indicates staff loyalty and reflects on recruitment success. eNPS is an HR metric that looks at employee job satisfaction through their willingness to recommend their company to others. It is one of the easiest measurements for HR departments and can be done by asking employees to rank on a scale via surveys, where the responses can be divided into:
An eNPS score between 10-20 is reasonable, 20-30 is good and 40-50 is outstanding. This example of HR analytics can also be viewed through different employee groups or departments, which allows HR professionals to narrow down measurement results when issues arise.
Through this HR metric, companies can understand how employees are changing and growing within the organization by tracking any vertical promotions and lateral movement.
It is typically easier for companies with a clear organization chart to calculate this HR metric and it would generally require at least one year worth of data to get a clear representation. Companies that have a top-heavy structure or with strictly vertical promotions available may push talents away once they reach the promotion ceiling. A lack of variety in promotional tracks or lateral movement available can also lead to employees feeling bored and unmotivated.
The third example of HR metric here is the measurement of salary change within an organization. It is a representation of base salary change over time and allows HR departments to predict personnel costs and projections.
A low percentage of salary change will indicate that there has been a limited amount of salary increases and vice versa. This is a key HR metric as a company that hasn’t had a lot of salary increases may find a higher employee attrition rate, with staff leaving for companies that are willing to pay them more.
When discussing this HR metric, it is usually split into two types: excused absences and unexcused absences. The former refers to absences that are scheduled in advance and allows sufficient time for teams to delegate the workload, whereas the latter are absences that come without warning and leave very little time for teams to react.
This is an important HR measurement, as the more unplanned absences there are, the more disruption this will cause, hence companies should aim to have this number as close to zero as possible. Although sick days and unforeseen absences will occur from time to time, it is important to make sure more serious issues such as burnout, disengagement or stress should be addressed, particularly if this HR metric reflects a high number.
The fourth type of HR metrics are those associated with diversity, equity and inclusion. It is important for companies to focus on building a fair culture that allows all employees to receive equal opportunities, as it will help companies earn greater trust and stronger commitment from employees and eventually lead to higher productivity and engagement.
The first of these HR measurements is pay gap. Although no leader can solve the pay gap issue single-handedly, companies should aim to eliminate any sort of discrimination that can affect the salary-setting process. This HR metric helps to understand the difference in average pay for two different employee groups, with variables like gender, race and age.
A good job description should be one where an estimated salary range is included, where the pay should reflect the industry standard. This HR metric allows an employee’s salary range penetration, i.e. how far they currently are into the range, to be determined, allowing any pay gap issues to be revealed easily. It is also good practice for HR departments to regularly examine this measurement, as auditing compensation for employees with similar roles and experience can help minimize pay gaps from arising.
Human resources is, of course, an indispensable factor contributing to the success of any organization. However, it is challenging to measure the impact of your work and develop strategic plans for improvement without tracking essential HR metrics.
If you're not currently measuring any HR metrics, maybe it's time to talk to your executive and HR teams to identify which metrics you need to start tracking today. The key is to keep it simple. If you're already measuring some HR metrics, double-check that all of your data is helping your organization reach its goals. Be sure to get started, or you may miss valuable insights.
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— Originally written by Wayne Chang —