Human Resources Metrics and KPIs Examples plus KPI Templates
What needs to be measured?
In terms of employee productivity, employee attitudes, goals met, and employee skill levels are measured. Productivity can easily be measured against established guidelines from previous records, or in the case of a new company, industry standards. Employee attendance includes tardiness and absenteeism.
Employee engagement describes whether or not employees are pleased with their supervisors, co-workers, their tasks and schedule.
Higher levels of engagement typically indicate longer employment periods and higher levels of productivity. One metric used to describe workforce productivity includes the percentage improvement in workforce productivity over prior years, and the currency value of that productivity.
The rest of the measures are related to HR management functions and should be compared to the results of the three employee measures.
Communications refers to how accurately and promptly information is relayed to employees, and the number of HR transactions within a given period of time, such as posting positions, mediation, and legal issues (Workers’ Compensation, Unemployment hearings).
Recruitment is one of HR’s main responsibilities. Recruiting efficiency describes how many new positions were created versus sheer turnover, and the process for staffing personnel. One way to assess the effectiveness of recruiting is to take the average performance appraisal score for a certain position, of newly hired employees, and compare it to the previous years’.
Another is management satisfaction with these new employees, determined through surveys. The turnover rate of these new employees within the first year also is usually a good metric to measure. Turnover relates to both voluntary (quitting) and involuntary (firing, layoff) employee loss.
The rewards system is how employee productivity is rewarded (raises, awards, rewards), and the measure is weighted, with better performers being ranked as more important than worse performers. These indicators can be placed in the performance review.
Rewards are set to help with retention, which is the company’s ability to properly train, keep and promote employees while also participating in succession planning for the higher-level positions. Useful metrics in this category include a performance-based turnover metric, especially for key positions. Management satisfaction with HR efforts regarding retention, determined through surveys, may also be a useful metric to monitor.
To conduct a measurement, base employee expectations and observations (via employee productivity, attendance and engagement) against what HR measures are expected in terms of communications, turnover figures, recruiting policy, ability to retain (retention percentage), and the rewards system.
HR Metrics Examples:
The rate of employees living the organization and being replaced by new employees.
Turnover = Number of employees who left the organization / Total headcount.
Involuntary Turnover = Number of terminated employees / Total headcount.
The level of overall employee satisfaction.
Example: percent of employees with at least average level of satisfaction; percent of dissatisfied employees.
The level of employee motivation.
Example: percent of employees who are challenged to continuously improve and advance in their career.
Human Resources Metrics
Human resources strategy should be linked to the business goals and objectives. Employee performance appraisals should be tied in with business plan and goals. Research has indicated that a 30 percent increase in productivity is possible with an HR metrics system in place.
It is vital to show HR’s impact on the organization because of the cost and importance to productivity. The HR department should be run like a business in itself.
HR metrics are classified in three key categories: past, current, and future expectations, for comparison and forecasting. If there is no past information available, the organization should use best practice information or that of a similar company.
What are the categories of HR metrics?
The categories should be directly linked to the business goal, which varies from company to company. Typically the following are the main categories for measuring HR’s ability to maintain employee functions that meet with the overall business plan:
- Employee Productivity
- Employee Attendance
- Employee Engagement
- Recruiting Efficiency
- Rewards System and Measurement
How Does the HR Metrics Policy Relate to Strategic Planning?
The purpose of the HR metrics system is to identify problems or opportunities, develop organizational goals and objectives, as well as methods to achieve them, and to develop an assessment and monitoring system to measure future performance.
The following are some of the sources for information collection, retrieval and analysis:
- Employee and management surveys and interviews (for employee contentment, communications, rewards system)
- Performance appraisals (to measure productivity, attendance)
- HR records (to track communications, turnover, recruiting efficiency, retention, promotions, and succession planning)
- Employee files (to research productivity, attendance, training)
The outcome, purpose, and result of the HR metrics, if the HR department is running properly are:
Improvement in organizational competitiveness
- Increase in productivity
- Increased employee satisfaction
- An improved return on investment (ROI)
Typical statistics obtained in compiling HR metrics include:
- Revenue factor, which is company total revenue divided by the amount of full time employees
- Human capital value added (revenue minus operating expense and cost of compensation/benefit divided by the total amount of full time employees)
- Human capital return on investment: Revenue minus operating expenses and cost of compensation benefit divided by cost of compensation/benefit
- Total compensation revenue ratio which is cost of compensation/benefit divided by revenue
- Labor cost revenue ratio, which is cost of compensation/benefit plus other employee costs (bonuses, mileage paid, incentives) divided by revenue
- Training investment factor equals the total cost of training divided by total amount of training attendees
- Cost per hire, which includes advertising, agency fees, relocation, and others divided by operating expenses
- Health care costs per employee (total health care cost divided by total amount of employees)
- Turnover costs, which is equal to hiring costs plus training costs plus other costs (turnover rate during first year of employment is key)
- Voluntary separation rate is the total number of people who quit or retired divided by the total amount of employees