Why Utilize Metrics?
While researching my book "HR Metrics, The World-Class Way," I found that many HR professionals realized a need for more metrics, but lacked the vision to create them. They didn’t have criteria for where to apply metrics or a methodology to figure out which activities it even made sense to measure. This need was a hot topic in the United States, but experienced some resistance in Asia and Europe. Global firms had overcome many of the regional objections to metrics and offered up the following selling points:
- Continuous improvement requires metrics
- Utilizing metrics gives you more credibility with senior executives
- Metrics tell you where to allocate your resources in order to have the most impact
- Business impact and effectiveness metrics help you get more budget in HR
How to Select the Right Metrics?
Over time I have found the best way to select your actual metrics is to not develop or select them in isolation. In order to ensure that they will be utilized, you should start by identifying each of the major HR goals and then develop two HR metrics for each. One should cover the volume or quantity of output and the second should cover the quality of the result or output. Next you should arrange a meeting with the CFO. Prior to the meeting prepare an index card for each proposed measure. On each card list the HR goal the metric relates to, the title of the measure, the formula, how the measure will be used, and a proposed reporting cycle. During the meeting present the index cards and ask the CFO to select the metrics that he/she would actually look at each month. Repeat the process with the CEO and use their feedback to narrow down your list. Generally there should be around three metrics for each HR function and no more than fifteen overall.
HR Metrics to Consider
The following is a long list of the eighteen individual metrics in eight different categories that I would recommend for consideration by a fast moving organization. These are all strategic metrics that are relatively easy to understand and the data needed to populate them easy to acquire.
I) Overall workforce productivity
The very best measure of overall HR success is workforce productivity. Any HR department that takes responsibility for improving workforce productivity is sure to be a hero among senior executives. The key is to continually improve the ratio between the dollars spent on employee costs (wages, benefits and overall HR expenses) and overall company revenue. Metrics in this category include:
- The % improvement in workforce productivity – Improvement in cents spent on people costs for every dollar of revenue/profit generated (compared to last year’s ratio)
- The dollar value of the increased workforce productivity between this year and last year
Managers consistently rate recruiting in their top three things they expect from HR. Without overdoing it, here are some simple metrics that you can use to assess recruiting effectiveness:
- The number of overall days that “key positions" were vacant (due to recruiting)
- Average performance appraisal score of new hires (this year compared to last in the same job)
- Manager satisfaction with new hires (survey of hiring managers, results compared to last year’s average)
- The turnover rate of new hires within the first year
Retention is also a highly rated management issue. In this case, most turnover measures are too simple. Potential metrics include:
- Performance turnover in key jobs (where performance turnover means that top performer turnover is “weighted" more heavily and bottom performer turnover more lightly than average worker turnover
- Preventable turnover in key jobs (where a sample post exit survey is utilized to identify the real reasons that these individuals left the organization and if the turnover could have been reasonably prevented)
- Diversity turnover in professional, managerial and technical positions
IV) Manager satisfaction
I recommend you use a forced ranked survey of line managers satisfaction with HR. Within that survey managers are asked just one particularly important question, which is… "Rate each of these individual HR functions on how much they contributed directly to your business unit’s productivity and its success at reaching its goals?"
- Average ranking of all individual HR functions in a all managers survey where managers are asked to rate all individual overhead functions specifically on their contribution to productivity and in helping the manager to meet their performance goals
These metrics are still important but they tend to be less of an issue with senior executives.
V) Compensation and benefits
- Rather than trying to use a statistical method to determine pay fairness, I recommend that you instead survey employees on their perception of pay fairness compared to work expectations.
- The number of “cents” (insert your local currency here) in total compensation and benefits costs that it took to generate a dollar of revenue (as an indication of compensation effectiveness, where this year's ratio would be compared to last years ratio)
- % of employees that are satisfied with their compensation (survey of a sample of employees on their satisfaction between the rewards and the expectations of the firm)
- % of employees that are rated in the top performance appraisal level… that are paid above the average salary for their position and vice versa
VI) Employee relations
The metrics focus in the employee relations area is on whether poor performing employees rapidly improve their performance or are terminated within a year.
- Percentage of employees that report that they have a "bad manager" (survey of employees comparing this year's percentage to last years)
- % of employees that are in a performance management program that improved, worsened, or remained the same on performance appraisal ratings within 1 year
VII) Training & Development
I recommend a training and development metrics focus on the aspect of learning, development and growth.
- % of employees that report that they are satisfied with the learning and growth opportunities provided by the firm (survey of a sample of employees)
- Percentage of employees that report that they are in the leading edge of knowledge in their profession (survey of a sample of employees)
VIII) HR goals met
HR departments frequently set unclear and unquantifiable goals at the beginning of the year but they are seldom measured throughout the year and formally assessed at year-end. In order to improve HR performance and ensure that HR professionals are focused on the appropriate goals and activities, it is essential that the goal assessment process be more formalized.
- % of top priority HR goals that were met or exceeded during the year (goals are set, quantified, prioritize and approved by senior management at the beginning of the fiscal year)
Organizations today are moving faster than ever and too many HR leaders are assuming that what they are doing is working. A recent study revealed that 64% of HR practitioners thought their practices were actively contributing to the organization, yet only 23% of line managers agreed. Like it or not a global economy is emerging and with it comes an entirely new suite of competitive pressures. It is not OK for HR leaders to think they know what is working, they must know what works, how to measure the efficiency and effectiveness of various programs, and be able to prove it to line managers and corporate leadership. While a few organizations possess phenomenal metrics, the vast majority do not. Measures of work activity are not the same as measures of outcome or performance. To be successful, HR leaders need to understand their business colleagues, design consistent processes, and measure more than work and cost. For HR measures to be valuable, they need only be accepted, and more often than not, it doesn't require a Ph.D. in mathematics, robust organization wide samples, or complex formulas.