What Are the Best HR Metrics for a Large Organization?
As a recognized expert in the area of HR metrics, I’ve had the opportunity to advise numerous large firms on what HR metrics they ought to be utilizing. Through this experience, I have observed that a good number of firms make the same two errors when it comes to developing and implementing metrics. Avoiding these two errors will not guarantee success by itself, but it will go a long way towards ensuring that you are set up to handle any roadblocks or problems you may encounter along the path to using world-class metrics in your organization. These two common errors are:
- Developing and implementing HR metrics in a vacuum
- Developing more metrics than it is feasible to maintain and utilize
The most common error that I find is that of HR managers trying to create and implement metrics in a vacuum. Instead, I recommend a collaborative approach, in which you take a list of strategic HR metrics that you can live with to the CFO and let him or her select the specific ones that are most likely to measure business impact and be easily understood and considered strategic by top management. By letting the CFO play a role in the selection process and allowing them to make the final decision on what metrics you will move forward with, you eliminate many of the roadblocks you may encounter ó and you’ll recruit a high-level champion at the same time. The second most common error that senior HR managers make in developing metrics is that they develop and track too many. A large number of metrics is both unnecessary and difficult to maintain. I recommend instead that you settle on between 8 and 12 really important metrics that demonstrate HR’s impact on the business. Because collecting data and calculating metrics is time-consuming and expensive, it’s important to focus your energies on the ones that really matter. My Hot List Of HR Metrics The following is a list of the 37 individual metrics in 14 different categories that I would recommend for consideration by a large organization, or even one that is not ready to do sophisticated data collection and analysis. These are not the most sophisticated metrics I can provide, but each of them is relatively easy to understand and the data needed to answer them is relatively easy to acquire. I recommend that you use this list of 37 powerful HR metrics as your initial list that you run by your CFO. Remember, before they have made their final selection, encourage them to limit the final metric count to 10 or less really strategic measures. First-Tier Metrics 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:
- Percentage improvement in workforce productivity. Improvement in dollars spent on people costs for every dollar of revenue/profit generated (as compared to last year)
- The dollar value of the increased workforce productivity between this year and last year
Employee Engagement It’s essential that you balance employee engagement with employee productivity in order to ensure that managers don’t abuse or burnout their employees in an effort to maximize productivity. Both are important, and there are studies that demonstrate the impact of high engagement on productivity and a firm’s success. Managers should be rewarded for both high productivity and high employee engagement scores. Metrics include:
- The percentage of employees who “look forward to coming to work” everyday (from survey results)
- The percentage of employees who feel that their managers exercise expected management behaviors (from survey results relating to two-way communication, challenging and exciting work, exceptional growth and learning, recognition and reward, some degree of control over their job, and knowing that their work makes a difference)
Recruiting Managers consistently rate recruiting among the top three things they expect from HR. Without overdoing it, here are some simple metrics that you can use to assess recruiting effectiveness:
- Number of overall days that key positions were vacant (due to recruiting)
- Average performance appraisal score of new hires (compared to last year for the same job)
- Manager satisfaction with new hires (survey hiring managers; compare results to last year’s average)
- The turnover rate of new hires within the first year
- The percentage of diversity hires in managerial and senior positions
- The dollar impact of a bad hire in key positions
Retention Retention is also a highly rated management issue. In this case, most turnover measures are too simple. Potential metrics include:
- Overall employee turnover (not recommended)
- 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 exit survey is used to identify the real reasons individuals left the organization and whether the turnover could have been reasonably prevented)
- Diversity turnover in professional, managerial, and technical positions
- The dollar impact of employee turnover in key positions
- Managers’ overall satisfaction rate with HR’s retention efforts and the impact of these efforts on team productivity (survey of a sample of managers)
Overall HR Costs Even though overall HR costs are relatively small compared to all general and administrative expenditures, it never hurts to have a metric to ensure that the dollars spent in HR are resulting in a continuous rated improvement of workforce productivity.
- Dollars spent on HR costs for every dollar of revenue generated (compared to last year)
Manager Satisfaction While many HR departments strive to assess manager satisfaction with HR, I offer caution. Because most HR people are great at building relationships managers seldom rate HR professionals low when they are asked directly whether they are satisfied with HR or their HR representative. However, if they are asked a different question relating to how satisfied they are with HR’s impact on their business unit’s productivity and success in reaching its goals, you quite often get a different less positive answer. As a result, I recommend you use a forced ranked survey that includes not just HR but every individual overhead function. Within that survey managers are asked just one particularly important question: “Rate each of these individual overhead functions on how much they contributed directly to your business unit’s productivity and its success at reaching its goals?” The metric to use:
- Average ranking of all individual HR functions in a manager survey where managers are asked to rate all individual overhead functions specifically on their contribution to productivity and in helping the manager to meet his or her performance goals
Dollar Impact of HR on the Business
- Estimate of the overall dollar impact of HR as a result of last year’s recruiting, retention and productivity improvement (ROI) efforts
Second-Tier Metrics Compensation and Benefits Rather than trying to use a statistical method to determine pay fairness, I recommend that you survey employees on their perceptions of pay fairness compared to work expectations.
- The number of “cents” 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)
- Percentage of employees who are satisfied with their compensation (survey of a sample of employees on their satisfaction with the rewards and the expectations of the firm)
- Percentage of employees who are rated in the top performance appraisal level and who are paid above the average salary for their position (and vice versa)
- Percentage of the average employee’s pay that is “at risk” based on the employee’s on-the-job output
- Percentage of top-performing employees who resigned for compensation-related reasons (using a post exit survey, identify the percentage of top performers who listed pay issues among their top three reasons for leaving)
Employee Relations The metrics focused in the employee relations area analyze whether poor performing employees rapidly improve their performance or are terminated within a year.
- Percentage of employees who report that they have a bad manager (based on an employee survey, comparing this year’s percentage to last years)
- Turnover percentage of low-performing managers and employees within one year of receiving the low rating
- Percentage of low-performing employees who are on a performance management program.
- Percentage of employees who are in any performance management program who improved at least one level on performance appraisal ratings within one year
- Manager satisfaction with the impact of HR’s employee relations efforts on their team’s productivity (survey results of a sample of managers)
Training and Development Although learning, growth, and development are critical to both performance and employee retention, few training departments focus on the type of development that managers and employees find to be the most effective: on-the-job training and assignments. As a result, the recommended training and development metrics focus on learning, development, and growth.
- Percentage of employees who report that they are satisfied with the learning and growth opportunities provided by the firm (survey of a sample of employees)
- Percentage of employees who report that they are satisfied with on-the-job learning, project assignments for growth and development, and job rotations (survey of a sample of employees)
- Percentage of employees who report that they are in the leading edge of knowledge in their profession (survey of a sample of employees)
- Percentage of new hires that report excellent training opportunities among the top three reasons they accepted the job (survey of new hires in which they force-rank their job acceptance factors)
Generalist Activities In many HR departments a significant percentage of all HR services are provided by generalists. As a result, it’s important to identify metrics that measure generalists’ satisfaction and impact. Each of the individual generalist scores would be averaged to get the overall effectiveness of the generalist function.
- Percentage of managers who are satisfied with generalists (survey of all managers who are serviced by generalists)
- Average percentage improvement in workforce productivity (ratio of employee costs to dollar value of output) within the divisions that each generalist serves
- Employee referral rates in their business unit, as an indication of employees’ willingness to recommend others to the firm
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’s essential that the goal assessment process be more formalized.
- Percentage of top priority HR goals that were met or exceeded during the year (goals are set, quantified, prioritized, and approved by senior management at the beginning of the fiscal year)