State:

National
Metrics are simply ways to define, measure, and track key performance indicators. Metrics are certainly not unique to the HR profession but, rather, are used in almost every area of business, government, and education. For example, a key metric in education may be student performance on standardized tests. This information can help drive educational priorities to improve future student performance. Similarly, in HR metrics are used to measure and track the performance of most companies’ largest and most valuable investment—their workforce, or human capital. Through a variety of measurements, HR professionals can analyze a company’s strengths and weaknesses in hiring, compensation, training, and employee retention, to give a few examples.
The role of HR is a dynamic one, changing as fast as technology and the global marketplace do (especially when you consider that HR depends on, and interacts with, both).
Historically, the HR department was considered administrative overhead. HR processed payroll, handled benefits administration, kept personnel files and other records, managed the hiring process, and provided other administrative support to the business. These functions were administrative necessities, but were not considered integral parts of the core business. Today, many of these administrative functions have been automated and/or outsourced. The positive result of these changes is that HR professionals now have the opportunity to play a more strategic role in the business and to rise as respected thought leaders and executives.
Business leaders focus on revenue, profit growth, market share, new products, and increasing capacity. These can all be measured using metrics that describe the current situation, compare current numbers with previous years' or with a competitor's position, and quantify goals and measure progress. By measuring the current situation compared with quantifiable goals, business leaders make data-driven decisions. In order to be a business leader, the HR professional must adopt a similar approach to decision making—one based on data and facts. Decisions related to the allocation of resources, technology purchases, succession planning, hiring and retention, training, employee performance, compensation programs, and outsourcing HR functions can all be based on data compiled through the use of appropriate metrics.
Metrics are a good thing, but like most good things, you can have too many. When first using metrics, an HR professional may embrace a wide array of measurements to develop benchmarks for key functions and to evaluate programs. However, the real power of a good metric is to focus resources on key areas in order to improve efficiency, increase profitability, expand capacity, or plan for future needs. What is measured and rewarded sends a clear message to employees at all levels of the organization about where their efforts should be focused. Likewise, if something isn't measured, it will be perceived to have a lower priority.
Deciding what to measure is very important. Metrics should be tied directly to the business issues facing the company. These might include a need to cut costs because of price competition, improve customer satisfaction, or develop new technology to keep pace with competitors. To be effective, the metric should not just report results, but also show a cause-and-effect relationship.
In addition, to the extent possible, the HR professional should try to use formulas, ratios, and language that is commonly used by the organization's other business leaders. For instance, ROI, or return on investment, is universally understood in the business world. The HR professional needs to take the lead in identifying where a company's investment in human capital (its employees) can best be allocated to meet the company's goals and how to hire, develop, and retain the human capital the company needs to stay competitive now and in the future.
As noted above, metrics focus employees on the key issues and can effectively drive the change a company needs to achieve its goals. However, this works only if employees know what is being measured and how they will be rewarded for meeting the goals. Therefore, communication is key. Metrics should not be kept secret. Rather, they should be widely distributed and easy to understand.
A good metric is one that provides decision makers with the data they need to make fact-based decisions. One example of a metric is measuring turnover in an organization. It is helpful to know what percent of the total number of employees left the company during the year. However, it is probably more useful to know how many of those people left voluntarily as opposed to those who left involuntarily. Even more useful might be a metric that measures voluntary and involuntary turnover, but also measures the number of employees who left voluntarily that were among the company's top performers. Going one step further, if the company is losing top performers, it will want to know if they are leaving companywide or if the turnover is concentrated in one department. Not all turnover is bad, as some of the employees leaving may be those who are not making a large contribution to the business. However, if the top performers are leaving voluntarily, the company will want to identify the reasons they are leaving and take steps to correct the situation. These are data that can drive decision making.
A metric should provide the HR leader with a complete story that includes a measure of quantity, quality, time, cost, and customer satisfaction. Each of these items may not be appropriate for every metric, but they are all important measures of performance. A measure of quantity is important and might include things like the number of employees who left the company, the number of employees hired, or the cost of benefits. Measuring quality refers to the quality of the output. For example, are those leaving the company the high performers or those with certain specialized skills? Likewise, metrics related to hiring might measure quality by looking at how new hires are performing in their jobs after one year. Additional measures such as the time it took to fill a job or the costs associated with the hiring process are also key to understanding the whole story.
For instance, let's assume that the HR department hired 50 people during the year with an average time to fill a job of 6 weeks and a cost per hire of $5,000. It is difficult to know what this means without a measure of quality—were the right people hired (this could be measured by job performance after 1 year)? In addition, to really understand the story behind the numbers, the company needs to be able to compare these results with a benchmark that might include prior experience, similar statistics from a competitor, or internal goals.
• Use data that are readily available and can be gathered at regular intervals.
• Use the ratios, formulas, key performance measures, and language used by business leaders.
• Don't limit the focus to costs, but include measures of results and quality.
• Tie metrics directly to the key challenges facing the business and the results that must be achieved.
• Stop using metrics that don't add value in making decisions.
• Keep it simple; metrics don't have to be complicated.
• Identify and compare results with key competitors whenever possible.
• Establish goals for continuous improvement.
• Measure ROI, cost/benefit ratios, and impact on problems identified by business leaders.
• Avoid soft metrics based on feelings or intuition about a program and use hard metrics or data to drive fact-based decision making.
Metrics generally measure one of the following:
• Increased job performance (e.g., new recruiting program resulted in new employees with first year job performance ratings that are 30 percent higher than under the old program)
• ROI (e.g., new commission plan resulted in $100 of increased sales for each additional commission dollar paid)
• Impact of a program on revenue
• Decreased costs
There is a potentially endless number of metrics available to the HR professional. The key is to pick metrics that focus on key issues and tell the story. It may be that a series of single metrics, when viewed together, tell the story. Below are some of the metrics an HR professional may want to consider for each functional area of human resources.
The recruiting or employment area is focused on hiring the employees the organization needs to meet its goals. Measurements include:
• Time to fill a vacancy
• Quantity and quality of applications based on recruiting source
• HR cost per hire
• Voluntary turnover rate of new hires during first year of employment
• Percent of new hires performing above average by the end of the first year
• Percent of new hires performing below expectations by the end of the first year
• Involuntary turnover rate during the first year of employment
• Satisfaction of managers with the hiring process based on survey of hiring managers
• Quality and retention rates of new hires by recruiting source
• Diversity ratios of new hires
In most cases, no single metric will adequately gauge the performance of the recruiting function. Rather, some combination of the metrics listed above along with others created by the organization will provide the information necessary to measure performance and effectiveness. The use of several individual metrics to measure a function is often referred to as an HR dashboard and will provide a more complete story of how the recruiting function is meeting goals.
The employee relations function is different than the other HR functions in that it is a little harder to quantify. However, if the employee relations professionals are doing the job right, the company should see fewer lawsuits and complaints filed with state agencies, lower settlements when complaints are filed, and better outcomes when there are performance issues and/or conflicts in the workplace. Some of the metrics that can be used include:
• Number of complaints filed by employees
• Percent of complaints that proceed to a state agency, court, or other external dispute resolution
• Amount of time taken to resolve an internal complaint
• Percent of cases resolved with no money paid out by the company
• Percent of cases in which large financial settlements or awards were made
• Breakdown of the types of complaints made by employees by department; e.g., sexual harassment, race, etc.
• Costs associated with employee relations as percent of total operating costs
• Percent of cases in which documentation was inadequate
• Number of sexual harassment complaints
• Number of complaints of unfair treatment
• Number of hours spent on training managers on employee relations issues
• Data from employee surveys on various employee relations issues such as understanding of policies
• Dollars spent on attorney's fees
• Dollars spent on attorney's fees as a percent of total employee relations costs
As with recruiting, companies will probably want to use some combination of these metrics as their employee relations dashboard. Comparisons from year to year will help evaluate the effectiveness of the employee relations function.
Compensation programs are all about the numbers, and as a result, metrics are relatively easy to apply. Measurements may include:
• Compensation costs per dollar of profit
• Compensation costs per dollar of revenue
• Analysis of performance and production levels of employees paid in the top 30 percent of their salary range
• Total compensation costs as a percent of total company operating costs
• Analysis of compensation levels to the marketplace and key competitors
• Forecast compensation needs based on future plans
• Compensation mix, meaning fixed salaries versus performance-driven compensation
Training is another area that can be difficult to quantify. However, it may be helpful to look at metrics that target the type of training and what it was intended to accomplish. For instance:
• Cost of sales training as a percent of total sales
• Increase in hours of sales training compared with increases in sales
• Changes in performance levels of employees who received training
• Percentage of employees who cite lack of training or advancement as a reason for leaving
• Identification of key employees and percent who have received training
• Percent of performance appraisals that include training goals for employees
• Metrics should give the whole picture, including quantity, quality, time, cost, and effectiveness.
• Focus on key areas where change is necessary.
• Develop a benchmark to use for evaluating progress toward goals.
• Set goals and establish metrics for measuring progress.
• If possible, compare the company's metrics with similar measures from key competitors.
• Use the language of the business leaders, including ratios and measurements they know.
• Hard metrics (real data) are better than soft metrics.
• HR metrics should be directly related to important business issues.
• Metrics should be easy to understand, and data should be readily available.
• Don't keep the metrics a secret. In order to drive change, employees have to know what is being measured and rewarded.
• Don't forget that the quality of results is as important as quantity or cost.
• Calculate ROI whenever possible to make the business case for HR.
• Use metrics to identify trends and head off problems on the horizon.
• Don't be afraid of data or of measuring results. Metrics can add to the HR professional's credibility and garner support for HR programs.
Last reviewed on February 16, 2017.
Related Topics:
National
Metrics are simply ways to define, measure, and track key performance indicators. Metrics are certainly not unique to the HR profession but, rather, are used in almost every area of business, government, and education. For example, a key metric in education may be student performance on standardized tests. This information can help drive educational priorities to improve future student performance. Similarly, in HR metrics are used to measure and track the performance of most companies’ largest and most valuable investment—their workforce, or human capital. Through a variety of measurements, HR professionals can analyze a company’s strengths and weaknesses in hiring, compensation, training, and employee retention, to give a few examples.
The role of HR is a dynamic one, changing as fast as technology and the global marketplace do (especially when you consider that HR depends on, and interacts with, both).
Historically, the HR department was considered administrative overhead. HR processed payroll, handled benefits administration, kept personnel files and other records, managed the hiring process, and provided other administrative support to the business. These functions were administrative necessities, but were not considered integral parts of the core business. Today, many of these administrative functions have been automated and/or outsourced. The positive result of these changes is that HR professionals now have the opportunity to play a more strategic role in the business and to rise as respected thought leaders and executives.
Business leaders focus on revenue, profit growth, market share, new products, and increasing capacity. These can all be measured using metrics that describe the current situation, compare current numbers with previous years' or with a competitor's position, and quantify goals and measure progress. By measuring the current situation compared with quantifiable goals, business leaders make data-driven decisions. In order to be a business leader, the HR professional must adopt a similar approach to decision making—one based on data and facts. Decisions related to the allocation of resources, technology purchases, succession planning, hiring and retention, training, employee performance, compensation programs, and outsourcing HR functions can all be based on data compiled through the use of appropriate metrics.
Metrics are a good thing, but like most good things, you can have too many. When first using metrics, an HR professional may embrace a wide array of measurements to develop benchmarks for key functions and to evaluate programs. However, the real power of a good metric is to focus resources on key areas in order to improve efficiency, increase profitability, expand capacity, or plan for future needs. What is measured and rewarded sends a clear message to employees at all levels of the organization about where their efforts should be focused. Likewise, if something isn't measured, it will be perceived to have a lower priority.
Deciding what to measure is very important. Metrics should be tied directly to the business issues facing the company. These might include a need to cut costs because of price competition, improve customer satisfaction, or develop new technology to keep pace with competitors. To be effective, the metric should not just report results, but also show a cause-and-effect relationship.
In addition, to the extent possible, the HR professional should try to use formulas, ratios, and language that is commonly used by the organization's other business leaders. For instance, ROI, or return on investment, is universally understood in the business world. The HR professional needs to take the lead in identifying where a company's investment in human capital (its employees) can best be allocated to meet the company's goals and how to hire, develop, and retain the human capital the company needs to stay competitive now and in the future.
As noted above, metrics focus employees on the key issues and can effectively drive the change a company needs to achieve its goals. However, this works only if employees know what is being measured and how they will be rewarded for meeting the goals. Therefore, communication is key. Metrics should not be kept secret. Rather, they should be widely distributed and easy to understand.
A good metric is one that provides decision makers with the data they need to make fact-based decisions. One example of a metric is measuring turnover in an organization. It is helpful to know what percent of the total number of employees left the company during the year. However, it is probably more useful to know how many of those people left voluntarily as opposed to those who left involuntarily. Even more useful might be a metric that measures voluntary and involuntary turnover, but also measures the number of employees who left voluntarily that were among the company's top performers. Going one step further, if the company is losing top performers, it will want to know if they are leaving companywide or if the turnover is concentrated in one department. Not all turnover is bad, as some of the employees leaving may be those who are not making a large contribution to the business. However, if the top performers are leaving voluntarily, the company will want to identify the reasons they are leaving and take steps to correct the situation. These are data that can drive decision making.
A metric should provide the HR leader with a complete story that includes a measure of quantity, quality, time, cost, and customer satisfaction. Each of these items may not be appropriate for every metric, but they are all important measures of performance. A measure of quantity is important and might include things like the number of employees who left the company, the number of employees hired, or the cost of benefits. Measuring quality refers to the quality of the output. For example, are those leaving the company the high performers or those with certain specialized skills? Likewise, metrics related to hiring might measure quality by looking at how new hires are performing in their jobs after one year. Additional measures such as the time it took to fill a job or the costs associated with the hiring process are also key to understanding the whole story.
For instance, let's assume that the HR department hired 50 people during the year with an average time to fill a job of 6 weeks and a cost per hire of $5,000. It is difficult to know what this means without a measure of quality—were the right people hired (this could be measured by job performance after 1 year)? In addition, to really understand the story behind the numbers, the company needs to be able to compare these results with a benchmark that might include prior experience, similar statistics from a competitor, or internal goals.
• Use data that are readily available and can be gathered at regular intervals.
• Use the ratios, formulas, key performance measures, and language used by business leaders.
• Don't limit the focus to costs, but include measures of results and quality.
• Tie metrics directly to the key challenges facing the business and the results that must be achieved.
• Stop using metrics that don't add value in making decisions.
• Keep it simple; metrics don't have to be complicated.
• Identify and compare results with key competitors whenever possible.
• Establish goals for continuous improvement.
• Measure ROI, cost/benefit ratios, and impact on problems identified by business leaders.
• Avoid soft metrics based on feelings or intuition about a program and use hard metrics or data to drive fact-based decision making.
Metrics generally measure one of the following:
• Increased job performance (e.g., new recruiting program resulted in new employees with first year job performance ratings that are 30 percent higher than under the old program)
• ROI (e.g., new commission plan resulted in $100 of increased sales for each additional commission dollar paid)
• Impact of a program on revenue
• Decreased costs
There is a potentially endless number of metrics available to the HR professional. The key is to pick metrics that focus on key issues and tell the story. It may be that a series of single metrics, when viewed together, tell the story. Below are some of the metrics an HR professional may want to consider for each functional area of human resources.
The recruiting or employment area is focused on hiring the employees the organization needs to meet its goals. Measurements include:
• Time to fill a vacancy
• Quantity and quality of applications based on recruiting source
• HR cost per hire
• Voluntary turnover rate of new hires during first year of employment
• Percent of new hires performing above average by the end of the first year
• Percent of new hires performing below expectations by the end of the first year
• Involuntary turnover rate during the first year of employment
• Satisfaction of managers with the hiring process based on survey of hiring managers
• Quality and retention rates of new hires by recruiting source
• Diversity ratios of new hires
In most cases, no single metric will adequately gauge the performance of the recruiting function. Rather, some combination of the metrics listed above along with others created by the organization will provide the information necessary to measure performance and effectiveness. The use of several individual metrics to measure a function is often referred to as an HR dashboard and will provide a more complete story of how the recruiting function is meeting goals.
The employee relations function is different than the other HR functions in that it is a little harder to quantify. However, if the employee relations professionals are doing the job right, the company should see fewer lawsuits and complaints filed with state agencies, lower settlements when complaints are filed, and better outcomes when there are performance issues and/or conflicts in the workplace. Some of the metrics that can be used include:
• Number of complaints filed by employees
• Percent of complaints that proceed to a state agency, court, or other external dispute resolution
• Amount of time taken to resolve an internal complaint
• Percent of cases resolved with no money paid out by the company
• Percent of cases in which large financial settlements or awards were made
• Breakdown of the types of complaints made by employees by department; e.g., sexual harassment, race, etc.
• Costs associated with employee relations as percent of total operating costs
• Percent of cases in which documentation was inadequate
• Number of sexual harassment complaints
• Number of complaints of unfair treatment
• Number of hours spent on training managers on employee relations issues
• Data from employee surveys on various employee relations issues such as understanding of policies
• Dollars spent on attorney's fees
• Dollars spent on attorney's fees as a percent of total employee relations costs
As with recruiting, companies will probably want to use some combination of these metrics as their employee relations dashboard. Comparisons from year to year will help evaluate the effectiveness of the employee relations function.
Compensation programs are all about the numbers, and as a result, metrics are relatively easy to apply. Measurements may include:
• Compensation costs per dollar of profit
• Compensation costs per dollar of revenue
• Analysis of performance and production levels of employees paid in the top 30 percent of their salary range
• Total compensation costs as a percent of total company operating costs
• Analysis of compensation levels to the marketplace and key competitors
• Forecast compensation needs based on future plans
• Compensation mix, meaning fixed salaries versus performance-driven compensation
Training is another area that can be difficult to quantify. However, it may be helpful to look at metrics that target the type of training and what it was intended to accomplish. For instance:
• Cost of sales training as a percent of total sales
• Increase in hours of sales training compared with increases in sales
• Changes in performance levels of employees who received training
• Percentage of employees who cite lack of training or advancement as a reason for leaving
• Identification of key employees and percent who have received training
• Percent of performance appraisals that include training goals for employees
• Metrics should give the whole picture, including quantity, quality, time, cost, and effectiveness.
• Focus on key areas where change is necessary.
• Develop a benchmark to use for evaluating progress toward goals.
• Set goals and establish metrics for measuring progress.
• If possible, compare the company's metrics with similar measures from key competitors.
• Use the language of the business leaders, including ratios and measurements they know.
• Hard metrics (real data) are better than soft metrics.
• HR metrics should be directly related to important business issues.
• Metrics should be easy to understand, and data should be readily available.
• Don't keep the metrics a secret. In order to drive change, employees have to know what is being measured and rewarded.
• Don't forget that the quality of results is as important as quantity or cost.
• Calculate ROI whenever possible to make the business case for HR.
• Use metrics to identify trends and head off problems on the horizon.
• Don't be afraid of data or of measuring results. Metrics can add to the HR professional's credibility and garner support for HR programs.
Last reviewed on February 16, 2017.
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