HR Metrics is an often misunderstood and intimidating subject for HR professionals. However, they are a key component for justifying HR programs, processes, and policies.
Metrics enable the HR professional to:
- identify strengths & weaknesses of HR process and practices;
- determine whether or not a program is effective; and
- establish measurable data that can assist management in making decisions
There may be other reasons for measuring certain things, however, these are the key reasons to establish HR metrics for your organization. Some common metrics used by HR professionals include:
- Turnover
- Job Absence
- Cost Per Hire
- Total cost of compensation to total operating expenses
- Total cost of benefits to total operating expenses
- HR expenses to total operating expenses
- Training and development expenses cost per employee
There are some metrics listed above that may not be familiar to you, such as total cost of comp and benefits to total operating expenses, but they are important for your executives to know in order to determine what the true cost of labor is to the organization. For example, in addition to cost of materials, equipment, and facility overhead, this is important for executives to know this labor cost in order to determine pricing for your product or service.
It’s also important to note that HR may not always be the department responsible for all of the metrics used in the organization; however, it’s important for HR to know what metrics various departments are using so they know which measures may overlap with those HR is utilizing.
For example, productivity metrics may be maintained by a production manager in a manufacturing facility. However, those productivity measures are frequently used to evaluate employee performance, which may also affect bonuses or pay increases. Similarly, safety statistics may be maintained by a Director of Safety to evaluate number of accidents, lost time, near misses, Workers’ Comp modification factor (mod rate), etc. This allows that Director to implement protocols and training to minimize accidents. In turn, the costs of increased safety training may affect the organization’s overall training budget.
Cost of training per employee is also an important metric that should be tracked. Depending on the organization, this metric may be tracked by a Training & Development Director or the Human Resources CHRO. Some questions to ask regarding your organization’s training budgets include:
- Does each department maintain its own training budget?
- Does the organization have a Training & Development Department that creates a training budget for the entire corporation? If so, how are those monies allocated?
- Is the Return on Investment (ROI) of each training program being measured?
- Does the organization have a Tuition Reimbursement Program and how is the effectiveness of that program measured?
Some of the metrics utilized by HR are required by certain laws. For example, each year, employers with 50+ employees have to analyze how many full-time equivalent employees have been on the payroll during the course of the year and how much has been spent on providing group health insurance for any individual regarded as full-time for purposes of the Affordable Care Act.
Other laws that require employers of a certain size to complete an annual EEO-1 report or maintain a written Affirmative Action Plan also allow the employer to assess the demographic makeup of its organization to the geographic location(s) where the company maintains employees. For those employers concerned with maintaining a diverse workforce, these metrics can allow the organization to evaluate how successful their recruiting efforts are in creating a culture that reflects the community in which it operates.
One of the challenges with metrics is in analyzing the statistics that have been collected. Let’s take a look at one of the simplest HR metrics and to see examples of how that information may be analyzed.
Turnover is calculated by taking the number of employees who have left the organization divided by the average number of employees on payroll during the period being measured (which could be monthly, quarterly, yearly).
Turnover statistics should be evaluated in a number of different ways. In addition to calculating overall turnover, that data should compare voluntary separations to involuntary separations. Once those statistics are in place for the overall organization, they should also be evaluated departmentally, again comparing voluntary and involuntary terminations.
Segmenting the data in this manner will allow us to determine:
- If people are leaving voluntarily, why are they leaving?
- Are we paying enough for the position?
- Are our benefits competitive?
- Is there opportunity for growth in the organization?
- Do we have a poor supervisor?
- Do we have a poor corporate culture?
- If people are leaving involuntarily, did we make a poor hiring decision?
- What do we need to do to insure we’re hiring the best people for the job?
The next step is to determine how much turnover costs the organization. Some stats say that turnover costs are 1-2 times the annual salary of an employee; other stats say it’s anywhere from $3,000 to almost $5,000 per employee. This isn’t a one size fits all statistic. The cost of turnover is determined by a number of factors such as the cost of placing a job ad on Indeed, ZipRecruiter, or whatever platform you use; HR’s time in placing the ad and vetting resumes; the hiring manager’s time spent in interviews; background check and drug screening fees. You also have to factor in lost productivity; overtime paid to employees having to pick up the slack; and agency fees to a temp agency for someone to fill in while you are making your hiring decision.
It’s important that you cost this out because that’s what your executive management team need to know so that they will “buy-in” to whatever strategy you are suggesting to help stop the flow of people out the door.
This is just focusing on the negative analysis. What about the positive analytics?
Using the same turnover statistics, we can see what departmental managers have the lowest turnover and evaluate their management style to help us determine what characteristics employees value in their supervisors. Similarly, if we have very zero or very few terminations, that tells us that we are probably doing a very good job of selecting the right people for our jobs. It also tells us that we’re probably sourcing candidates from an appropriate source and that our onboarding/orientation and on the job training programs are effective.
This is true of all of the metrics you’re going to measure. Whether it’s cost per hire, cost of benefits as a percentage of total payroll, or cost of total compensation (benefits + pay) as a % of your total operating expense, you have to attach cost to it so that you are positioning yourself to have a better chance of getting approval for whatever suggestions you make to help control some of those costs. It also tells you what positive process/procedures you’ve implemented that are successful.
Measuring the HR function can be time consuming and, in some cases, pricey if you’re trying to get data to compare yours to.
So, what else should we measure?
- Training return on investment?
- Employee productivity?
- Ratio of qualified v. unqualified applicants applying for our jobs?
- Time to hire?
- Safety stats such as frequency/severity of absences?
- Ratio of promotions to number of employees?
The list goes on! What’s most important to your organization? Is it hiring and retention? Safety? Diversity? The key is determining what data sets are important to your organization and beginning the process of evaluating those measures.
EAF responds to hundreds of hotline calls and emails monthly. We would be happy to answer any interesting questions you may have too! Contacts us at [email protected] or 407.260.6556.
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