10 HR Metrics to Measure HR Performance

HR Metrics to Measure HR Performance
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Modern HR has become more strategic than ever. It has become imperative to track their efficiency to ensure that they can undertake their duties efficiently.

Due to the growing popularity of HRMS, companies have realized the ease with which key HR metrics can be measured. The management can use the data collected in this manner to improve the HR department.

Hence, let us understand what HR metrics are and their importance and look at 10 HR metrics to measure HR performance.

 

What are HR Metrics?

HR metrics are crucial for any company as it helps them understand the department’s efficiency that manages the most vital resource of the company, namely, their employees. You cannot improve something without understanding where you stand correctly, which is valid for the HR team.

The key HR metrics help you fulfil this task by helping you understand the current scenario and set a threshold for future improvements.

 

Importance of HR Metrics

Since HR metrics help you understand the efficiency of the HR team, it helps in setting the baseline for measuring any improvements down the line. Improving the HR department has multiple benefits for the business since they are the ones who manage the employees.

Having a better HR department ensures that your employees remain engaged with your company for longer. It would also result in productive employees, which is advantageous for your company in the long term. Hence, HR metrics are essential for any business.

Some of the common benefits of tracking HR metrics are:

 

Improved HR Department

The most visible improvement due to measuring HR metrics would be the HR department’s efficiency. Once you understand the current metrics, you can plan improvement programs for the HR team, ensuring that you have a better HR team capable of managing your employees well.

With the help of an improved HR department, you will be able to develop better employee engagement initiatives. It is a proven fact that engaged employees are more dedicated to your organization and remain in the company for longer. Hence, HR metrics improve the HR team and have a positive impact on your organization as a whole.

 

Also Read: 7 Myths About Human Resource Department

 

Hassle-free HR Reports

Reporting is an essential part of HR duties. However, they need to spend additional time generating the reports that can be utilized on other productive tasks. With the help of regular HR metrics collection, there would be no requirement to develop the reports manually since the software would collate the required HR metrics.

Additionally, the collated data can be repurposed for reporting to higher authorities. Having access to hassle-free reporting ensures that they spend more time improving their work quality than generating reports manually. If the upper management wishes to view the HR metrics in real-time, they can do so from a centralized hub without disturbing the HR team.

 

Improved Employee Management

With the help of HR metrics, the HR department would understand their shortcomings and strive to improve themselves. They can also recognize which strategies are working and optimize them to gain maximum benefit from them. It would also help them focus their strategy on fulfilling the company’s business objectives.

A better HR team would also result in optimized employee management. As a result, you would have better employees who are satisfied with their roles in your organization and wish to remain a part of it for a longer time.

These HR metrics also help the HR team realize which employee engagement initiatives work for them and which are not. Hence, they can change their strategies accordingly to ensure a better workplace.

 

10 HR Metrics to measure HR Performance

Since we have understood the relevance of HR metrics, we can move on to understanding the standard HR metrics that are used to measure HR performance. These metrics help understand the current HR efficiency and set a threshold to improve the HR team.

Let us look at 10 HR metrics used to measure HR performance.

 

1. Cost per Hire

The ‘Cost per Hire’ metric measures the average cost of hiring an employee. It is commonly referred to by its abbreviation, CPH. The value is calculated by dividing the total cost of hiring – internal and external costs – by the total number of new employees you hired for a specific duration.

The costs are calculated by considering the time and money spent on recruitment and onboarding-related tasks such as the recruiter’s time, listing costs on job boards and other websites, interviewing costs, onboarding costs, and time spent conducting the interviews, shortlisting candidates, etc.

 

2. Early Employee Turnover

The ‘Early Employee Turnover’ metric helps measure the effectiveness of the company’s hiring and onboarding efforts. It is the percentage of the total number of employees that leave the organization within a year of joining. It is also called ‘new-hire turnover’. The period under consideration can range from a quarter year to one year.

It is a well-established fact that employee turnover is costly for any company. Recent studies suggest that it takes anywhere between half a year to a full year for an average employee to reach optimal productivity levels.

However, suppose the employee leaves the company within this duration. In that case, it is a loss for the company as they are losing the time, efforts and resources spent on training that employee. Additionally, they will have to find a replacement, which requires them to repeat the cycle.

 

Also Read: The Hidden Cost your Company Pays for High Turnover

 

3. Time to Hire

The ‘Time to Hire’ metric measures the average duration between the day a vacancy was posted and the day the position was filled. The general formula used to calculate this number is to add the time taken for each hire and divide the number of new hires for a specific period. It is measured in days.

This metric helps you understand the efficiency of your recruitment efforts. If you take a longer time to hire, it reflects poorly on the candidate’s experience with your organization. Some candidates might even leave the process in between if it takes longer than expected.

 

4. Revenue per Employee

The ‘Revenue per Employee’ metric measures the employees’ productivity in terms of revenue generated by them. Since revenue is an indicator of performance, it helps the companies understand if they are performing well. To calculate this metric, you need to find the revenue generated by the company for a specific period and divide it by the total number of employees in the organization working during that period.

We should also add that no specific number could be set as the industry standard for the ‘revenue per employee’ metric. While some industries like IT and technology have a higher revenue per employee figure, other industries like manufacturing and logistics have lesser value for the same metric. It is best to calculate the value for a specific period for your organization and improve upon it in the next cycle.

 

5. Employee Engagement Rate

The ‘Employee Engagement Rate’ metric measures the overall employee satisfaction of the organization. Since there is no other data that help us understand this metric, it is considered a ‘soft’ metric. If you wish to know the engagement rate of your employees, you need to conduct surveys that would provide you with clear indicators of their satisfaction level.

It is a well-established fact that employee performance is directly proportional to their engagement with the company. As a result, it is imperative to have an engaged workforce. Employees who are proud of their employer are more likely to remain involved with their company and recommend it to their friends and family as a good place to work.

 

6. HR Efficiency Ratio

The ‘HR Efficiency Ratio’ is the metric used to understand the ratio of HR professionals to employees working in an organization. In other words, it is the number of employees in your organization per HR professional. In an ideal scenario, a smaller number of HR professionals should be able to manage a larger number of employees.

This metric indicates the efficiency of your HR department. If a single HR can handle a larger number of employees, it shows that the HR department has a robust employee management system and the fact that the HR is doing a good job.

 

7. Employee Turnover Rate

The ‘Employee Turnover Rate’ or the ‘Total Turnover Rate’ is a metric used to understand the rate of employees leaving the company for a specific duration. It is usually calculated as a percentage; to arrive at the percentage value, you need to divide the number of employees who leave during a specific period by the average number of employees working during that time and multiply that value by 100.

Employee turnover rate is essential to understand which departments are working well with their staff and which need restructuring to ensure that employees remain with the company for longer. It is also significant when hiring talent as you might require a new recruitment strategy if you are losing employees frequently.

 

8. Absenteeism Percentage

The ‘Absenteeism Percentage’ or the ‘Absence Rate’ measures the average percentage of days the employee is absent from the company to the total working days for a specific period. This metric does not consider the planned time-offs that are approved beforehand.

If the percentage is high for a specific period, you can take necessary measures to lower it. On the other hand, if the absenteeism percentage is high for a particular department, you should have a word with the team members to understand what is going wrong. A higher absence rate is usually an indicator of underlying problems which could result in a higher employee turnover rate if not rectified.

 

9. Employee Performance

The ‘Employee Performance’ metric measures the performance of employees using several different methods as there is no universal industry standard for it. It is usually measured with the help of peer reviews, supervisor assessments, self-assessments, or even a combination of all three.

Companies have also started adopting the ‘nine-box matrix’ to measure employee performance. The employees are placed in a 3×3 matrix based on their current performance and growth potential. Categorizing the employees helps strategize targeted training and improvement methods to ensure adequate growth.

 

10. HR Software Proficiency

Measuring the ‘HR Software Proficiency’ is complex as several factors are involved. Companies usually calculate the number of employees who are actively using their HRMS. The number is divided by the total number of employees in the organization. This approach helps them understand the HR software employee participation rate, which gives a good idea of the overall software proficiency.

If the software proficiency is low, you need to check for the reason and make the necessary changes. Using HRMS for HR-related tasks reduces the load on HR and helps improve the employee engagement rate. It also helps that the software can provide all details at the employees’ fingertips whenever required.

 

Conclusion

HR metrics are a vital component of HR management for any company as the HRs are required to manage the most valuable company resource – the employees. Having an efficient HR department ensures effective employee management, resulting in engaged and productive employees.

The ten HR metrics that we discussed in this article would help you get a good idea of the current state of your HR team. By having the figures ready, you can also set a baseline for understanding which parameters need to be changed and which aspects are working well. Establishing such a threshold will help you make targeted improvements that will pave the way for a successful organization.

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