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Human Resources Metrics
Human resources strategy should be linked to the business
goals and objectives. Employee performance appraisals should
be tied in with business plan and goals. Research has
indicated that a 30 percent increase in productivity is
possible with an HR metrics system in place.
Importance
It is vital to show HR’s impact on the organization because
of the cost and importance to productivity. The HR department
should be run like a business in itself.
HR metrics
are classified in three key categories: past, current, and
future expectations, for comparison and forecasting. If there
is no past information available, the organization should use
best practice information or that of a similar company.
What are the
categories of HR metrics?
The
categories should be directly linked to the business goal,
which varies from company to company. Typically the following
are the main categories for measuring HR’s ability to maintain
employee functions that meet with the overall business plan:
What needs
to be measured?
In terms of
employee productivity, employee attitudes, goals met, and
employee skill levels are measured. Productivity can easily be
measured against established guidelines from previous records,
or in the case of a new company, industry standards. Employee
attendance includes tardiness and absenteeism. Employee
engagement describes whether or not employees are pleased with
their supervisors, co-workers, their tasks and schedule.
Higher levels of engagement typically indicate longer
employment periods and higher levels of productivity. One
metric used to describe workforce productivity includes the
percentage improvement in workforce productivity over prior
years, and the currency value of that productivity.
The rest of the measures are related to HR management
functions and should be compared to the results of the three
employee measures. Communications refers to how accurately and
promptly information is relayed to employees, and the number
of HR transactions within a given period of time, such as
posting positions, mediations, and legal issues (Workers’
Compensation, Unemployment hearings).
Recruitment is one of HR’s main responsibilities. Recruiting
efficiency describes how many new positions were created
versus sheer turnover, and the process for staffing personnel.
One way to assess the effectiveness of recruiting is to take
the average performance appraisal score for a certain
position, of newly hired employees, and compare it to the
previous years’. Another is management satisfaction with these
new employees, determined through surveys. The turnover rate
of these new employees within the first year also is usually a
good metric to measure. Turnover relates to both voluntary
(quitting) and involuntary (firing, layoff) employee loss.
The rewards system is how employee productivity is rewarded
(raises, awards, rewards), and the measure is weighted, with
better performers being ranked as more important than worse
performers. These indicators can be placed in the performance
review. Rewards are set to help with retention, which is the
company’s ability to properly train, keep and promote
employees while also participating in succession planning for
the higher-level positions. Useful metrics in this category
include a performance-based turnover metric, especially for
key positions. Management satisfaction with HR efforts
regarding retention, determined through surveys, may also be a
useful metric to monitor.
To conduct a
measurement, base employee expectations and observations (via
employee productivity, attendance and engagement) against what
HR measures are expected in terms of communications, turnover
figures, recruiting policy, ability to retain (retention
percentage), and the rewards system.
How does the
HR metric policy relate to Strategic Planning?
The purpose
of the HR metrics system is to identify problems or
opportunities, develop organizational goals and objectives, as
well as methods to achieve them, and to develop an assessment
and monitoring system to measure future performance.
The following are some of the sources for information
collection, retrieval and analysis:
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Employee
and management surveys and interviews (for employee
contentment, communications, rewards system)
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Performance appraisals (to measure productivity, attendance)
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HR records
(to track communications, turnover, recruiting efficiency,
retention, promotions, and succession planning)
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Employee files (to research productivity, attendance,
training)
The outcome,
purpose, and result of the HR metrics, if the HR department is
running properly are:
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Improvement in organizational competitiveness
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Increase in productivity
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Increased employee satisfaction
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An improved return on investment (ROI)
Typical
statistics obtained in compiling HR metrics include:
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Revenue factor, which is company total revenue divided
by the amount of full time employees
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Human capital value added (revenue minus operating
expense and cost of compensation/benefit divided by the
total amount of full time employees)
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Human capital return on investment: Revenue minus
operating expenses and cost of compensation benefit divided
by cost of compensation/benefit
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Total compensation revenue ratio which is cost of
compensation/benefit divided by revenue
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Labor cost revenue ratio, which is cost of
compensation/benefit plus other employee costs (bonuses,
mileage paid, incentives) divided by revenue
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Training investment factor equals the total cost of
training divided by total amount of training attendees
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Cost per hire, which includes advertising, agency
fees, relocation, and others divided by operating expenses
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Health care costs per employee (total health care cost
divided by total amount of employees)
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Turnover costs, which is equal to hiring costs plus
training costs plus other costs (turnover rate during first
year of employment is key)
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Voluntary separation rate is the total number of
people who quit or retired divided by the total amount of
employees
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