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Metrics in Human Resources is the process by which human capital is measured. In other words, ideas or problems are broken down into tangible, measurable items which will — if the design is good — answer the question that was asked at the beginning of the process, or shed light on a business problem and provide direction on how to solve it.
For example, suppose HR needs to determine why there is a high degree of turnover in a specific department. By using employee surveys, performance reviews, and interviews with managers and employees (measuring attitude, characteristics, job satisfaction, etc.) it may be discovered that the criteria being used to hire individuals for that department are not a good predictor in finding the right person for that type of work. That would result in a poor match between job and employee, which could very easily result in a high turnover rate in that department. In that case, determining what type of person would do well in a certain position (based on desirable characteristics for the type of work), and reworking the hiring criteria to reflect that, may be all that’s needed. With the use of metrics, these things can be discovered and remedied.
The HR department usually performs an organization’s metrics. HR measures their own activities to show how effective their function is in contributing to the organization’s bottom line. Examples of the measurements that are used most often are number of new hires, source of hire, turnover rate, time to fill a position, cost per new hire, and separation cost when an employee leaves. Many of these measurements have been done for years.
Lately, however, there is a growing emphasis on measuring what was previously thought immeasurable. Things that not too long ago were deemed to be too subjective to lend themselves to quantifiable measurement are now being looked at in a new light to determine if and how they can be effectively measured. Examples include such things as quality of hire and employee engagement, which describes an employee’s commitment and connection to the organization and job.
The ultimate measurement that HR departments would like to determine is the return on investment, or ROI, of human capital. This value takes into account what it costs to hire and retain an employee, and measures it against the value of the employee’s current and future work output as it affects the organization as a whole. This is advanced metrics. Not many organizations are in such an advanced stage, or equipped to measure employee ROI. However, there are plenty of other things that are more easily measurable which can help an organization solve human capital problems.
The key to effective metrics is getting down to the real issue to be addressed and figuring out what to measure and how to measure it. It could be as simple as looking at age of employees and retirement eligibility to establish what an organization’s short- and long-term needs will be in terms of filling positions vacated due to retirement.
Some common metric formulas are as follows:
Cost per hire
Cost per hire shows how much it costs your organization to hire for certain positions. In this way you can look for areas in which to improve, especially when combined with your turnover metrics. For example, if you are using expensive means (such as executive search firms) to hire for certain positions, but your turnover in those positions is high, you may want to rethink your recruiting strategy.
Metric:
(Advertising agency fees employee referrals travel cost of applicants and staff relocation costs recruiter pay and benefits) ÷ number of hires
Yield ratio
The yield ratio indicates your recruiting effectiveness at various stages. For example, it can indicate how many qualified applicants you received from the total number of applicants you received; how many interviews were conducted from the number of qualified applicants; and so on. It can also indicate which recruitment method yields the best results. For example, how many qualified applications were received from all applicants who applied through a trade publication; or through a certain online job site; or who were referred internally.
The yield ratio can also indicate whether you are meeting your affirmative action requirements by calculating the yield ratio of minority applicants compared with the total number of applicants. Sample metrics are below.
Metrics:
Number of qualified applicants divided by the number of total applicants
Example: 60 ÷ 200 = a yield ratio of 30%
Number of minority applicants divided by total applicants
Example: 30 ÷ 200 = a yield ratio of 15%
Number of female applicants divided by total applicants
Example: 90 ÷ 200 = a yield ratio of 45%
Number of interviews divided by qualified applicants
Example: 10 ÷ 60 = a yield ratio of 17 %
Note: For more information on yield ratios, see the Quick Study “Determining Recruiting Effectiveness” in the Recruiting topic.
Time to fill
Time to fill indicates how long it takes to fill a position, beginning from requisition to start date. This is an indicator of how efficient your process is. If it seems long, look for areas of improvement. For example, if the requisition process regularly takes seven business days, look for ways to shorten the time span so the actual hiring process can begin sooner.
Metric:
Total days elapsed for all new hires between approved request (or the day job is posted) and employee’s first day of work (or date of accepted offer) ÷ number of employees hired
Training investment
Training investment indicates how much you spend on training per employee. It is not enough to keep track of the cost, but you should also determine the effectiveness of the training by measuring the impact training has on employees. For example, has efficiency in a certain process improved due to training in new methods? Have the number of work-related injuries decreased after mandatory safety training? The effects of your training programs are also metrics worth pursuing, and tell you if you are getting the desired results for the cost.
Metric:
Total training cost ÷ number of employees trained
Training/Development hours
This metric tells you how many hours have been spent on training per employee, on average. If you are finding that many hours are spent in training, but employees don’t seem to be performing their jobs better, or don’t seem like they are retaining the knowledge, you may want to look at the content or delivery of your training programs.
Metric:
Total number of training hours ÷ total number of employees
Turnover rate
Turnover rate is an indication of the rate at which employees leave the organization, whether it is due to voluntary separation or termination. It is commonly believed that high turnover is “bad,” while low turnover is “good,” but that is a superficial assessment. High turnover of poor performers means room is opening up for high performers to step in. In contrast, low turnover of poor performers is not good for an organization, even if the overall turnover “numbers” are good. The right kind of turnover is what is important. Turnover of high performers may mean you need to look at your retention strategies or other issues in your organization.
You might want to break down your turnover rate even further and look at turnover of new hires within the first year. A high rate in that group could indicate that a change is needed with your onboarding process.
Metric:
[Number of separations during the month ÷ average number of employees during the month] x 100
For example, 5 separations out of 100 employees = turnover rate of 5%.
Turnover costs
Turnover costs indicate how much it costs to replace an employee who leaves. This can vary widely depending on the position, but it is estimated that turnover costs 30-50 percent of the departing employee’s annual salary to replace an entry level position, and 150 percent or more for a managerial or executive position.
Metric:
Cost to terminate cost per hire vacancy cost learning curve loss
Absence rate
The absence rate indicates whether or not you have an absenteeism problem. If the numbers seem high (after taking into account ordinary waves of illness), look for signs to indicate what may be causing the excessive absence. For example, if there are excessive absences occurring in a particular supervisor’s department, it might bear investigating.
Metric:
[(# days absent in month) ÷ (average # employees during month) x (# of workdays)] x 100
Workers’ compensation cost per employee
This metric indicates your total workers’ compensation costs per employee. When compared with previous years, it can be an indicator that safety programs or incentives are working, or new reporting requirements are having an effect, and so on.
Metric:
Total workers’ comp costs for the year ÷ annual average number of employees
Workers’ compensation incidence rate
This metric indicates the number of injuries and illnesses per 100 full-time workers, or FTEs, per year. The 200,000 hours in the formula represents the equivalent of 100 employees working 40 hours per week, 50 weeks per year, and provides the standard base for incidence rates. Instead of, or in addition to, the total number, you could limit the metric to include only those injuries and illnesses that involved days away from work, or also include those involving restrictions or transfers (the DART column on OSHA Form 300A).
Incidence rates take on more meaning for an employer when the injury and illness experience of his or her firm is compared with that of other employers doing similar work with workforces of similar size. Information available from the Bureau of Labor Statistics (BLS) permits detailed comparisons by industry and size of firm. The BLS also offers an online calculator: http://data.bls.gov:8080/IIRC/?data_tool=IIRC. For more examples and more information, see http://www.bls.gov/iif/osheval.htm.
Metric:
(Number of injuries and illnesses x 200,000) ÷ employee hours worked
Note: “Total hours worked” does not include paid non-working time such as vacation, sick leave, or holidays.
Health care costs per employee
This metric indicates the cost of health care per employee for your organization. Wellness initiatives may encourage employees to lead a healthier lifestyle, which will in turn lower your claims experience, which should have a positive impact on your premiums.
Metric:
Total cost of health care ÷ total number of employees
HR expenses
This metric indicates what portion of the total operating expense of the organization belongs to the Human Resources department. HR is generally known as a cost center, not a profit center, so it’s in HR’s best interest to keep costs as reasonable as possible, while looking for ways to add value to the organization.
Metric:
HR Expense ÷ Total operating expense
Percentage of goals met
This metric indicates the percentage of top priority HR goals that were met for the year, as defined in a strategic plan, budget, etc. While accounting for otherwise unforeseen circumstances, this can give an indication of HR’s effectiveness in reaching objectives.
Metric:
Number of actual goals met ÷ number of goals set for the year
Utilization rate
This metric identifies the percentage of employees utilizing a benefit or service (such as an employee assistance program). The utilization rate can help you identify benefits or services that are worth keeping, worth eliminating, or worth promoting.
Metric:
Total number of employees utilizing a service/benefit ÷ total number of employees eligible to utilize the service/benefit
Tenure
Tenure indicates how long employees are staying with your company. A history of long tenure can be used as a recruiting tool to indicate to job candidates that your company is a good place to work.
Metric:
Total number of years of service of all employees ÷ total number of employees
Percent receiving performance rating
This metric is helpful to determine the overall performance of your employees. If a high percentage of employees are rated very highly, it could mean that they are either performing at a high level, or that managers are inflating performance ratings and rating most employees highly, leaving for little differentiation. If your goal is to determine performance on a scale more like that of forced distribution, where only a small percentage of employees can be rated highly and the rest must be rated lower in comparison, you may want to look at this metric to see if managers are being too lenient. This metric can be performed by department, area, division, or company-wide.
Metric:
Number of employees rated under a given score or rating on their performance evaluation ÷ total number of employees
Engagement or satisfaction rating
This will indicate the number of employees engaged or satisfied with what you are measuring, whether it is a service, benefit, or practice, as determined by an employee survey.
Metric:
Number of employees satisfied ÷ number of employees completing the survey
Note: It is not divided by ALL employees, since all may not have completed the survey.