In a research report entitled, The State of Human Capital 2012, ( Report ) prepared by The Conference Board and McKinsey & Company, they concluded that the one word that describes the state of the Human Capital Department in most companies today is “paralysis”. What they meant by that was there were too many factors to manage including a changing workforce, too much uncertainty, too many risks and too little support. One area that was identified as a key success factor for the future was developing stronger workforce analytics and metrics. While HC professionals agree that metrics are critical to their future success and importance to the executive suite, overall metrics utilization by the HC departments is considered to be lagging when compared to other departments within their organization.
HC metrics are a vital way to quantify the cost and the impact of employee programs and HC processes and measure the success or failure of HR initiatives. The use of metrics on the labor force can have a positive impact on profit. Metrics can quantify the dollar impact that HR processes and actions have on business goals. The ability to illustrate trends and impacts with numbers is a very effective way for HC professionals to influence and get the support of managers and executives. Metrics can highlight inefficiencies, reduce expenses, and drive improvements and financial results.
Critical to the success and value of HC metrics is that they are accepted by colleagues and executives. Contrary to popular belief, more often than not, the metrics don’t require a degree in mathematics or complex formulas. Not every metric idea will succeed. Many workplace metrics seem like great ideas, until you actually put them on paper and find they tell you little or nothing of value. Careful selection of what is measured places the focus on business goals and lets everybody know what is important. Make sure you know what you want to measure, how you will measure it and how the results will be used for improvement. The basic goal of any HC metric is to provide managers with information that allows them to improve the measured item. In order for metrics to be useful, first you need to ensure that the data is accurate and easily accessible.
A basic but important HC metric is workforce productivity or employee return on investment (ROI) measured by dividing the total dollar amount spent on labor costs by total revenue, or revenue per employee (total revenue/the number of employees). Ask executives to weigh in on the biggest workforce issue(s) and the resulting metrics. A best practice is to have a current or hot issue metric that needs executive attention.
With the tightening labor market, turnover is returning as a hot issue. Turnover is a common HC measurement and is calculated by dividing the number of terminations by the average number of active employees during the same time period. This simple measurement as it is applied and modified can be used for many HC metrics. For example, using the basic turnover measurement: how many employees leave during their first year of employment – this may signal a problem with the recruiting process or with the on-boarding process; how many top performers are leaving – perhaps a problem with compensation or a lack of promotional opportunities; how many employees are leaving from each department – departments with high turnover may signal a problem with management. The cost to replace employees can then be applied to highlight the bottom-line cost of turnover.
Some other examples of HR metrics are:
- Recruiting Process Metrics:
- Number of overall days that “key positions” were vacant
- Year over year comparison of average new hire performance appraisal scores
- Manager satisfaction with new hires
- Percent of diversity hires in managerial and senior positions
- Compensation & Benefits Metrics
- Survey employees on their perceptions of fair pay as compared to work expectations.
- Percent of employees satisfied with their compensation
- Percent of top performers that are paid above the average salary for their position
- Employee relations Metrics
- Compare year over year results of % of employees that rate their manager poorly
- Turnover % of low performing managers and employees within one year of receiving the low performance score
- % of low performance rated employees that are on a performance improvement plan
- % of employees that are all in any performance improvement plan that improve at least one level on performance appraisal ratings within 1 year
- Training & Development Metrics
- % of employees that report that they are satisfied with the learning and growth opportunities
- % of employees that report that they are satisfied with on-the-job learning
As you decide on and develop your HC metrics, it is important that you have asked your executives for their input regarding factors that help the organization and departments run smoothly, satisfy customers and turn a profit. And your metrics should provide information, and not just numbers. As you identify what’s important to your organization’s strategic success, the metrics that matter most should rise to the surface. Your goal is not to inundate executives and managers with numbers, but to provide critical information that they can use in making decisions about business issues.
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