Have you ever wondered what successful businesses have in common? They use people data to analyze business performance and define goals. HR metrics are one of the ways to do this. Human resources are, after all, an integral part of a company’s success.
People strategies, workforce analytics, and HR metrics all help you work toward achieving your business goals.
It doesn’t matter if you have 10 or 1,000 employees. The sooner you start watching your HR metrics, the better. So let’s see why these metrics are so important and how to use them.
Why do HR metrics matter?
HR metrics are data points that allow you to track key human resource and recruitment activities like employee performance, retention, compensation, engagement, cost-per-hire, time-to-hire, and more. This lets companies keep a close eye on how each of their programs are functioning so that they can make adjustments if needed.
In other words, HR metrics are a way of assessing a particular area within your business. They can also help you better face unforeseen events.
If the past few years have taught us anything, it is that the way we work can change from one day to the next. Who would’ve expected the rapid shift to remote work? Plus, we now see people who want to work in companies that focus on inclusion, diversity, and well-being.
You need to analyze workforce and people data to create an environment where people feel valued. If you don’t, you risk losing your employees’ trust and loyalty as their values shift and evolve.
HR metrics can help you start on your analytics journey. They are the first step towards data-informed decisions aligned with your business goals.
How do I use HR metrics?
Use HR metrics to get a better view of what works and what doesn’t work in your company. To do so, start with a hypothesis or question. Here are some examples.
- Is the voluntary turnover rate higher than you’d want?
- How much is that costing you?
- Is the talent acquisition process going well?
- Or are you losing money on bad hires?
You can then turn to your HR tools to look for and analyze data that relate to those questions. These are only a few examples of what HR metrics can do for you.
Predicting future business needs is another area where HR analytics can be helpful. How many new employees will you need? What new skills will people need and want to learn? All this can be answered using HR metrics and can help you make better business decisions long term.
What are the most important HR metrics?
There are several types of metrics, each with its role. Of them, we identified 10 core metrics any company must watch:
- The total cost of the workforce
- Spans and layers
- Employee engagement
- Talent acquisition
- Workforce planning
If you want to go deeper, you can also track more advanced metrics such as productivity or manager effectiveness. We’ll talk about each metric in detail in the following section.
10 HR metrics you absolutely need to watch
About 70% of an organization’s budget goes towards its people costs. Because of that, having an accurate headcount is crucial.
Headcount is the total number of people working in your company at any given time. This includes permanent, temporary, and contingent employees as well as gig workers.
The headcount tells you if you have enough people to accomplish your goals. It also allows you to forecast how that number may change. That means better financial management and a more effective estimation of costs.
If you thought replacing employees was easy, think again. The process can sometimes cost one-half to twice the employee’s annual salary. This should be a good motivation to want to reduce turnover rates.
Metrics you need to know include:
- Predicted resignation—an approximate number of people that will leave the company in the near future.
- Resignation trends—are more or fewer people quitting now than in the past quarter? Can you spot any patterns?
- Estimated replacement costs—how much will it cost to replace those who leave the company?
- Resignation drivers—why do people leave the organization?
The turnover rate comprises voluntary and involuntary departures. But it is the voluntary turnover metrics that should get your attention.
You can control which contracts you terminate and which people you lay off. You don’t have the same control over their resignation. Analyzing this metric will help you understand the trends and the reasons behind the employee’s decision.
A recent study showed that 76% of employees and job seekers look at diversity when considering a job offer.
What does diversity mean in a business context? It refers to the range of differences within the company, particularly related to race, gender, ethnicity, and age.
Diversity, equity, inclusion, and belonging (DEIB) are becoming priorities in many organizations. But there’s still room for improvement.
Common DEIB metrics to track include:
The more diverse an organization is, the more chances it has of attracting top talent.
Compensation is one of the top reasons people leave their jobs. It doesn’t just mean that the pay is too low. It might also mean that there are no advancement opportunities, or that people feel disrespected.
Compensation includes salaries, bonuses, paid time off, health insurance, retirement plans, and more.
By tracking this metric, you make sure the pay scale is aligned with the market demand. Metrics to track include:
- Range minimum, midpoint, and maximum;
- Range penetration;
- Grade or band.
5. Total cost of workforce
The total cost of the workforce (TCOW) is more than salaries. It includes:
- HR data such as headcount, salary, and benefits;
- Finance data such as workforce overheads;
- Market data.
Knowing the TCOW helps you stay competitive by building an efficient workforce plan.
Metrics to watch include:
- People—everything from recruitment, pay, onboarding, training, and retirement.
- Overhead—how much does the company incur per employee?
- Facilities—the cost of office spaces, equipment, and other utilities.
6. Spans and layers
Organizations grow over time. By using the spans and layers metrics, your organization can reduce costs. Its employees can work together more effectively. These metrics also make it easier to assess salary grades and promotion opportunities.
Spans refer to the number of people who directly report to each manager. Layers refer to the number of supervisory levels.
Common spans and layers metrics to know include:
- Standardization of responsibilities;
- Types of work;
- Contingent layers.
7. Employee Engagement
Employees are a key component in any business. How well they relate to their employers, their colleagues, and the work they do are all part of the employee engagement metrics. In other words, this metric is about how connected and involved employees are in an organization.
Engaged employees are more productive. They tend to have lower rates of burnout and voluntary turnover.
Employee engagement metrics to track include:
- Voluntary turnover;
- Employee performance;
- Glassdoor reviews;
- Net promoter score (NPS) in feedback surveys.
8. Talent acquisition
A bad hire can cost you up to $240,000! Talent acquisition metrics may help prevent such a loss. They track how a person moves through the hiring process—from the job description to the offer and beyond.
By using this information correctly, you can make the right hiring decisions and avoid the huge costs of a bad choice.
Talent acquisition metrics to know include:
- Revenue per employee;
- Quality of hire;
- Performance turnover in key jobs;
- Dollars of revenue lost due to position vacancy days;
- New hire failure rate;
- Applications per role;
- Diversity hires.
People want to learn new things. So much so that 32% of those who changed jobs over the past years did so to learn a new skill.
Learning metrics track individual employees’ career development. They help reduce voluntary turnover and absenteeism. They improve engagement and individual performance.
Learning metrics to track include:
- Skills that will be needed in the future;
- The trajectory of the current learning path;
- Internal hires/promotions;
- The baseline of skills present in the organization.
10. Workforce planning
How many and what kind of workforce your organization needs during a period is part of workforce planning. These metrics allow you to identify gaps between the current workforce and your future needs.
Without these metrics, you risk lacking the necessary people to achieve your goals. Common metrics to know include:
- Attrition and turnover rates;
- Time to proficiency for new hires;
- Tenure, seniority, and experience levels;
- Skills coverage.
2 advanced metrics to know
Without a productive workforce, you’ll have a hard time doing anything in your organization. Productivity metrics refer to how much work a person can perform at any given time.
Common metrics include:
- Revenue per employee;
- High performers;
- Average time to productivity.
Did you know that 82% of employees would quit due to a bad manager?
Effective managers create structure, make work meaningful, and support employees in their growth. Common metrics of manager effectiveness include:
- Manager engagement score;
- High performer resignation rate;
- Promotions actioned.
HR metrics FAQ
What are HR metrics?
HR metrics are key data points that organizations track the effectiveness of their human resources and recruitment programs.
What are the most common metrics used by HR?
The most common metrics used by HR include headcount, turnover, diversity, compensation, the total cost of workforce spans and layers, employee engagement, talent acquisition, learning, workforce planning, productivity, and manager effectiveness.
Why are HR metrics important?
HR metrics are important because they give human resource and recruitment leaders objective insights into how to improve their programs. Without HR metrics, HR departments would be in the dark about how their workforce is performing, and how they can improve.
On the Outsmart blog, we write about workforce-related topics like what makes a good manager, how to reduce employee turnover, and employee burnout. We also report on trending topics like the Great Resignation and preparing for a recession, and advise on HR best practices like how to present headcount data to your CEO, metrics every CHRO should track, and connecting people data to business data. But if you really want to know the bread and butter of Visier, read our post about the benefits of people analytics.
About the author: Visier Team
People-centered ideas and insights by the editorial team at Visier.
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