Metrics are a key performance-measurement tool for many businesses. Companies use data from a variety of areas — finance, customer service, sales, and even human resources — to determine whether they are meeting their objectives and to guide HR strategy. Why is HR data important, and how can your organization use it to improve your workforce and bottom line?
Why they matter
Essentially, HR metrics assign value to various aspects of employee performance. These metrics are useful for measuring an organization’s performance overall and for uncovering HR-related issues that can have a major impact on a company’s bottom line — for example, revenue per employee, benefits costs, and cost of employee turnover.
If your organization is not capturing and using human resource metrics, you’re missing out on valuable information about the state and efficiency of your workforce and your company as a whole. In particular, HR metrics can provide insights a business can use to improve strategies for better hiring results, decrease employee turnover, and enhance employee engagement.
If any organization is interested in using HR metrics, the first step is determining what to measure. The Society for Human Resources Management (SHRM) advises organizations to select and define the data that aligns with their business strategy. From there, they will need to define a formula for each metric. For example, the formula for the turnover rate metric is:
Total separations/Average number of employees = turnover rate
What is some key data that is useful for businesses?
- General HR — May include revenue per employee, profitability, benefits costs, and employee counts (which can be important in determining which federal regulations and requirements apply to your client’s business).
- Compensation — May include metrics such as pay range and compra-ratio (an employee’s salary divided by the market rate for their role), which can help a business identify and mitigate potential turnover risks.
- Recruiting — These metrics focus on the costs of obtaining a new employee and could include advertising costs, agency fees, travel costs, and others. Tracking recruiting metrics can assist in determining the costs of hiring new employees versus retaining existing employees.
- Turnover — Turnover metrics deal with the flow of employees into and out of an organization over a specific period of time and the costs associated with the loss of employees through retirement, terminations, and resignations.
- Employee Engagement — Employee engagement metrics focus on the degree to which employees care about their jobs and are committed to the organization’s success. Such metrics are directly related to turnover, efficiency, and the business’s overall financial health.
Collecting the data
Businesses often have much of their HR data on hand — in sources such as HRIS, payroll records, performance evaluations, customer service data, exit interviews, front-line managers, and employee surveys. Industry experts recommend businesses enlist the services of a third-party administrator for conducting employee surveys. Employees are more likely to be honest when their responses will be anonymous and submitted to a third party. The third-party administrator can also ensure results are delivered in an objective way.
Metrics can help your organization see how your workforce and business is performing and provide data useful in making informed business decisions, better allocating resources, and predicting problems and trends.