Everyone understands the importance of tracking HR metrics and benchmarking an organization against similar and competing companies. Senior executives are increasingly asking HR to prove the worth of HR initiatives and programs through the use of concrete numbers.
This is hardly surprising, especially given the tight economy and the fact HR is still seen, in many organizations, as overhead rather than a valued business partner and driver of the people side of organizational strategy. But what types of metrics should HR departments be tracking?
For one thing, it’s no good tracking something if its importance can’t be demonstrated to business leaders. At a previous job, my team provided quarterly HR dashboards to executives but, several times, the executives would say, “These numbers are great but they don’t tell us a story.” And the executives had no idea whether the numbers we reported were any good from an industry perspective or why HR chose to track those particular metrics.
These concerns highlight the need to choose meaningful metrics to track, to benchmark them against other organizations and other lines of business within the company, to provide knowledgeable advice about the information and to supplement the quantitative data with qualitative information where possible.
It’s also not a good idea to track only the numbers an HR department thinks are important. Business leaders demand results from HR programs. The numbers chosen to demonstrate the value of those programs should do so in a way business people understand, and in relation to the bottom line.
For example, take the training and development function. Many organizations track training costs per employee or average training hours per employee. While these metrics are useful in gauging the level of an organization’s commitment to learning and development, how can an organization really tell if dollars or hours spent in a classroom result in any kind of meaningful impact on employee or organizational performance?
While some people have concerns about attempting to calculate the return on investment of training programs — such calculations are notoriously difficult to complete and many of the results of training and development initiatives are very hard to quantify — some type of ROI measure should be obtained to show the value of such programs.
10 most important HR metrics
The metrics organizations track should be customized to the type of organization in question, says Helen Luketic, manager of HR metrics and research at the British Columbia Human Resources Management Association (BC HRMA) in Vancouver. But to focus on key HR metrics from all functional areas of HR that are likely to get the attention of senior business leaders — or if an organization needs to focus on getting the most out of a limited HR metrics budget — here is a top 10 list of metrics, according to Luketic:
Resignation rate: What percentage of the organization is resigning voluntarily?
Voluntary, involuntary turnover rates: Total turnover is important but what’s the breakdown in terms of voluntary versus involuntary turnover?
Retirement rate: At what rate are employees retiring? Along with the resignation rate, this helps to further break down voluntary turnover numbers.
Average retirement age: At what age are employees typically retiring? Along with the retirement rate, this helps to determine retirement trends in a company.
Absenteeism rate: How productive and engaged are employees?
External offer acceptance rate: Is the acceptance of employment offers going up or down? In an improving job market, acceptance rates will start to decrease. Also, organizations with a stronger employment brand will have higher acceptance rates.
Vacancy rate: Is the vacancy rate increasing, indicating an improving job market?
Succession planning rate: What happens in an organization when a key leader suddenly needs to be replaced?
Promotion rate: Is the organization fulfilling its commitment to learning and development, career opportunities and promotion from within?
Labour cost to revenue ratio: How are labour costs increasing or decreasing in relation to revenue?
Brian Kreissl is managing editor of Consult Carswell. He can be reached at email@example.com or visit www.consultcarswell.com.
Comparing apples to apples
What if a company lacks the resources to track meaningful HR metrics internally? How does it establish a network of participating organizations to benchmark against? By using an HR metrics service.
One of these services is the HR Metrics Service, initially offered by the British Columbia Human Resources Management Association (BC HRMA) but now also available in Manitoba and Ontario. As well as providing benchmarking information to participants, the service provides guidance in the form of standards, glossary information and an interpretation guide. These standards are now officially recognized by the HR associations in all three provinces.
This information also allows different organizations to ensure they’re comparing apples to apples, says Helen Luketic, manager of HR metrics and research at BC HRMA. It may also be helpful to HR professionals because “HR metrics isn’t something they generally teach very well in school.”
The HR Metrics Service focuses on the collection of 20 simple data points from survey participants, so organizations can avoid having to perform complex calculations. Assistance is also provided to participants on how to perform the few relatively simple calculations that are required.
Should an organization decide to go it alone, there are also books and other resources that can guide the processes of tracking HR metrics and setting up a benchmarking network. One such resource is Best Practices: Human Resources Benchmarking by Colin Dawes, a book published by Carswell, a Thomson Reuters business.