Human resources is predicted to top the list of business challenges across industries in 2020.
There are a lot of forces in play, from an aging workforce and mass retirement of the baby boomer generation to the unprecedented rate of change in technology. Amidst this upheaval, the crucial role that employees play in businesses’ success remains the same.
Happy, productive employees continue to drive companies’ success.
Proactive employers are rising to the challenge by tracking human resources key performance indicators (KPIs). Learn the top five indicators you should be tracking this year and how to monitor them.
The Top 5 Human Resources Key Performance Indicators
“Key performance indicator” or KPI is a fancy term for a measurable quality, attribute, or statistic relevant to, or indicative of a company’s success.
Companies use KPI metrics to:
- Assess their current health and competitiveness
- Accurately compare their operations to competitors and industry benchmarks
- Evaluate progress against prior performance records and future performance targets
KPIs are such a powerful tool that allows you to assess and report on the health and strength of initiatives at all levels.
Companies seeking to improve their HR performance can choose from scores of relevant indicators in categories ranging from:
- Employee terminations
- Employee categorization (e.g. full-time, part-time, contract)
For most companies, however, the following five indicators are the most powerful.
Employee turnover refers to the number of employees leaving your organization. It includes:
- Voluntary employee terminations
- Involuntary employee terminations
Each of these types of turnover gives you different, but equally important, info about your workforce and company situation.
What Turnover Tells You
Retirements can serve as an indicator of the relative age and experience of your workforce. If your retirement rate is high, it can be a warning that you’re losing very experienced people. This might serve as a prompt to increase your training among newer or younger employees to compensate for that loss of accrued knowledge.
A high number of employees voluntarily leaving to take other jobs might indicate that you have culture problems or that your compensation package isn’t up to par. It can serve as a prompt to explore the specifics of what is motivating employees to leave your company.
Numerous involuntary employee terminations, by contrast, may suggest that your recruiting, hiring, and onboarding processes need work. There may be a disconnect between what you’re advertising for, and assessing people on, versus the skills and traits that actually drive their success.
Why Turnover Matters
Turnover tops the list of human resources KPIs for three important reasons.
First, turnover is expensive. Every time you lose an employee, you:
- Lose the money involved in hiring and onboarding them
- Lose the money invested in their training to date
- Lose the income they would have brought in (or pay other employees overtime to compensate) until someone new is hired and up to speed
- Face a new round of hiring and onboarding costs
These expenses can total up to twice the lost employee’s annual wages.
Second, turnover costs you competency. Experienced employees:
- Typically work faster and more efficiently, simply due to familiarity with equipment and processes
- Know, understand, and can accommodate your customers better than new employees
- Are more likely to be cross-trained and capable of filling in or covering other workplace roles when needed
- Are more likely to be qualified candidates for internal promotion
Finally, turnover can negatively impact your recruitment opportunities. Employees are like customers in how they spread the word of their experiences with your company.
This means that many happy former employees won’t talk about their experiences with your company much at all. Those who do will tell an average of three people about their positive experience.
Nearly all unhappy ex-employees, by contrast, will tell an average of nine, and as many as 15 people, about their perceived bad experience. Whether their stories are true or not, they can steer top talent away from your doors.
Specific and related KPIs you can track include:
- Annual voluntary employee turnover rate
- Average performance scores of departing employees
- Average employee tenure
- New hire retention rate
Absenteeism has long been a mainstay among human resources benchmarks. The rate of absenteeism is simply a measure of how many days your employees work compared to the expected standard number of days to be worked.
Absenteeism can be viewed as a lagging indicator or a reflection of existing problems. It can also be viewed as a leading indicator or a precursor of what to expect down the line.
High absenteeism may be due to:
- Low employee engagement
- Low motivation in the workforce
- Employees’ difficulty in managing work-life balance issues
Employees with high absenteeism are likely to suffer reduced productivity. They may be at an elevated risk of quitting or being involuntarily terminated due to dropping performance.
Absenteeism may be a sign that you need to investigate supplemental labor solutions.
What Absenteeism Tells You
Depending on how it presents, absenteeism can tell you several things.
High overall absenteeism suggests a company-wide culture or resources problem. Employees may feel:
- Underequipped to do their jobs
- Unwelcome, uncomfortable, or unappreciated
- Management is untrustworthy or impossible to satisfy
Uncovering the root causes of absenteeism can help you hone in on what problems you need to solve. This will help you to keep good talent and restore trust and productivity to your workplace.
If absenteeism is localized, it may indicate a problem in a particular department or with specific employees. For example, if absenteeism is high only in Accounting, an investigation may reveal that it is due to an inept manager or immense frustration with ongoing technical issues.
Drilling down into the source of the problem can allow you to address it before it escalates into a catastrophe.
Individual absenteeism may simply reflect non-work circumstances in an employee’s life. He or she may have a sick child, be going through a personal crisis, or dealing with other family issues. In such cases, it can benefit both the company and the employee to look at options for reducing work responsibilities until the situation resolves.
Alternatively, individual absenteeism may indicate that an employee is:
- Not happy in their current position
- Poorly suited to their current position
- Not a good fit for the company’s culture
In that event, it is in everyone’s best interests to begin looking for an alternative placement for that employee.
Some examples of other absenteeism-related KPIs that you can track include:
- Employee satisfaction
- Employee engagement
- Satisfaction with benefits
- Employee absence cost
3. Internal and Referral Hiring Rates
Like terminating employees, hiring is expensive. It can also be time-consuming. But how much time, energy, and money you have to put into finding and recruiting new employees can tell you a lot about your company’s health.
There are a variety of human resources key performance indicators that you can use to look at your internal and referral hiring rates. These include:
- The average time to fill job vacancies
- Your cost per hire
- Your internal promotion rate
- The percentage of candidates you interview and hire that were referred by existing employees
- Net promoter score (e.g. percentage of your employees recommending your company as a good place to work)
- The percentage of desirable responders to open positions
Why Hiring Rates Matter
Hiring rates tell you vital information about your current workforce, your reputation as an employer, and your prospective future workforce.
For example, imagine that you have a high average time to fill vacant positions and a low percentage of desirable responders to open positions. This combination can indicate problems with your hiring process. You may:
- Have a poorly worded job description
- Have inappropriate or unnecessary hiring prerequisites
- Be advertising in the wrong places
- Have a very negative net promoter score keeping good candidates away
- Be offering a compensation package well below that which competitors offer for equivalent positions
A high cost per hire can suggest similar problems. Or, it may point toward inefficiencies within your hiring process.
Low internal promotion rates, by contrast, suggest that you are not adequately training or grooming employees for more challenging roles.
Using human resources key performance indicators related to hiring is important. They can provide a wealth of actionable information you can use to improve your hiring, employee quality, and retention.
4. Productivity or Revenue per Employee
The benefits of calculating and monitoring productivity or revenue per employee are largely self-explanatory. This information allows you to accurately evaluate a range of important factors.
How You Stack Up
Understanding how your company’s productivity and costs stack up against industry standards and key competitors is essential. Lack of competitiveness directly costs you business. It also can point to inefficiencies and process problems that need addressing sooner rather than later.
For example, asking questions about low employee productivity rates can lead you to internal processes and procedures that may be outdated. In such cases, the situation is costing you money and business. Similarly, you may find that easy-to-fix equipment and/or software problems are unnecessarily hampering your business’s growth.
Alternatively, the problem may lie with employee training. For instance, if you’ve recently lost a number of experienced employees and hired new, less-experienced ones, you may have a knowledge and experience gap that needs closing.
Tracking your productivity-related human resources KPIs can help you invest your efforts in the right areas and clearly see your progress.
Examples of KPIs relevant to productivity and revenue include:
- Employee compensation as a percentage of company revenue
- Percentage of employees performing below workplace standards
- Performance of new hires compared to long-term employees
5. Training Costs and Effectiveness
Money spent on getting your employees the right training comes back to you many times over. Confident, well-trained workers are the backbone of every organization. They:
- Bring in more revenue
- Build stronger, longer-lasting customer loyalties
- Are prime candidates to fill upper-level positions down the line
- Cover for less experienced workers and help them get up to speed
- Are often cross-trained and able to move around in a pinch
- Are typically happier and more likely to both stay with the company and recommend it to others
But how do you know how well trained your employees really are? How do you determine which training is a good investment and which is a waste?
The answer, of course, is by picking the right KPIs. Depending on your needs, there are numerous options to pick from, such as:
- Average time to competence
- Average training costs per employee
- Employee satisfaction with training
- Percentage of HR budget spent on training
- Ratio of internal versus external training
- Return on investment (ROI) of training
- Training penetration rate
Using the KPIs appropriate to your situation and monitoring them over time can:
- Reduce your training costs
- Produce a higher return on investment for every training dollar spent
- Improve employee satisfaction and retention
- Lower turnover
- Improve client satisfaction
Now that you know what to monitor and why, the question becomes how. For some companies, creating a KPI scorecard may be a quick and easy task. However, if you find yourself asking questions like “What is a KPI report?” and “How do I even measure KPIs?” you may benefit from bringing in expert help.
Choosing the right KPIs for your needs and calculating them accurately can be a challenge. KPIs need to be:
- Accurately measurable
- Relevant to your goals and priorities
Every company will have its own unique combination of perfect KPIs to track for success.
Getting Help With Your Company’s KPIs
If you’re ready to start using human resources key performance indicators to improve your business, contact the experts today.
Let Solvo help you create the systems and import the solutions you need to track and act on 2020’s most essential KPI trends.