This guide outlines how HR metrics provide the information needed for tracking and business decisions.
Decisions on people strategy have traditionally been based on gut instinct. When you’re a small business and you know all your people well, the right course of action often feels obvious. But as you grow, hiring more people introduces more complexity, more unpredictability, more risk.
How can we be sure that the decisions we make will have the intended consequences? How can we protect our company culture, make sure we’re hiring the right type of people, and check that we’re doing everything we can to make them feel like they belong? How can we spot potential workforce challenges before they grow into existential problems?
Gut instinct can only take you so far, but the guidance you need is already present in your HR data. “What gets measured gets managed,” goes the famous Peter Drucker quote. By tracking and analysing key people metrics, you can uncover a trove of fact-based insights to inform your workforce decision making.
What are HR metrics?
HR metrics are the key numbers that human resources professionals track and report on, like headcount or absence. They comprise the data you need to create an accurate picture of the health, direction, and workforce issues in your business.
Analysed against one another, HR metrics allow diagnosis of potential equal pay and other problems quickly – before they become emergencies – and enable HR professionals and business leaders to devise fact-based solutions. Crucially, by tracking HR metrics, businesses can measure the impact of the initiatives they put in place.
What are the barriers to effective use of HR metrics?
There are a number of challenges to the effective use of metrics in HR, but by far the biggest and most common problem is data quality. A lack of data skills and best practice in HR often results in poor quality, incomplete and unreliable data.
Access to information is also a common barrier. Data that sits in siloes on incompatible systems can’t be combined without the prohibitive time investment of a manual data transfer – which introduces a further risk of mistakes and inaccuracies creeping in. So, if your data isn’t completely reliable, why bother?
It’s an inconvenient but not insurmountable problem. The fact is, very few business datasets are 100% accurate. Incomplete data can still be used to indicate insight. It’s always up to the individual business as to how large a margin of error they are willing to tolerate, but some insight is better than none.
A single source of truth
Bringing all your HR data together in a single system removes many of the barriers to effective use of HR metrics. Modern HR software, delivered via the cloud, often comes pre-loaded with automated reports that make it a task of moments rather than hours to uncover the insight you need to make smart people decisions. And self-service options spread the administrative burden across your workforce by empowering employees to take ownership of their own personal data on the system.
What HR metrics you should be measuring?
Headcount: The most basic HR metric. We work with many medium-sized businesses and it’s worrying how many aren’t able to immediately answer the simple question, ‘how many people work for you?’ Headcount is the number of people in your employment at any given time. This includes full time, part time, and casual employees.
Demographics: Tracking the demographic makeup of your workforce can allow you to accurately report on issues like gender pay gap and understand where your diversity efforts should be targeted. Are you complaint with the relevant equality regulations? What’s the age range of your workforce? How many of your employees are nearing retirement age?
To answer important questions like these, you need to track information like age, gender, ethnicity, education, length of service, location of residence, which can all help you build a more accurate picture of the identities and personas that make up your workforce.
Absence: Sometimes absence can be attributable to something as simple as a hot summer’s day or a national sporting event. But trends in absence are often indicative of the engagement and company culture within your business, and spikes across an organisation or in specific teams or departments always warrant further investigation.
Turnover: It’s costly and time consuming to hire new people, so an increasing turnover rate could spell big trouble if it’s not identified early. Your percentage turnover rate is the number of employees who leave the company, divided by the total number of employees.
Turnover metrics can tell you a lot about what’s going on in your business. Do the people who leave have anything in common? Comparing turnover data against other metrics can often suggest answers. It’s useful to break it down by voluntary vs involuntary turnover, by department or line manager, or by length of service. For instance, if you have an unusually high turnover rate among new starters, it indicates something is going wrong with your onboarding process, or perhaps you’re not recruiting the right people.
Turnover drivers: Exit interviews are one of the most insightful and underused HR tactics. Why are people leaving? Was it a bad onboarding experience? An unpleasant company culture? Did they get on with their line manager? Or was the job different to what they were expecting? It might not be pleasant to hear, but that doesn’t mean it’s not rich insight. Leavers have nothing to lose by being honest with you on their way out of the door. If you don’t ask, you’ll never know.
Retention: Because happy employees are less likely to leave, retention rate is often seen as a good indicator of workforce wellbeing and company culture. Your percentage retention rate is calculated by taking the total number of employees who chose to remain with the organisation over a given time period, divided by the total number of employees over that period.
Time and cost to hire: What’s the average amount of time between posting a vacancy and making a hire? This can tell you a lot when you look at it for specific job types. If individuals with certain skills or experience typically take longer to hire, that should impact the decisions you make around resource planning.
And how much does it cost, on average, to hire a new employee? This is a vital budgeting metric when you’re looking at short and long-term resourcing strategy and trends in this metric are a key indication of recruiting effectiveness.
Employee satisfaction: Employees who are satisfied, who buy into the values of their employer, who feel like their employer looks out for their wellbeing and cares for them as a person – these are the best employees. Employee satisfaction is linked to a massive range of benefits, both for the individual and the employer – increased productivity, better customer satisfaction, lower staff turnover. The most popular way to calculate this is through eNPS, which asks a simple question, ‘How likely are you to recommend this company to your friends and family?’.
Revenue and profit per employee: These metrics show you the overall efficiency and effectiveness of your business, the quality and productivity of your employees. To calculate, take the total revenue or profit per employee, divide either by the total number of employees.
Smart business will keep a close eye on revenue and profit per employee and be aware of trends over time. If your average employee salary moves closer to your revenue per employee, you need to understand why.
Use data to tell stories
Remember, normal people do not communicate in spreadsheets. Data on its own may not provoke action from busy people who don’t have time to assimilate what a spreadsheet report is telling them.
Use data visualisations as part of a story that emphasises the point you’re trying to convey. Leaders and decision makers are more likely to grasp the meaning and value of your data if it’s presented in a narrative. Key insights should be clearly displayed, with cause-and-effect relationships highlighted as part of the overall story.
XCD is a cloud-based HR software solution that comes with over 150 fully customisable reports pre-loaded. Powered by Salesforce, XCD eliminates up to 50% of the administrative workload from HR reporting. Find out more about XCD reporting and analytics here.
