The 21 Most Important HR Metrics

 

HR needs data insights more than ever. Now, as organizations look closely at the future of work after COVID - at the unique challenges of shifting to new work and talent models - HR metrics are an important tool in planning. In a recent survey of 500 business leaders, over 80% said they could not have operated effectively during the pandemic without HR tech, including data analytics.

Your company is sitting on a great deal of HR data. How do you measure it? And which of those metrics matter most? For companies that are about to get started, we provide an overview of 21 most important HR metrics that can help your strategy.

Of course, there are tons of other metrics that you could analyze (e.g., all the recruitment metrics, revenue or productivity related metrics, etc.). We would love to hear your ideas.

The State of D&I

HR metrics are quantifiable measurements that organizations use to track and assess the performance of their HR initiatives. They become an important basis for budgeting, forecasting and workplace programs. HR metrics range from the straightforward, like headcount, to the more complex and variable like the build/buy rate.

Which HR Metrics Matter Most?

There's so much HR data and so many ways to measure it that it's tempting to want to measure everything. But, that just wastes time. The HR metrics that matter most are the ones that will help your company achieve its goals. As such, each company will have its own priority list.
 
Start by defining what the company's goals are and determine how HR supports these goals. Then, you can identify the metrics that provide the insights necessary to provide that support.

21 Most Important HR Metrics

Here are the most important HR metrics to consider tracking. Remember, your organization may only need to focus on some of these.

1. Employee Headcount

The number of employees in whatever unit you are measuring: e.g., department, team or the whole company.

Why measure it?

Headcount is a basic metric that is used to determine many others, like turnover rate, demographics and all 'per employee' based metrics.

2. Full-Time Equivalent (FTE)

A standardized way to measure the number of hours worked weekly by one employee on a full-time basis. Part-time employees are measured as a percentage of FTE.

Why measure it?

FTE measurement helps with budget forecasting and planning. It's key to calculating financial performance metrics such as labor cost per FTE or HR cost per FTE. And it's a critical part of project planning. After estimating the number of hours it will take to complete a project, companies know how many FTEs will be needed.

3. Demographics

The distinct characteristics of your employees, such as age, gender, educational level, geographic location, family status, seniority in the organization, or length of service. Laws in each country dictate which demographic data can be collected by employers, so this list will vary by company and/or location.

Why measure it?

Demographic data enables companies to understand their workforce better for HR planning purposes, particularly for succession planning and promoting diversity and inclusion. With these insights, they can create strategies for recruitment, engagement, promotion and many other areas. Diverse teams performs better financially, which is alone reason enough to track demographics.

4. Number of Hires

The number of employees hired in a designated time period. This can be further refined to spot differences across the organization, to find seasonality patters and to compare new hires with the current workforce. Like headcount, it's a basic metric that is used to determine numerous others.

Why measure it?

Number of hires is typically used in HR performance and revenue-related metrics. For instance, dividing the total recruitment costs by number of hires yields the average cost per hire, an important metric that aids in HR budgeting. Your company can also gain insights on talent acquisition performance by checking the number of hires per team member. Isolate those team members with higher-than average or lower-than-average rates to learn what your team should be doing more or less of.

5. Diversity

This refers to any number of metrics that show the level of demographic diversity in a company. Because diversity has many different dimensions (including age, gender, ethnicity and more), companies must decide what diversity means to them and how they will measure its success. Subsequently, they should connect insights with data on equity and inclusion (often measured via surveys).

Why measure it?

Diversity is typically measured in hiring, promotions, leadership roles, turnover and other areas. These insights then help a company set and tract diversity targets, diversity program goals, as well as assigning accountability.

6. Failed hires

Also called ‘new hire turnover’, this measures the percentage of new hires who leave within the first year (or any other set period).

Why measure it?

While this metric doesn’t explain why hires leave, it is a useful indicator of how effective recruitment and onboarding strategies are. The higher the number, the more likely it is that something needs to be improved because failed hires are costly to the business.

7. Time since last promotion raise

The average time, in months, between pay raises or promotions. This can be shown on the individual employee level or for a larger group.

Why measure it?

If high potential employees are leaving your company, two of the reasons may be lack of opportunities to move up or earn more, so it is an important metric to track. It can show discrepancies between teams and departments (some promoting faster than others). And it is a useful metric for studying the impact of diversity initiatives at your company. For example, you can look at the time since the last promotion or raise among men and women in the same job category to spot gaps.

8. Source of Hire

The percentage of hires that entered your recruiting pipeline through each recruiting channel (e.g., referral, job board, direct sourcing, social media pages).

Why measure it?

Source of hire reveals which channels are most effective. What’s ‘effective’ can be determined in numerous ways, giving insights that can be used to achieve many different goals.

For one, this metric can show top-level cost effectiveness: the channels that bring in the most hires while costing the least. Or it can be used to drill down a level to show which channels result in the lowest number of failed hires or the highest number of high-performers. Furthermore, source of hire can be an important metric in meeting your company’s diversity goals by showing which channels effectively bring in candidates with the diversity profile you are looking for.

9. Employee Net Promoter Score (eNPS)

A score based on a survey asking employees how employees would recommend your company as a good place to work on a scale of 1-10.

Why measure it?

Taking this one-question survey quarterly tells you something about the level of employee satisfaction. A lower score (or a dropping score over time), indicates your company may face problems with employee retention, productivity, and company culture.

10. Employee Engagement

Statistics usually based on short pulse surveys regularly sent to employees with questions covering how they feel about their work, their workplace, and their management.

Why measure it?

While eNPS is a good measure of satisfaction, employee engagement metrics measure something else. An employee can be satisfied with her job but not necessarily engaged, meaning enthusiastic about work and the success of the company. Both satisfaction and engagement are important to having a happy, productive workforce, but they are different and should be measured separately.

11. Voluntary Turnover Rate

The percentage of employees who leave an organization voluntarily in a specific period of time.

Why measure it?

There are many reasons for voluntary turnover. Depending on your industry, a high turnover rate may be quite normal. Nevertheless, turnover is costly, and often involves losing the best employees. Companies should set a benchmark for acceptable voluntary turnover and track this metric carefully. It can also be one of the metrics used to monitor diversity. High rates of voluntary turnover among specific groups (compared to the average rate) can be a red flag.

12. Involuntary Turnover Rate

The percentage of employees who are fired, laid off, or otherwise terminated in a specific period of time.

Why measure it?

While layoffs may be unavoidable due to economic shifts or seasonality, terminations are usually the results of poor performance, non-compliance with laws or company policies, or toxic behavior. This is a useful metric to flag potential trouble at various steps in the employee lifecycle. High involuntary turnover often points to mistakes in hiring – managers may not be looking for skills they really need in candidates, for example. Or it can show a need for better onboarding processes or people management.

13. Retention Rate

In principle, this is the opposite of total turnover rate. It measures the percentage of employees who stay at your company within a specific period of time. Yet there are important distinctions from turnover rate. First, retention rates are typically calculated on an annual basis, whereas turnover rates are often measured monthly or quarterly. More importantly, retention rate does not include new hires within the period being tracked.

Why measure it?

This is an indicator of workforce stability over time. It can also be used to gauge the effectiveness of engagement and retention strategies , such as perks, benefits, employee development, and diversity and inclusion initiatives in a time period being measured. As such, it can be one metric used to decide which strategies are worth investing in and not. Some companies get more granular with this HR metric, looking just at retention rates among high-potentials or other specific groups.

14. Employee Performance

Measurements of performance level based on manager appraisals, 360° degree feedback, self-assessments, or any combination of those.

Why measure it?

This enables companies to evaluate worker efficiency with the goal of improving productivity. It’s key to identifying high-performers to promote and low-performance to support.

15. Training Expenses per Employee

The average annual expenditure on training per employee. This is calculated by dividing the number of employees by your organization’s (or unit’s) total training budget for the year.

Why measure it?

This indicates your company's commitment to developing employees. Needs will vary by business unit, but training is a big driver of employee retention and it deserves to be monitored closely.

16. Absenteeism

The percentage of overall absence days as a percentage of workdays in a designated time period. “Absence” refers to unplanned days away from work. Simply put, these are days that employees don’t show up to work because they are sick, burned out, or disengaged.

Why measure it?

Absenteeism costs money – not just in terms of lost productivity, but also in terms of the longer-term impact on company culture. That’s why it is essential to track. Ideally, your absenteeism rate should be zero, but a certain amount is normal – the U.S. average across all industries, for example, is 3%. A high or rising level of absenteeism is a red flag requiring action. It can signal high levels of stress, toxic management, low employee engagement, among other issues.

17. Reasons for Leaving

Statistics on employees’ reasons for leaving, gathered from surveys and exit interviews. These reasons should be standardized – employees should be presented with the same list of reasons – and applied consistently so that the results are reliable.

Why measure it?

Attrition is normal. It’s also costly and disruptive to productivity. Understanding why employees leave, and having solid statistics on the most common reasons in particular, provide a good basis for planning how to make your workplace more attractive so that attrition stays low.

18. Span of Control

The number of employees managed by a single supervisor. This can be calculated as an average across the organization, or by another unit, such as per manager, organizational layer, employee grade, or organizational unit. Some companies go more granular, measuring direct span (number of direct reports per manager) and indirect span (all the reports to the direct reports, etc.).

Why measure it?

Span of control is used to measure efficiency gains. It is often combined with HR metrics (such as employee engagement rate, turnover rate, retention rate), and revenue KPIs (such as sales metrics), in order to gain insights on how to better manage teams for efficiency. For example, a company can compare the span of control between sales teams in two different countries. If one has a higher span and equally high or better performance, it’s worth discovering why and applying those learnings to other teams.

19. Labor Costs

Labor costs include direct compensation (salary, overtime, bonuses, and commissions) and indirect forms of employee compensation (health programs, paid time off, parental leave, life insurance, retirement fund contributions, stock options, etc.).

Why measure it?

Labor costs are the largest single organizational expense, so measuring it has obvious benefits. It shows how much each additional employee will cost your company. Companies rely on labor costs to project hiring budgets, to price their goods and services (since labor is one part of the production costs), and for site selection.

Understanding your organization's indirect and direct labor costs is also essential to optimizing the return on investment in compensation. Is it more cost-effective to invest in higher salaries and reduce benefits? Or the opposite? HR can only develop these strategies when it knows the true cost of labor.

20. Build vs Buy Rate

The percentage of positions that are filled by external hires versus internal hires (employees who have changed positions in the company). Buying a workforce refers to hiring externally, while building a workforce refers to developing existing employees to fill necessary roles.

Why measure it?

There are budget implications to buying versus building, and this metric supports cost-benefit analyses here. In today’s tight labor market, building (by investing in upskilling existing employees) may be the only option available for some organizations. It’s also shown to increase productivity and retention, both of which boost the bottom line.

Of course, not all companies have the resources to fill the skills gaps with existing employees – sometimes there simply isn’t a good fit. In these cases, they will have to ‘buy’.

21. Relative Salary Position (RSP)

Also known as compa-ratio, this measures the distance between the midpoint of the salary range and the employee’s current salary. An RSP of 1.0 means that the employee is being paid exactly at the midpoint. It is the most common HR metric for examining the placement of an employee’s salary within a range (or pay band). RSP provides a salary benchmark to measure if employees within the same job family are being paid equitably.

Why measure it?

RSP is used to guide decisions about compensation in a company. In a labor shortage, for instance, employers may have to pay new hires above the midpoint. Then, they may need to consider raising salaries of existing employees accordingly in order to avoid higher turnover. It’s also a relevant metric for diversity: Are certain groups being paid equitably? The RSP shows this straight away.

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