Table of Contents

Table of Contents

Take care of your people and protect your business

More and more, business leaders are realizing the importance of Human Resources (HR) departments in creating a thriving organization. While many business leaders are aware of the benefits of HR, they’re unsure of how to measure its effectiveness. In this article, we will discuss the ins and outs of what makes HR impactful, as well as ways to measure and improve the effectiveness of your HR team.

What Is HR Effectiveness?

HR effectiveness is the process of measuring how impactful the activities of an HR department are to the business. A company’s people ops department, no matter how small, plays a major role in the overall success of an organization. For example, a successful recruitment strategy helps route top talent to the company, thereby boosting productivity and leading to increased revenue. Likewise, a dynamic performance management system provides metrics and guidance to employees, helping ensure organizational goals are met.

In this article, we’ll dive deeper into the ins and outs of being an effective HR professional and brainstorm ways to measure success.

Find out how HR Software can improve the effectiveness of your HR department

Key Indicators of HR Effectiveness

There are many indicators of an impactful HR department. While every company measures the success of its people ops team differently, here are some of the biggest indicators your HR team is making an impact.

  • Happy, engaged employees. If the vast majority of your employees are engaged, this is a huge indicator your HR department is effective. While many factors influence employee happiness, HR initiatives such as team-building activities play a significant role in crafting a great employee experience.
  • Communicative managers. One way to tell if your HR staff are effective is if managers readily come to them for assistance. When managers are open with their HR representative, this makes addressing workplace challenges easier, helping to mitigate small issues before they become big problems.
  • High retention rates. If employees tend to stay with your company for an extended period, your HR team is succeeding in cultivating the company’s culture. It also indicates your hiring managers have been trained to recognize good culture fits when interviewing employees, and that pre-hire screening processes are working.
  • A strong employer brand. In today’s competitive job market, a powerful employer brand is paramount to success. Your organization’s image is a huge factor in recruitment, and plays a big role in attracting top talent to your firm. High ratings on sites such as Glassdoor and a robust onboarding program are indicators your HR team is killing it!
  • Airtight HR compliance. If your company has the required labor law posters on display, every manager knows the dos and don’ts of interviewing, and you pass audits with flying colors, your HR team is doing well at ensuring your organization remains compliant with laws, guidelines, and regulations.
  • Clearly defined systems and processes. When your HR team has a process for everything, this signals they are navigating crucial activities such as recruitment or workplace investigations carefully and with great attention to detail.

Six Key Characteristics of an Effective HR Professional

The human resources field is a diverse one, and while many things make an HR professional successful, there are several traits they must embody to be effective in their role.

Dependability

Above all, an HR professional must be dependable. Going hand in hand with responsiveness, HR professionals are expected to be reliable and follow through on assignments. Being a “go to” in times of need and living up to your commitments establishes a reputation as someone dependable.

Visibility

One quick way to diminish your success as an HR professional is to stay shut up in your office, only being seen when there is a problem. Being visible is crucial to success, and can go a long way in building relationships with the people you support. (Having a presence can also help shed the “grim reaper” persona that follows many HR professionals.)

Responsiveness

No one likes asking for something and having to wait what feels like ages for a response. Requests sent to HR are often time sensitive, such as those relating to paychecks or FMLA. An effective HR professional strives to provide responses in a reasonable amount of time.

Communication Skills

An HR professional must be able to effectively relay information to others, from emails to employees to coaching sessions with managers. In addition, they must be able to articulate ideas and clearly explain complex information.

Impactful Leadership

Leadership isn’t just for CEOs or managers! HR professional Jonathan H. Westover gives some advice for being a strong HR leader: “If we are still stuck in a transactional or compliance-based HR mindset, chances are we won’t be viewed by others in the organization (or even ourselves) as an impactful leader. We need to adopt a transformational and strategic HR mindset, earnestly advocate for the people in the company through speaking the language of business . . . and make ourselves indispensable to senior leadership.” 

Human Resources Expertise

In order to be effective, an HR professional must have a strong understanding of the HR function. While the specific knowledge needed varies from position to position, an understanding of recruitment, onboarding, retention, learning and development, engagement, performance management, compensation and benefits, employment law, and separation is critical to being a successful HR generalist.

Empathy

Last, but certainly not least, an HR professional must possess empathy. Empathy is the ability to place yourself into the shoes of someone else in order to better understand how they feel about a given situation. HR practitioners use this skill in a variety of ways and settings, from communications about benefits plans to termination meetings.

How to Measure HR Effectiveness

Now that you have an idea of how to be effective, let’s go over some ways in which you can measure your HR success.

One surefire way to measure HR effectiveness at your organization is through the analysis of data—specifically, HR-related metrics. Below you’ll find some key metrics you can measure to gauge the effectiveness of your efforts, as well as the formulas by which to measure them.

Revenue per Employee

Revenue per Employee measures, on average, how much revenue each employee brings in. You’ll want to calculate using a 12-month period. This metric is one of the most universal, so it’s useful if you want to compare your company to others in the same industry.

Formula: Total revenue / Total # of employees

Profit per Employee

Profit per Employee is similar to Revenue per Employee, but you use the net income, or profit. This metric is sometimes referred to as Net Income per Employee. Using a 12-month period to measure this metric, you’ll be able to compare your company to others in your industry. 

Formula: Total profit / Total # of employees

Overtime per Employee 

Are your employees working too many overtime hours? Find out what percentage of the total hours worked consists of overtime using this simple calculation.

Formula: Hours of overtime / Total # of hours (contractual hours + overtime) per period

Overtime Expense per Period

After calculating overtime hours worked, you may want to get a clearer picture of the costs associated with those hours by calculating how much overtime pay employees receive during a given pay period. 

Formula: Overtime pay / Total pay per period

Labor Cost per Employee 

The labor cost is the sum of all the wages that employees earn, plus the cost of employee benefits and payroll taxes the employer pays. Simply divide the total labor cost by the number of employees to see, on average, how much it costs to employ one person at your company.

Formula: Total labor cost / Total # of employees

Employee Absence Rate

To measure how often employees are missing work (Employee Absence Rate), choose a given time period to look at. Then, divide the number of absences during that period by the number of working days. Note that it will be more helpful to measure unexcused and excused absences separately. Unexcused absences are usually more harmful to productivity, and HR can take action to reduce them. 

Formula: # Absence days / Total # of working days

Absence Rate per Manager or Department

Similar to the previous metric, the following formula sheds light on when employees are missing work. The difference is that it zooms in on a more specific segment of the organization, like a specific department or all the direct reports of a certain manager.

Formula: # Absence days per unit / Total # of working days per unit

Training Expenses per Employee

How much does it cost to train one employee? To calculate, just find your total training expenses for a given period and divide by number of employees.

Formula: Training expenses / # Employees

Voluntary Turnover Rate

The term voluntary turnover refers to employees who choose to leave the company. High levels of voluntary turnover are often a sign that there are serious problems at a company: widespread job dissatisfaction, poor compensation, bad management, or a lack of flexibility. After measuring voluntary turnover, look for issues that may be causing employees to leave and work to remedy those issues.

Formula: # Voluntary terminations during period / # Employees at the beginning of period

Involuntary Turnover Rate

The term involuntary turnover refers to employees who are terminated by the company, not through their own choice. It’s often caused by poor employee performance or consistent violations of company policy, though sometimes businesses let people go for financial reasons. 

Formula: # Involuntary terminations during period / # Employees at the beginning of the period

Total Turnover Rate

This metric is similar to the two previous ones, but it doesn’t distinguish between types of turnover. Total Turnover Rate will show you how many people left your organization during a given period.

Formula: # Terminations during period / # Employees at the beginning of period

Turnover Rate per Manager or Department

Does it seem like a certain manager or department just can’t hold onto employees? See if that’s true by using this metric. Then, work to find and remedy the problem.

Formula: # Terminations per unit during period / # Employees in the unit at the beginning of period

Promotion Rate

Just as the name of this metric implies, it will allow you to see how many employees are promoted within a given period (usually one year). 

Formula: # Employees promoted / Total # of employees

Additional Metrics

For maximum impact, report on metrics regularly. You can find more HR metrics on the Academy to Innovate HR’s cheat sheet.

Employee Surveys

Ok, so this isn’t a metric. But when done correctly, surveys can be a great way to measure HR effectiveness.

Surveys are best used sparingly, so try spacing them out for the best response. You can utilize this tool to capture feedback on any aspect of HR, but for this example, we’ll use questions aimed at capturing general effectiveness. You can ask questions such as:

  • On a scale of 1-5, how supportive is your HR representative?
  • On a scale of 1-5, how responsive is your HR representative?
  • On a scale of 1-5, how courteous and respectful is your HR representative?
  • On a scale of 1-5, how visible is your HR representative?
  • What could HR do to better support you or be more effective?

Methods to Improve HR Effectiveness

What should you do if you want to make HR more impactful at your company? Here are some ways to increase your HR team’s effectiveness.

  • Improve organizational communication. Establish systems and practices for relaying HR information and policy changes to employees. Ideally, this should take a “waterfall” approach, starting with senior leadership, then to managers, etc.
  • Provide regular feedback. This works both ways, as feedback should be provided to employees to increase their success, and feedback should be provided to HR to increase its effectiveness. Some ways to do this include surveys, town hall meetings, and focus groups.
  • Consult with business leaders. Ultimately, HR is a support function. Therefore, it’s critical HR objectives align with organizational and department goals. Work to ensure your HR staff have regular meetings with business leaders to ensure everyone is on the same page.
  • Analyze data. Those HR metrics we talked about before? Make sure they count! Report on select metrics regularly to gauge areas of improvement and request feedback.

How Effective HR Impacts the Bottom Line

In this article, we’ve discussed the ins and outs of being an effective HR professional. Now let’s see how some HR teams have succeeded in impacting the bottom line in real-world organizations, and how metrics helped them document and communicate that to leadership.

Experian and Turnover

Credit Bureau Experian was struggling with employee attrition. In fact, turnover rates were between 3% and 4% higher than the company wanted. Their HR team was able to build a predictive model that analyzed 200 attributes, such as team size, manager performance, and employee’s length of commute. In doing so, they were able to predict each employee’s flight risk. These insights (combined with good management practices) reportedly resulted in a drop in attrition of 2-3% over 18 months, thereby saving the company an estimated $8M-$10M.

Clarks and Employee Satisfaction

Footwear retailer Clarks Shoes performed an analysis of their compensation and benefits packages for employees. By surveying what benefits employees preferred, Clarks identified benefits that could be cut and implemented cheaper, more popular perks, such as a professional development stipend for employees. The result? Their employee satisfaction increased by around 15%, and they saved thousands of dollars.

Intracorp and Productivity

Home-building company Intracorp wanted to train their employees to be more productive. They did this by selecting the highest priority development areas, then tracking processes to visualize how employees performed in these areas. This enabled them to measure a decreased cost of lost productivity. Using this measurement, Intracorp was able to improve overall productivity by 10%. They also found that for every $1 spent on training, $3.20 would be recovered in lost productivity. In addition, after implementing weekly, live, hour-long virtual content sessions aimed at helping grow the skill set of their employees, Intracorp’s retention rates increased by 128%!

How Eddy Can Improve Your HR Processes

Eddy is an all-in-one HR software program designed to lighten the administrative load of HR professionals and small business owners. When it comes to effective HR, there are lots of things that require a human touch—but there are plenty of things that benefit from being automated. 

For example, Eddy Hire makes the hiring process easier by streamlining communication, organizing candidate information in a customizable hiring pipeline, and allowing the hiring team to consolidate their feedback into one dashboard.

Eddy People keeps employee information and documents secure and organized, sets new hires up for a smooth onboarding experience, makes leave management a breeze, and more.

Eddy Payroll sorts through the minutiae of tax documents, state compliance laws, and employee paychecks so HR can focus their attention on more important things.

Take care of your people and protect your business

Track essential employee data, digitize your manual HR processes, and improve your employee experience with Eddy People.

Questions You’ve Asked Us About HR Effectiveness

Key Performance Indicators, or KPIs, measure HR success in a variety of areas. While these vary by organization and function, the most common KPIs center around recruitment, training, compliance, retention, employee relations, productivity, employer branding, and employee experience.
HR effectiveness means different things at different companies. Generally speaking, not embodying the above characteristics of an effective HR professional typically impacts HRs success. In addition, failing to track metrics, KPIs, or solicit feedback on performance can greatly hinder HR’s ability to be effective.

Preston is a senior talent partner with experience building and leading recruiting functions for healthcare, education, and tech companies. Presently, he is the head of talent acquisition at Parallel Learning.

Preston holds several certifications. In addition to sourcing and recruiting, Preston specializes in talent strategy, candidate experience, hiring process design, recruitment marketing, and onboarding.

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