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Take care of your people and protect your business

Have you ever wondered if your recruiting efforts are cost-effective? Perhaps you want to know if a new rewards program is reducing employee turnover or a training program is increasing employee productivity. Human capital metrics, also known as HR metrics, help employers make decisions by tracking operational measures and evaluating business success.

What Are Human Capital Metrics?

Human capital metrics (or HR metrics) are the numbers and data that human resources departments should track in order to inform their decision making. HR metrics allow companies to understand their efficiency with human capital, the happiness and engagement of employees, their blindspots in diversity, and so much more.

Why Are Human Capital Metrics Important?

Measuring the effectiveness of HR programs is critical to business success. In some organizations, the expenditures for human capital are their largest business expense. Measuring, benchmarking, and analyzing these metrics help companies improve performance and minimize losses. Let’s examine these benefits more closely.

  • Illuminating trends. Human capital metrics help companies see trends that may not be noticeable in the early stages. For example, slight upticks in absenteeism can be costly, but the company leadership may not have visibility into this trend until it has become a bigger problem. Companies that measure absenteeism, especially by department, can become aware of emerging trends and employ solutions quickly.
  • Impacting business decisions. Companies may execute a strategy only to see it isn’t as successful as they expected. By collecting and using data, these strategic plans can be adjusted before additional resources are wasted. Examples may include training programs that aren’t delivering desired results or recruiting programs that are not providing expected value.
  • Benchmarking. Companies can compare their metrics with those of other companies, both competitors and those in similar industries, to determine how successful their programs are and if further analysis is needed. If a company compares favorably to other companies in a particular metric, that information can strengthen the commitment to the company’s investment in supporting programs.
  • Improving productivity and strengthening the bottom line. Ultimately, companies need to be successful in order to survive. Measuring performance can improve productivity and help companies set and accomplish goals.

The Most Important Metrics to Track

While there are hundreds of metrics that can be measured, here are a few that are most commonly used.

Employee Turnover

Turnover metrics give insight into how many employees leave an organization over a given time period, usually annually. This metric can further be divided into voluntary or involuntary turnover, calculated by the manager or by the department and sorted by employee tenure.

A general employee turnover calculation divides the number of employees who leave by the average number of employees during that time period. Multiplying this by 100 gives a percentage.

New Hire Turnover Rate

This metric is typically used to track what percentage of your new employees leave within their first 90 days of employment. Take the total number of new hires that leave within 90 days and divide it by the number of total hires made in that same period. Keeping this number low will have a positive impact on your business.

Retention Rate

The opposite of turnover rate. This is the rate at which employees choose to stay at your company each year. Calculate this number by taking the number of employees who remained with your company and dividing it by your average employee count.

Time to Hire/Time to Fill

Time to hire helps companies evaluate recruiting efficiency and measures the time from a candidate’s initial application to acceptance of a job offer. A long time to hire measure may indicate inefficient HR processes and decreased candidate satisfaction.

The time to hire metric is calculated by subtracting the number of days from the date the candidate accepts a position from the date the candidate enters the applicant pipeline.

Time to fill is a broader measure looking at how long it takes to fill a position from the date a job is posted until the date an offer is accepted. This metric is especially helpful when predicting and planning recruitment efforts.

Offer Acceptance Rate

Not every candidate will accept a job offer. To get an idea of how likely candidates will be to accept an offer, start tracking offer acceptance rate by dividing the number of offers accepted by the total number of offers made. If your company has an acceptance rate below 80%, it might be a sign that your offers are not competitive in the marketplace.

Cost per Hire

It’s important to understand the real financial impact of making a new hire. This number should include all of the costs related to posting the job, the recruiting effort, the time interviewing candidates, and the onboarding effort.

Time to Productivity

This metric tracks how long it takes for new hires to reach full productivity. It can be a little tricky to measure, but with the help of department heads and managers, it can definitely be done. It’s important to know how long it will take for an employee to ramp up and begin contributing after they are hired. This will likely change depending on the position or department, but will help you better forecast employment needs in the future.

Revenue Per Employee

Revenue per employee helps organizations understand the efficiency of the organization and the quality of employees. Across industries, the average number varies. It’s a good benchmark number for employers to use.

The revenue per employee calculation is measured by dividing the total revenue of the organization by the total number of employees.

Absenteeism

Absenteeism rates provide insights into employee dissatisfaction and can predict future turnover. This is a common benchmark for companies to watch and can be calculated on a companywide, department, or individual basis.

The absenteeism metric is calculated by dividing the total number of absenteeism days (or hours) by the number of available days (or hours) in the measurement period. The measurement period can be monthly, annually, or any time period that is significant to the company.

Employee Satisfaction

This can be measured in a variety of ways. There are eNPS (employee Net Promoter Score) surveys that can be administered and analyzed, but there are also simple pulse surveys and questionnaires that you can send employees on a monthly basis to judge satisfaction regarding their job, manager, the overall workplace environment, and more.

Employee Engagement

In a similar vein to employee satisfaction, employee engagement surveys focus on how engaged an employee is at work. They might be happy with their benefits, pay, and co-workers, but unless they’re engaged in their job, their performance will dip and they might not stay at your company long term.

Basic Human Capital Metrics to Track

Besides the metrics listed above, here are some others that provide important insights to your company’s leadership. While these numbers are more simple to track, and don’t require as many calculations, they can still give you a good sense of where your business is at.

  • Number of open jobs. You should always know how many jobs are currently available, which jobs the company will soon be hiring for, and the basic costs your company incurs with each new opening.
  • Headcount. This is the total number of employees who are currently employed at the company. You’ll also want to also break this number down by department and location.
  • Demographic reports. These reports include ratios of male-to-female employees, ethnicity and diversity statistics, education levels, and even length of tenure.
  • Salary reports. To avoid contributing to gender or race wage gaps you should monitor the salaries being paid at your organization. Break salary information down by job, gender, and race/ethnicity. Ensure that people who are doing the same job and have similar tenure and titles are being paid evenly.
  • Time-off reports. Whether it’s vacation time, sick leave, maternity leave, or something else, track it. This is not only useful to understand who might be taking a little too much vacation, but it’s also helpful to highlight employees who might benefit from more time away from the office. Additionally, if your company uses limited, accrual-based time-off policies, you’ll need to keep track of the PTO balances for each employee who is eligible for paid time away from work.

Ultimately it’s important to consider the metrics of most importance to your organization and then determine how best to measure them. A famous business management consultant, Peter Drucker, is known for stating that “what’s measured improves.”

Best Practices for Using Human Capital Metrics

If you decide you want to use human capital metrics to improve your organization, here are some suggestions.

Start Slowly

It will be overwhelming and counterproductive to implement more than a few metrics at first. Consider the most important organizational goals and create metrics that will illuminate progress toward them. Ignore metrics that won’t be actionable for your company as they will waste resources. Once you are comfortable tracking and using a few metrics, you’ll be more successful in adding to them over time.

Select and Use the Right Tools

Many human capital management software tools are available to companies. You may already have software systems in place that can measure what you need. For example, an applicant tracking system should have a dashboard that shows time to fill metrics by position. Your payroll program may show data reflecting absenteeism and turnover. Don’t purchase new tools and programs to track metrics until you understand what you have already. When you are ready to invest in new software tools, make sure they will calculate the metrics that are important to your organization.

Seek Input From Stakeholders

Members of the executive leadership teams should be involved in determining which metrics are important for your company. Regularly review together and analyze the metrics you are tracking.

Benchmark

Use industry standards to compare your metrics with those of top-performing organizations. Look for areas where your organization can improve.

Share Metrics With Employees

Employees may be interested in what you are measuring and can participate in process improvements as indicated by them. Employee involvement is a great way to strengthen their commitment to the organization. Celebrate successes together as metrics reveal progress toward company goals.

The Most Important Thing Is to Start

There’s a good chance that you’re already tracking some or many of these metrics. If so, keep it up! You’re doing great. If you haven’t started seriously tracking HR metrics then now is the time to start. Take a second and think about which of these metrics would be most important to you, your business, and your CEO. Make a list of three or five metrics that you think you should start tracking right away. Once you know what you’re going to track, make a plan for how you’ll do it.

If you haven’t invested in HR software already, that might be a great place to start. Software products have many of these tools or metrics built into their platform, and you can quickly generate reports on things like headcount, time to hire, time-off reports, and so much more.

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 Human Capital Metrics

While human capital metrics and human capital analytics are often used interchangeably, they are closely intertwined but separate concepts. Human capital metrics is measuring data. Human capital analytics is interpreting and analyzing the data. Both are important.
The most commonly used human capital metrics will vary by organization. At the most basic level, workforce headcount (aka the number of employees in the organization) is probably the most fundamental of all metrics.

Carol Eliason Nibley, SPHR, GPHR and Principal Consultant at PeopleServe, has more than 25 years of experience in human resources, most recently serving as Vice President of Human Resources for a technology company in Utah County. Carol has taught HR certificate courses at Mountainland Technical College and in other settings for more than 12 years.

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