There’s been a lot of change in the workplace in recent years, from the acceleration of digital transformation and greater awareness of the need for inclusion to the changes wrought by the COVID-19 pandemic.
With so many businesses pivoting and adjusting to new ways of working, and with job candidates becoming more selective, it’s a good time to review your HR key performance indicators (KPIs). You may find that these metrics need adjusting to track your current goals, or you may find that you can use them in new ways to measure specific initiatives.
An effective HR strategy is proactive and delivers the tools, environment, structure and resources your employees need to achieve company goals. With this in mind, your strategy needs to help your business:
- Identify and hire the right people
- Manage and grow those people in the right way
- Develop each role to achieve your business strategy
- Build a company culture that supports your customer promise
But, how can you know if your strategy is truly working? How do you know if it’s affecting your company’s objectives?
It starts with quantifying, measuring and tracking business outcomes that are influenced by your HR practices. First, however, you must determine your business’s HR KPIs.
A KPI is a quantifiable measure used to evaluate how effective a company is in achieving key business objectives. This doesn’t mean that everything you can measure is a KPI in HR. Only metrics that have a direct link to the organizational strategy can be called KPIs.
What are HR KPIs?
KPIs provide awareness of how you’re progressing toward your organization’s short- and long-term goals. The KPIs that you select should be directly linked to your overall objectives, goals and strategies.
Like other KPIs, HR KPIs measure specific areas of your business using quantifiable, specific metrics. They are used to see how HR is contributing to the rest of the organization. This means that a KPI in HR measures how successful HR is in realizing the organization’s HR strategy and how the HR strategy follows the organizational strategy.
In other words, HR KPIs mirror organizational performance for HR, as they are defined based on the HR outcomes that are relevant to achieve business goals.
By constantly measuring and tracking these metrics, you can gauge whether your HR practices are proactively making a positive impact on your business’s profitability.
When you can’t interact routinely with your team in person – or pop over to their desks for a quick, casual check-in – choosing the right KPIs can also help you track engagement.
For many companies, the following examples are core HR KPIs:
- Turnover rate (voluntary, involuntary, unwanted by role, department and manager)
- Retention of talent
- Time to fill (or the length of the entire hiring process)
- Employee productivity
There’s no single set of metrics that fits every organization. Beware of long lists of HR KPIs you may find on the internet – they will only encourage you to begin the bad habit of measuring for measurement’s sake.
Instead, you need the right three or four HR KPIs to determine if you’re successful (just like successful businesses only focus on three or four strategic goals at one time). You can also apply KPIs to specific needs your organization may have, like diversity enhancement, hiring and employee retention.
Assessing and improving hiring practices with KPIs
When hiring the right talent is a challenge, KPIs can help you identify any issues in your recruitment and hiring processes. You might choose to measure:
- Cost per apply and cost per hire
- Time to hire (the length of time between when someone enters the talent pipeline to when they accept an employment offer)
- Number of qualified candidates (may include internal versus external candidates)
- Quality of hire
These KPIs confirm what efforts are working, what areas of your recruitment need improvement and how recruitment impacts other components of the human capital strategy.
Measuring employee satisfaction and retention
It’s always been true that employee satisfaction drives engagement, motivation and retention. However, the factors that affect engagement and motivation may be different now than they were pre-COVID-19.
To get a sense of how satisfied your employees are now, you can look at:
- Duration in a position
- Dismissal rate
- Employee satisfaction index
- Employee engagement index
- Internal net promoter scores
You can use this data to make some correlations with employee satisfaction and retention by seeing which of your employees stay, how long they stay, and when they choose to leave. You can also be transparent about what you’re measuring and use the KPIs to help individual employees and teams see how their work contributes to the big picture.
HR KPIs in action
Two of the most acknowledged drivers of organizational success are employee engagement and leadership alignment.
Multiple research studies have proven that employee engagement has a direct impact on profitability and revenue generation. It’s a pretty simple equation: Engaged employees are more productive. More productive employees equal more opportunity for revenue generation.
In addition, it’s critical that your leadership team is consistently moving your organization in the same direction. If each of your leaders has a different goal in mind, they may be misleading their employees and spending time and money on unnecessary projects.
Let’s look at an example of a company that is experiencing fast growth but has high turnover among the leadership team and low employee engagement.
If the company’s business goal is profitable double-digit growth, the leadership team will need to step back and identify the organization’s critical success factors that will drive the desired level of growth. Some may be able to identify key drivers based on their experience; others may need to rely on researching best practices.
Once the leadership team identifies the short- and long-term goals that they need to achieve to drive double-digit growth, they will outline the strategies that are necessary to achieve those goals. For example, they may choose to develop goals focused on reducing operating costs related to productivity and the cost of turnover.
Measurable goals are a must for HR metrics
The difference between average-performing and high-performing organizations is often as simple as having goals that are measurable. Keep in mind that KPIs are a mechanism that allows an organization to monitor the effectiveness of their strategies.
That said, there should be a clear connection between:
- The objective
- The goals that will need to be accomplished to achieve that objective
- Strategies that will be used to meet those goals
- The metrics that prove the effectiveness of your organization’s efforts toward its primary objective
To get a better understanding of how this all works, let’s go back to our example of the company that wants to achieve double-digit growth. The outline below features the key objective as well as the related goals, strategies and KPIs that they might use to support their initiatives.
Objective
Achieve double-digit growth
Goals
- Retain the organization’s top 10% of performers
- Increase employee engagement by 15%
- Reduce first-year voluntary turnover by 12%
- Identify successors for all leadership positions
Strategies
- Create a talent review process
- Implement a high-potential program
- Identify and evaluate critical drivers of employee engagement
- Begin exit interview process
- Establish leadership training curriculum focused on strategy, financials and problem-solving
KPIs
- Monthly voluntary turnover rate
- Internal promotion rate
- First-year retention rate
- Annual employee engagement score
While creating the list of key performance indicators is challenging, collecting the data can be an even greater barrier for many.
First, you need to establish a baseline measurement for each KPI. Then, you need to track and document any changes, or lack thereof, every month or quarter. In the beginning, if it’s difficult to get a precise measurement, it’s acceptable to estimate.
Summing it all up
KPIs can serve as essential HR metrics during and after times of major change to help keep your organization on track. Building a purposeful plan to set, track and recalibrate HR KPIs for remote teams, hiring and employee retention sets the stage for your company to grow and thrive.
Learn more about the connections between HR and growth when you download a complimentary copy of How to future-proof your business with a professional employer organization (PEO).