A metric is simply a way to quantify, measure, and track key performance indicators. Metrics can support decisions related to:
- Compensation programs
- Hiring and retention
- Succession planning
- Employee performance
- Training
- Allocation of resources
- Technology purchases
- Outsourcing
A Business Approach
Metrics typically describe the current situation, compare current numbers with previous years’ or with a competitor’s position, and quantify goals and measure progress. By measuring the current situation compared with quantifiable goals, business leaders can make data-driven decisions.
Components of a Good Metric
A good metric is one that provides decision makers with the data they need to make fact-based decisions. Take this example of a metric measuring turnover in an organization:
- Useful—knowing what percent of the total number of employees left the company during the year.
- More useful—knowing how many of those people left voluntarily as opposed to those who left involuntarily.
- Even more useful—knowing the number of employees who left voluntarily that were among the company’s top performers.
- Going one step further—if the company is losing top performers, it will want to know if they are leaving companywide or if the turnover is concentrated in one department.
Of course, not all turnover is bad, as some of the employees leaving may be those who are not making a large contribution to the business.
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The Complete Story
A metric should provide a complete story that includes a measure of, if possible, five things. Each of these items may not be appropriate for every metric, but try to include as many as you can.
- Quantity
- Quality
- Time
- Cost
- Customer satisfaction
For instance, let’s assume that you hired 50 people during the year with an average time to fill a job of 6 weeks and a cost per hire of $5,000.
It is difficult to know what this quantity, time, and cost metric means without a measure of quality–did we hire the right people measured by job performance after one year? In addition, to really understand the story behind the numbers, we need to compare these results with a benchmark that might include prior experience, similar statistics from a competitor, or internal goals.
Key Considerations for Choosing What to Measure
- Use data that are readily available and can be gathered at regular intervals.
- Use the ratios, formulas, key performance measures, and language used by business leaders.
- Don’t limit the focus to costs, but include measures of results and quality.
- Tie metrics directly to the key challenges facing the business and the results that must be achieved.
- Stop using metrics that don’t add value in making decisions.
- Keep it simple; metrics don’t have to be complicated.
- Identify and compare results with key competitors whenever possible.
- Measure ROI, cost/benefit ratios, and impact on problems identified by business leaders.
- Avoid soft metrics based on feelings or intuition.
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Types of Metrics Available
Metrics generally measure one of the following:
- Increased job performance (e.g., new recruiting program resulted in new employees with first year job performance ratings that are 30 percent higher than under the old program)
- ROI (e.g., new commission plan resulted in $100 of increased sales for each additional commission dollar paid)
- Impact of a program on revenue
- Decreased costs
It may be that a series of single metrics when viewed together tell the story. The use of several individual metrics to measure a function is often referred to as an “dashboard” and will provide a more complete story.
In tomorrow’s issue, some of the metrics the HR and compensation professionals may want to consider in different functional areas, plus an introduction to the all-compensation-in-one website, Compensation.BLR.com.
I agree about using several metrics–financial expert witnesses usually take the same approach to show that multiple approaches produce the same, for example, estimate of a party’s damages. And if you’re going to use increased job performance, which is kind of a soft metric from the C-suite perspective, you should definitely have ROI, revenue, and/or cost metrics, too.