How to Develop Metrics That Truly Matter to Your Organization

Metrics are a simple way to define, measure, and track key performance indicators. Metrics are certainly not unique to compensation and HR—rather, they are used in almost every area of business, government, and education.

HR metrics are used to measure and track the performance of most companies’ largest and most valuable investment—their human capital. Through a variety of measurements, HR professionals can analyze a company’s strengths and weaknesses in areas such as hiring, compensation, training, and employee retention.

To increase its value to the organization, HR management needs to make decisions based on data and facts. Decisions related to the allocation of resources, technology purchases, succession planning, hiring and retention, training, employee performance, compensation programs, and outsourcing HR functions can all be based on data compiled through the use of appropriate metrics.

HR should take the lead in identifying where a company’s investment in its employees can best be allocated to meet the company’s goals and how to hire, develop, and retain the human capital the company needs to stay competitive both now and in the future.

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Deciding What to Measure

Metrics should be tied directly to the organization’s current business issues. To be effective, they should report not just results but also show cause-and-effect relationships. A metric should provide a complete story that includes a measure of quantity, quality, time, cost, and customer satisfaction. Each of these items may not be appropriate for every metric, but they are all important measures of performance.
In addition, to really understand the story behind the numbers, the company needs to be able to compare these results with a benchmark that might include prior experience, similar statistics from a competitor, or internal goals. Components of a good metric include:

• Add context to the numbers—measure return on investment (ROI), cost/benefit ratios, and impact on problems identified by business leaders.
• Establish goals for continuous improvement—tie metrics directly to the key challenges facing the business and the results that must be achieved.
• Provide analysis to business leaders—identify trends and how they can impact the business (compare current, recent, and past to an overall average to show trends).
• Connect people-reporting to the business strategy for total people-business integration.
• Establish HR credibility, identify organizational strengths and weaknesses, and help prioritize initiatives.

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Types of Metrics Available

There are a potentially endless number of metrics available to the HR professional. The key is to pick metrics that focus on key issues and tell the story. It may be that a series of single metrics, when viewed together, tell the story. 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
• Costs (increased or decreased)

Below are a few key measurement areas to consider:

• Recruiting: Time to fill vacancies, cost per hire, voluntary and involuntary turnover of new hires during first year, turnover rate/cost by department and organization, training hours and cost per employee, retention rate by recruiting source
• Training: Cost of sales training as a percent of total sales, percent who cite lack of training or advancement as a reason for leaving, identification of key employees and percent who have received training, percent of performance appraisals that include training goals for employees
• Employee relations: HR staff-to-employee ratio, number of complaints filed by employees, amount of time taken to resolve internal complaints, breakdown of the types of complaints
• Compensation programs: Analysis of compensation levels to the marketplace and key competitors, revenue per employee, pretax profit per employee, total compensation as a percent of total expense, benefits expense as a percent of total expense

Tomorrow, we’ll look at some strategies for communicating metrics effectively.