In recent years, the workplace has experienced many changes, such as the acceleration of digital transformation, greater awareness of the need for inclusion, and the effects of the COVID-19 pandemic. With so many businesses now having to pivot and adjust to new ways of working — and with job candidates becoming more selective — it’s a good time for companies to review their HR key performance indicators (KPIs). This review might indicate that those metrics need to be adjusted so the organization can better track its current goals, or it might reveal new ways to use them to measure specific initiatives.
An effective HR strategy is proactive and delivers the tools, environment, structure, and resources employees need to achieve the company’s goals. With this in mind, the strategy needs to help an organization fulfill these tasks:
- Identify and hire the right people
- Manage and grow those people in the right ways
- Develop each role to achieve its business strategy
- Build a company culture that supports the company’s customer promise
In order to know whether an HR strategy is truly working and its effects on the company’s objectives, the business outcomes that are influenced by HR practices must be quantified, measured, and tracked. But first, the organization must determine what its HR KPIs are.
What are HR KPIs?
A KPI is a quantifiable measure used to evaluate how effective a company is at achieving key business objectives. (This doesn’t mean that everything measurable is a KPI, though; only metrics that have a direct link to the organizational strategy can be called KPIs.) Because KPIs shed light on a company’s progress toward its short- and long-term goals, the organization should select KPIs that directly link to its overall objectives, goals and strategies.
HR KPIs measure both how HR contributes to the rest of the organization by 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, because they are defined based on the HR outcomes that are relevant to achieve business goals.
By constantly measuring and tracking these metrics, HR can gauge whether its practices are proactively making a positive impact on the business’s profitability. Choosing the right KPIs can also help HR track engagement, especially when hybrid or remote workplaces make it difficult for managers to interact with their teams in person through regular meetings or quick, casual, desk-side check-ins.
For many companies, core HR KPIs include the following:
- Turnover rate (voluntary, involuntary, unwanted by role, by department, by manager, etc.)
- Retention of talent
- Time to fill an open position (or the length of the entire hiring process)
- Employee productivity
No single set of metrics exists that fits every organization, though. Instead of searching the Internet for long lists of HR KPIs — a practice that only encourages the bad habit of measuring for measurement’s sake — a company should identify the right three or four HR KPIs for its specific needs (e.g., diversity enhancement, hiring, employee retention).
Measuring DEI progress with HR metrics
As increasing numbers of organizations pursue the benefits of having a more diverse workforce, it’s important that they have KPIs in place to track progress toward those diversity, equity, and inclusion (DEI) goals. In particular, they can monitor their internal promotion data to see what numbers of women, people of color, LGBTQ employees, and members of other protected groups are being promoted from within. They can also review internal promotion data to see if employees in those groups are being promoted primarily to line roles or to individual contributor roles, or to management and leadership positions.
Assessing and improving hiring practices with KPIs
When hiring the right talent is a challenge, KPIs can help a company identify any issues in its recruitment and hiring processes. Some of the metrics an organization might choose to measure include:
- Cost per application
- Cost per hire
- Time to hire (the length of time between when someone enters the talent pipeline and when they accept an employment offer)
- Number of qualified candidates (which may include both internal candidates and external candidates)
- Quality of hire
These KPIs confirm which efforts are working, which aspects of recruitment need improvement, and how recruitment affects 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 differ today from what they were before the COVID-19 pandemic. To get a sense of what employee satisfaction is like now, companies can look at factors that include:
- Duration in a position
- Dismissal rate
- Employee satisfaction index
- Employee engagement index
- Internal net promoter scores
By gathering and examining data on which employees stay, how long they stay, and when they choose to leave, organizations can see some correlations between employee satisfaction and retention. By being transparent about what’s being measured, companies can also 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 recognized drivers of organizational success are employee engagement and leadership alignment. Employee engagement has a direct impact on profitability and revenue generation for a pretty simple reason: engaged employees are more productive, and productivity leads to more opportunities for revenue generation.
In addition, it’s critical that the entire leadership team works to move the organization in the same direction. If each leader has a different goal in mind, they may be misleading their employees and spending time and money on unnecessary projects.
For example, imagine 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 to achieve profitable double-digit growth, the leadership team will need to identify the critical success factors that will drive that level of growth. (Some leaders may be able to identify key drivers based on their own experiences; others may need to research best practices to find that information.) Once the leadership team identifies the short- and long-term goals needed to achieve double-digit growth, it can outline the strategies that are necessary to achieve those goals. (For example, the leaders may choose to develop goals that focus on reducing operating costs related to productivity and turnover costs.)
Measurable goals are a must for HR metrics
The difference between average-performing organizations and high-performing organizations is often as simple as having measurable goals. Keep in mind that KPIs are a mechanism that allows an organization to monitor the effectiveness of its strategies. That said, there should be clear connection among:
- The objective
- The goals that must be accomplished to achieve that objective
- Strategies used to meet those goals
- The metrics that prove the effectiveness of the organization’s efforts toward achieving its primary objective
To illustrate how this all works, consider the hypothetical company described above. The following outline spells out the organization’s key objective as well as the goals, strategies, and KPIs that it might use to support this initiative.
Objective: To achieve double-digit growth
- Retain the organization’s top 10 percent of performers
- Increase employee engagement by 15 percent
- Reduce first-year voluntary turnover by 12 percent
- Identify successors for all leadership positions
- 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
- Monthly voluntary turnover rate
- Internal promotion rate
- First-year retention rate
- Annual employee engagement score
Although creating the list of key performance indicators is challenging, collecting the data can be an even larger obstacle for many organizations: after establishing a baseline measurement for each KPI, companies must then track and document any changes (or lack thereof) during every month or quarter. If it’s difficult to get a precise measurement at the start, though, using estimates is an acceptable option.
KPIs have high value for HR
During and after times of major change, KPIs can serve as essential HR metrics to help keep organizations on track. Building a purposeful plan to set, measure, and recalibrate HR KPIs for goals for remote teams, DEI initiatives, hiring, employee retention, and other areas sets the stage for a company to grow and thrive.