Human resource metrics are essential for organizations to measure the effectiveness of their HR practices.
Here are ten of the most important HR metrics to consider when using a data-driven approach for talent management:
- Cost per Hire
- Time to Hire
- Quality of Hire
- Employee Net Promoter Score (eNPS)
- Absenteeism Rate
- Employee Growth Rate
- Employee Turnover Rate
- Salary Averages
- Salary Range Penetration
- Diversity Ratios
These metrics can help organizations identify areas for improvement and make data-driven decisions that can lead to better outcomes for both employees and employers.
Most Important HR Metrics
1. Cost per Hire
Shows how much a company spends on average to acquire a new employee.
Calculating the cost per hire involves adding up all the expenses related to hiring and dividing that total by the number of hires.
The formula for calculating cost per hire is:
Cost per Hire = (Internal Recruiting Costs + External Recruiting Costs) / Total Number of Hires
Recruiting costs can be divided into two categories: internal and external. Internal costs include things like salaries for recruiters, referral bonuses, and training expenses. External costs, on the other hand, involve expenditures such as advertising, job fairs, and payments made to recruitment agencies.
Steps to calculate “Cost per Hire”
- Gather your cost data for a specified time period.
- Identify your internal and external costs.
- Divide the total cost by the number of hires made in that time period.
Tracking cost per hire helps organizations improve and make data-driven decisions for better outcomes.
2. Time to Hire
Measures the time from a prospective employee engaging with the recruiting process to their acceptance of a position.
To calculate the time it takes to hire someone, you need to count the days from when a candidate enters your hiring process until the day you actually hire them.
Here is the formula to calculate your time to hire:
Time to Hire = Day Candidate Accepted Offer – Day Candidate Entered Pipeline
You can calculate the time it takes to hire someone by counting the number of days between when the candidate applied and when they received the job offer. If, for example, it took six days for a candidate to receive an offer after applying, then the time to hire is six days. To find the average time to hire, add up the time to hire for each candidate and divide it by the total number of hires.
Organizations can use time to hire data to improve their hiring process and make informed decisions.
3. Quality of Hire
Measures the effectiveness of the hiring process by evaluating the performance of new hires.
The quality of hire is a difficult measure that is often assessed several months after hiring. It involves looking at factors like job performance, turnover, and how long employees stay with the company.
Here are some common metrics used to determine the quality of hire:
- Employee Performance: Measures how well an employee performs in their role.
- Engagement: Measures how engaged an employee is with their work and the company.
- Feedback from Managers and Peers: Measures how well an employee works with others and how they are perceived by their colleagues.
- Turnover Rates: Measures the percentage of employees who leave an organization over a given period.
- Fit with Company Culture: Measures how well an employee fits with the company’s values and culture.
To assess how well someone is hired, you need to choose specific measures, set goals for each position, clearly communicate those goals to candidates and new hires, establish a solid onboarding process, train managers to provide guidance to new hires, and continuously monitor, share, and enhance your hiring practices.
4. Employee Net Promoter Score (eNPS)
Measures employee satisfaction and loyalty.
To calculate eNPS, ask your employees: “How likely are you to recommend our company as a place to work?” They can rate it from 0-10.
Based on their responses, employees are classified into three categories:
- Promoters: Employees who respond with a score of 9 or 10. They are loyal and enthusiastic about the company.
- Passives: Employees who respond with a score of 7 or 8. They are satisfied but not enthusiastic about the company.
- Detractors: Employees who respond with a score of 0-6. They are unhappy and may harm the company’s reputation.
The eNPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The formula for calculating eNPS is:
eNPS = % Promoters – % Detractors
The eNPS score ranges from -100 to +100 and measures employee satisfaction and loyalty. Higher scores mean more satisfaction and loyalty.
5. Absenteeism Rate
Measures the percentage of employees who are absent from work.
To calculate the absenteeism rate, divide the number of days an employee was absent by the total number of workdays in a given period. Here is the formula to calculate your absenteeism rate:
Absenteeism Rate = (Number of Days Absent / Total Number of Workdays) x 100
For example, if an employee was absent for 5 days out of a total of 20 workdays, then the absenteeism rate would be:
Absenteeism Rate = (5 / 20) x 100 = 25%
Organizations can use absenteeism rate data to make informed decisions and improve outcomes for employees and employers.
6. Employee Growth Rate
Measures the rate at which employees are promoted or given new responsibilities.
To calculate the employee growth rate, compare the number of employees at two different times. Divide that number by the number of employees at the second time interval. The growth rate is expressed as a percentage. Here is the formula for calculating employee growth rate:
Employee Growth Rate = (No. of Employees at End of Period – No. of Employees at Beginning of Period) / No. of Employees at Beginning of Period x 100
For example, if your company had 100 employees at the beginning of the year and 120 employees at the end of the year, then your employee growth rate would be:
Employee Growth Rate = (120 – 100) / 100 x 100 = 20%
7. Employee Turnover Rate
Measures the percentage of employees who leave an organization over a given period.
To find the employee turnover rate, divide the number of employees who left the company by the average number of employees during a period, then multiply by 100. Here is the formula for calculating employee turnover rate:
Employee Turnover Rate = (Number of Employees Who Left / Average Number of Employees) x 100
For example, if your company had 100 employees at the beginning of the year and 120 employees at the end of the year, and 10 employees left during that year, then your employee turnover rate would be:
Employee Turnover Rate = (10 / ((100 + 120) / 2)) x 100 = 8.33%
8. Salary Averages
Measures the average salary paid to employees in an organization.
To find the average salary for a group of employees, add up all the salaries and divide the total by the number of employees in that group. Here is the formula for calculating average salary:
Average Salary = Sum of Salaries / Number of Employees
You can find the average salary for a department, team, or the whole organization. The salaries can be adjusted based on the frequency of employee payment, like monthly, quarterly, or yearly.
There are online tools to calculate salary averages for your company. Glassdoor provides salary information for many companies worldwide. HR software like HiBob can also help measure salary averages and changes.
9. Salary Range Penetration
Measures how many employees fall within a given salary range.
To calculate salary range penetration, you need to know three numbers: Salary, range minimum, and range maximum. The formula is:
Salary Range Penetration = (Salary – Range Minimum) / (Range Maximum – Range Minimum)
For example, if you have an employee with an annual salary of $50,000, with the range being $45,000-$60,000, here’s how this would look:
($50,000 – $45,000) / ($60,000 – $45,000) = 33 percent
To ensure fair pay practices, analyze salary range penetration for each employee in your organization. This will help you identify any pay differences.
10. Diversity Ratios
Measures the diversity of an organization’s workforce.
Diversity measurement is important for companies. It helps ensure inclusivity and a welcoming environment for all employees. Here are some metrics used to measure workplace diversity.
- Demographics: Measures the representation of different groups in the workforce, such as gender, race, ethnicity, age, and sexual orientation.
- Inclusion: Measures how included employees feel in the workplace and how well they are treated.
- Employee Resource Groups (ERGs): Measures the number of ERGs and their effectiveness in promoting diversity and inclusion.
- Diversity Training: Measures the effectiveness of diversity training programs in promoting diversity and inclusion.
- Hiring Practices: Measures how well the company’s hiring practices promote diversity and inclusion.
- Promotion Practices: Measures how well the company’s promotion practices promote diversity and inclusion.
- Retention Rates: Measures how well the company retains employees from diverse backgrounds.
To assess diversity in a company, you need to select indicators, set goals, communicate them clearly, establish a diversity and inclusion program, train managers, and continuously monitor and enhance the program.
Conclusion: Most important HR metrics
To wrap up, measuring the most important HR metrics can help you improve your organization’s performance, engagement, and retention.
By tracking metrics such as turnover rate, employee satisfaction, absenteeism, and productivity, you can identify the strengths and weaknesses of your HR practices and policies. You can also use these metrics to set goals, evaluate progress, and implement changes. Measuring important HR metrics is not only beneficial for your HR department, but also for your employees and your business as a whole.