The most critical ROI-centric activities any company can plan for revolve around retaining good employees. Looking at the other side of the coin, it’s critical to focus on reducing employee churn. The reason is simple: replacing any employee can cost from 50 percent to 200 percent of the employee’s salary. Staff dissatisfaction and resultant high turnover can cost medium-sized businesses hundreds of thousands of dollars. Indeed, an expense burden like this can bring any operation to its knees.
Gauging the human resource health in your organization rests on keeping track of employee satisfaction (or dissatisfaction) from every possible viewpoint. It inevitably means understanding the key performance indicators (KPIs) that reflect the best or worst of the people running your departments and engaging with your customers. In short, a well-conceived human resource KPI program can help management avoid profit erosion by heading off resignations and terminations — the primary bottom-lines of employee churn.
HR professionals must rely on the KPIs as part and parcel of their modern and effective management processes. HR analytics software with all the relevant tools will help you keep pace with the human workings of your business. In addition, employee experience software forms the backbone of an automated KPI lineup for HR, providing direction and peace of mind in onboarding, training, reviewing, and promoting team members.
Here are the seven KPI metrics that matter the most for HR.
1: Absenteeism rate
This KPI calculates absenteeism as a percentage of the total working days for all employees and then provides the same metric for each staff member. Your first question should be this: “How is my average versus industry-best comparisons?” Then, get into the weeds and see which team players are bringing it up or down. Why is absenteeism crucial? Because studies show that low motivation employees call in sick significantly more than expected. Moreover, it steals time from productivity while you’re still paying for employee services. When reviewing this indicator, look at the absenteeism rate historically versus current. Also, look at absenteeism department by department, and if it’s escalating, get down to the “why” with a focused investigation.
2: Overtime hours
Overtime hours is a great KPI that can reflect employee dedication on the one hand or lapses in work processes on the other. The latter might occur through an understaffed workforce creating unwarranted high pressure, impacting on absenteeism and other performance influences. If the overtime hours spike, it’s an alert signal one should never ignore. Get to the bottom of it to see if enthusiasm is the driver, or if the team is working under severe stress.
3: Training costs
Here is a human resources KPI that measures the company’s dollars spent onboarding recruits and bringing their education up to speed. Are you investing too little or overspending on employee development? Use these metrics to make smarter decisions on training for new hires and your longer-term staff members.
From another angle, think of it this way: suppose you spend a significant amount of money training an employee only to find they resign soon after — taking your input to a competitor. It’s the wrong side of a double-edged sword that represents devastating costs over and above the churn numbers highlighted in the introduction above.
To train or not to train? It’s a chicken and egg scenario. Training disengaged employees is risky (see above). However, If you under-train, you run the risk of losing talent because workers today demand in-house help to take them to higher levels of competence. To achieve a balance, launch a feedback initiative that shows employee satisfaction ratings from a well-structured employee engagement survey.
4: Employee productivity
Employee productivity is a crucial metric with numerous dimensions. A standard calculation is dividing the number of employees into sales revenue to derive turnover value per employee. However, it’s a little oversimplified because it doesn’t drill down to an individual employee focus. Instead, consider looking at KPIs like employee hours spent working, product delivered per employee, and product returns per employee in dollar terms. It will help you nail down productivity in a way that connects to the employees’ specific activities. Finally, productivity is a pivotal KPI for employee review sessions. It enables management to converse with interviewees on improvements or lapses in work output constructively by recognizing accomplishments and accelerating motivation.
5: Talent satisfaction
This is an essential HR KPI in post-COVID-19 times where there’s a shortage of skilled workers and a scramble to secure the best talent for the job. So how does your company measure up in providing an excellent work-life balance, flexible working hours, remote working as a preferable option, and integration into the corporate culture? An array of employee satisfaction surveys can generate answers to these questions, including the often-used employee net promoter score (eNPS).
6: Recruiting conversion rate
This KPI measures the total number of applicants versus those eventually hired. You should look at this in the framework of your industry, region, and market segment. It should shed light on your recruitment method’s effectiveness. The idea is to find a channel that connects with the best candidates at the lowest cost. Access outside metrics pertinent to your situation from recognized research entities.
7: Employee turnover rate
Employee turnover rate is the one KPI that goes to the heart and soul of HR issues. The metrics in this segment measure how many of your employees leave voluntarily or via termination. It boils down to earmarking management’s employee retention success and is an excellent indication of team disruption. It also should trigger an investigation to discover if:
- The talent exiting the company begins with the managers or the job itself;
- Turnover arises from employer and employee simply not being a good fit;
- Flawed recruiting criteria end up with HR hiring the wrong people;
- There are other questions around churn that the KPI might be able to highlight.
Final thoughts
The seven KPIs above are only the tip of the iceberg. Versatile HR KPI programs should go wider, including metrics like cost per hire, talent turnover rate, dismissal rate, and others. The more you know about your employee landscape, the better you’re equipped to stunt churn and promote retention. The net beneficiary of all this will be a stabilized ROI and a happier work environment. Contact Sogolytics for an in-depth consultation to help you elevate your employment metrics in an intensely competitive environment.