The activities of many human resources organizations can be categorized into three areas: recruitment, compensation (including benefits), and employee engagement. KPIs in these categories are among those most often used by human resources, provided they’re relevant to the organization’s business goals.
Finding, interviewing, hiring and onboarding new employees is one of the most crucial HR department functions. According to the Work Institute, “47% of HR teams say employee retention and turnover is their biggest challenge. Recruitment and corporate culture management round out the top three.”
These are some useful metrics for an HR organization’s recruiting process:
- Cost per hire: The number of resources needed to recruit and hire each new employee. May include the costs of advertising, referral bonuses, interviewing, and training.
- Time to fill: Tracks how long it takes to find and hire new employees. This shows how efficiently the organization uses time spent on recruiting, but the goal for this KPI needs to be balanced with finding quality new hires who are the best fit for the job.
- Turnover rate: Measures both voluntary and involuntary turnover. For voluntary turnover, this metric shows the effectiveness of retention efforts. For involuntary turnover by the employer, it shows recruiting effectiveness.
Tracks the total compensation investment, including salary as well as benefits, training, and education reimbursement. Compensation plays an important part in employee recruiting and retention.
Some of the meaningful KPIs in this area include:
- Competitiveness: Measures how an organization’s compensation stacks up against the competition.
- Workforce expense: This shows the percentage invested in employees compared to all other company expenses. This metric can influence many HR decisions about promotions, raises, and expansions.
- Benefits expense: The cost of healthcare and other employee benefits is subject to inflation, so HR departments need this metric to decide on providers and plans.
Employee Engagement KPIs
These KPIs can help decide if an organization is effectively using its resources to keep employees engaged. High employee engagement is an important factor in retention, productivity, and customer satisfaction. “Highly engaged employees make the customer experience. Disengaged employees break it,” says leadership authority Timothy R. Clark.
- Absenteeism: Shows the cost of missed workdays. A high rate of absenteeism can be an indicator of a lack of engagement.
- Employee satisfaction: Puts a value on how employees feel about their roles within the organization. It can be found through employee surveys, interviews, and other information-gathering techniques.
- Use of vacation days: Employees who don’t use vacation time may be overworked or worried about job security. To avoid burnout, HR should encourage employees to take earned time off.
Qualities of an Effective HR KPIs
The examples above show that an effective KPI is more than a simple metric. It’s a combination of a value and its application that make an effective KPI.
When deciding on human resources KPIs, these are some characteristics to keep in mind.
- Simple. A KPI should be easy to communicate and understand. Straightforward metrics are easier to focus on.
- Actionable. An HR KPI should only focus on outcomes that can be influenced by the human resources department. For example, a sales-related KPI is beyond the control of human resources.
- Related. A KPI should be relevant to the HR strategy and should also be related to the business strategy of the organization. The average promotion rate, for example, is a more valuable KPI than the average length of service since the number of years with a company doesn’t reflect the quality of an employee’s contribution.
- Measurable. A value or timeframe should be part of the KPI.
- Aligned. A KPI should not disagree with other KPIs. For example, a KPI that focuses on lowering training costs might not align with another KPI to increase employee productivity.
Remember that HR KPIs are an important way for human resources to contribute to the overall business strategy, so defining them should be given careful consideration.