Has the pressure on HR professionals ever been greater? With such emphasis on helping employees thrive while supporting commercial success, the average HR manager has their work cut out. It is for this reason that establishing relevant HR key performance indicators (KPIs) is incredibly important.
HR KPIs will provide a clear picture of HR's contribution to the business, and it is great news for HR professionals as they can use them to prove ROI (Return On Investment) and highlight value.
However, there are many types that organisations can choose from. There is no easy answer as to which ones managers should focus on; every company has its own unique HR practices and challenges.
HR needs to identify HR KPIs that are most relevant then find the best way to measure them. They are more useful when they are used on a consistent basis. HR employees should regularly review HR’s contribution towards the business by assessing HR performance through these key performance indicators.
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What is an HR KPIs?
To understand what an HR KPI is, we must first understand what a regular KPI is.
A KPI – short for key performance indicator – is a metric that demonstrates how well a company is delivering against key business objectives. It provides targets for businesses to work towards and are a simple way of encapsulating the focus points of the broader company strategy.
An HR KPI is a metric to help those in a business understand progress against the HR strategy. They are set against the key objectives in the HR strategy.
Once your HR KPI has been decided, you need to ensure they are tracked accurately in a time-effective manner. HR professionals can use a range of HR technology tools to gather accurate data from numerous HR management systems swiftly.
Tracking the right factors will enable you to benchmark HR activity against plans and see where human resources can make improvements.
Who is responsible for HR key performance indicators (KPIs)?
It should be the responsibility of HR managers to set targets based on HR KPIs which correlate with business objectives. Then they will need to work closely with other departments in the organization to execute the HR strategy. They will regularly report progress to key stakeholders.
How to use HR KPIs?
Once the strategy has been formalized, managers agree on the key performance indicators that demonstrate progress against each objective. Each KPI is summarized onto a dashboard, also known as a Balanced Scorecard. This provides everyone with a clear indication of how the human resources department is delivering against the HR strategy, which in turn demonstrates how they are delivering against the broader business strategy.
They are designed to demonstrate HR's contribution towards business objectives. Therefore, human resources managers should ensure they consistently monitor them through the course of their work.
HR KPIs should be regularly reported to management to track HR's performance. They can be used to identify opportunities for HR to improve their contribution towards commercial objectives, which HR managers can use in their approach to HR strategy development.
To be helpful, an HR KPI should be SMART- Specific, Measurable, Achievable, Realistic, and Timebound. By ensuring each key performance indicator is a SMART KPI, HR managers will be able to define and deliver their goals more easily.
Then, they should be reviewed at least quarterly, and HR managers should track them closely throughout the year because HR activities performances are constantly changing within the business, such as staff turnover rates, training and development expenditure, and employee engagement levels.
Characteristics of good HR KPIs
There is no definitive answer to what makes an excellent human resources key performance, as this will vary from organization to organization. However, there are a few key characteristics that all good HR KPIs should have:
They should be aligned
Aligned with the company's HR strategy and objectives and with the business's overall strategy. They should be forward-looking, not retrospective, and should be reviewed regularly.
Measuring HR performance against past data is helpful, but it is more important to measure how the department is contributing towards future objectives.
They should be measurable
So that HR professionals can track their progress over time, and managers can see how human resources are contributing to the business.
They should be relevant
Relevant to the company and the HR department, and should change as the business changes.
They should be achievable
Setting key figures that are too ambitious will only lead to frustration and disappointment. Managers need to set realistic targets that they can work towards so that HR professionals can work towards and measure their progress.
They should be time-bound
So that managers know when they need to achieve them and can track their progress over time to the company and the employees working there.
HR KPIs are incredibly important for human resources managers as they help to track HR activity against plans and see where it can make improvements. They can work closely with other departments to execute the HR strategy by setting targets based on lead indicators that correlate with business objectives.
Not all these metrics will have these characteristics, but they are essential to consider when setting performance measures.
By setting performance indicators that meet these guidelines, HR managers can ensure that their department is contributing effectively towards the company's overall objectives.
Leading vs. lagging KPIs
There are two types of lead indicators- leading and lagging. Leading indicators predict future outcomes while lagging indicators show the results of past actions. Managers should use a combination of both types of metrics to measure their performance
Leading HR KPIs
Like turnover rate, training and development expenditure, employee engagement levels, recruitment activity, HR budget.
Lagging HR KPIs
Number of HR staff; HR policy compliance rate; number of grievances filed; average time to fill a vacancy.
While leading those key performances helps predict the future, managers should also track lagging PI to see how they have progressed over time.
Each organization will have different key indicators that are more important to them, but the ones listed above provide a good starting point.
HR activities are crucial for any business and should be closely monitored in order to ensure that the company is running efficiently. They help managers and human resources professionals track these activities and make sure they are in line with the company's objectives.
The 10 most important HR KPIs
Because every business is different, the HR KPIs they use will be different too. However, there is a selection of key performance indicators which help a company understand its success against objectives that most businesses want to see.
Human resources key performance metrics go beyond employee productivity rate and the average length of service. They can be used to measure a broad range of objectives, ranging from performance management KPIs to talent acquisition.
Many of these keys can be used to assess multiple aspects of the company’s strategy. Some of the more commonly used and most useful types of human resources performance indicators are:
1. Productivity KPIs
Productivity KPIs (used to measure workforce efficiency) are strongly linked to many business goals, such as those 'owned' by operations and finance. There is a number of ways to measure productivity, and the human resources team needs to focus on HR outcomes.
These could include employee performance against job criteria, the number of training hours completed, productivity lost due to understaffing, and the average number of employees absent per defined time period.
Keeping productivity HR KPI aligned to human resources goals makes it easier for teams to see how they can influence behaviors for improved business outcomes.
2. Employee turnover
Although a certain rate of turnover is natural and indeed healthy, a high turnover rate is a problem, causing high costs, lower productivity, and impacting workplace culture.
Understanding employee turnover helps the HR team assess the stability of the business. It can also be reviewed by department and demographic to understand if there are any trouble spots within the business.
In many companies, HR managers review voluntary turnover rates as well as overall turnover. This metric excludes terminations driven by the business; they may also want to look at the rate of involuntary turnover due to layoffs, which measures HR's effectiveness at hiring quality employees.
3. Absenteeism rate
Absenteeism is rich with meaning. Knowing how many employees are off work with sickness can be a leading indicator for retention, indicates company performance in staff engagement, and can also provide an insight into workplace culture.
The absenteeism rate can also show the success of initiatives such as changes to flexible working policy, an introduction to remote working, and changes to leave entitlement.
4. Recruitment KPIs
Recruitment is an expensive business, so managing the costs and duration associated with hiring new employees are often important KPIs for HR departments. The cost per hire metric and time to hire metrics help to provide insights that may reduce the costs associated with the hiring process and identify the best recruitment method.
What is more, these HR KPIs can indicate performance against employer brand and culture metrics. It is easier and faster to hire employees if a company has a strong employer brand and culture.
Onboarding KPIs are an important aspect of recruitment. HR KPIs such as the average time it takes for employees to become productive and how often an employee stays after their probation period illustrate the success of the business in finding and keeping the right new hires.
5. eNPS
eNPS– employee net promoter score - is a measure of employee engagement and tells an employer how likely employees are to recommend the company as a place to work. It is calculated by asking employees how likely they are to recommend their company as a place to work on a scale of 0-10.
This HR KPI is becoming increasingly popular as a measure of engagement. Although it is not exclusively HR-focused, it can be used to indicate how well HR is performing.
By tracking eNPS, a human resources team can understand opportunities for hiring, employer brand, and company culture. It can also support understanding for objectives such as retention and is linked to positive business outcomes.
6. Pay Gap
As understanding of the importance of equal pay for equal work grows, the pay gap KPI has become more important. Some countries have made it a legal requirement to publish gender pay gaps; this is not yet law in others.
However, by understanding a company’s pay gap – for gender as well as ethnicity and disability – a company can understand how inclusive their organization is and assess whether inclusivity objectives are being achieved.
A pay gap analysis is an important HR KPI to include in an organization's Diversity & Inclusion KPI report, alongside specific analysis of how minority groups and those with protected characteristics fare in other HR metrics such as retention rate, the success of recruitment measures, and internal promotion rate.
7. Education and training KPIs
Education and training are essential for skilled employees who can do their jobs well and will drive company performance. However, in most cases, the resources invested are significant, with a high training cost.
For this reason, it is essential for the HR department to review the benefit of the training courses vs. training costs. Training is a crucial element in retention – employees want to learn more and investment in training courses demonstrates to employees that they are valuable and increasing employee satisfaction.
Finally, the extent to which employees participate in the training and education they are offered indicates the level of employee engagement.
8. Internal mobility KPIs
Giving employees a clear career path is motivating and helps increase employee engagement and retention. Therefore, understanding a company’s internal promotion rate can be a powerful way of assessing the opportunities employees are being given.
This key performance indicator can be cut by demographic and department to understand the opportunities across the workforce and understand performance against inclusivity objectives. An interesting overlay on this metric is internal job hires, which helps HR professionals understand talent mobility and can be used in conjunction with cost per hire data.
9. Employee satisfaction index
This powerful KPI is used to assess company culture but can also be used as a leading indicator for factors such as turnover and absenteeism. Typically gathered using employee satisfaction surveys, an HR manager can review this KPI by department, location, seniority, and demographic to dig deeper into the data and get a deeper understanding of how employees are truly feeling.
Employee satisfaction is strongly correlated to business success and reduces the number of employee-led resignations.
10. Compensation KPIs
How a business performs against the rest of the market in terms of salary has a direct impact on employee satisfaction, retention and the ease of attracting new hires.
Many companies also measure benefits satisfaction as a way of understanding if the wider compensation package is appealing. This information should be gathered using a company-wide survey and should be focused on current employees as well as new hires.
What can HR KPIs tell you about a company’s wellbeing?
Happy employees create a healthy and successful company. By reviewing human resources KPIs related to employee satisfaction and engagement alongside KPIs from elsewhere in the business, it is possible to understand how a company’s wellbeing is faring.
HR key indicators can also be broken down to provide HR teams with insight into specific areas that could need attention, whether this is related to resources, processes, or procedures.
HR KPIs should form part of regular 'health checks' ensuring business goals are being met and that the workforce is content and productive. Lead indicators can tell you a lot about how well a company is doing and provide insights into areas that may need improvement.
This is especially important if a company is pushing aggressive growth goals or trying to reduce operating costs to drive profit. Sometimes, these objectives can reduce satisfaction. As much as the business tries to drive growth or profitability, it may come at the cost of reduced efficiency or a high turnover rate.
Because business culture determines the long-term success of an organization, human resources metrics can serve as a leading indicator for organizational success. If employees are thriving, they’ll be prepared to work in line with strategic goals and support the business as it grows.
Engaged employees are not only more productive, but they are more innovative as well – helping set the scene for future success. In contrast, if employees are unhappy, workforce efficiency decreases, the cost of retention efforts increases and employee turnover rises. It is more challenging to get the high-quality staff that the business’s leadership team needs to deliver their aggressive goals.
What tools can help you analyze HR KPIs?
HR professionals have many tools available to monitor the performance of their programs. The two tools most commonly used to gather and analyze HR metrics are employee surveys and HR software.
Employee surveys can be used in two ways - as occasional deep-dive surveys to monitor engagement and culture. Or as regular 'pulse' surveys that employees quickly complete on a weekly or monthly basis. These work together to get a sense of how employees are feeling and help the HR team extract valuable insights into the mood of the workforce. It is important for all staff - full-time employees, part-time employees, and contractors to complete these surveys.
HR software requires less of managers. In most cases, it is data that is collected through the day-to-day running of the company. Because HR software can be used for a wide variety of functions - such as recruitment, performance management, and training - the data it collects is powerful in assessing HR's performance against their strategic goals.
Conclusion
The data that HR departments can extract from HR software places the HR team in the same position as the other departments in a business - giving them actionable, unquestionable facts that help guide the business forwards.
HR KPIs are undoubtedly a powerful tool in monitoring the success of initiatives developed to drive business success. By using these key performance indicators, the HR department can increase its influence and share direct responsibility for business success.