HR Metrics Can Clarify What is Important to Your Business

There’s no argument that aligning HR Metrics with business goals and tracking the impact of human capital has on profitability and the behaviour of employees will drive improved business performance. Clients will often ask: where do I start?  What should I measure? Which HR metrics will provide indication where my business is headed?

A great starting point are the following three, easy to implement, performance metrics that will provide you with a leading and/or lagging indication of where your business is heading.

Voluntary Turnover (VT)

Measures employees who left the organization voluntarily as a percentage of headcount.

Formula:  VT= [Resignations + Retirements]/ Headcount

It is important to know why people are leaving your organization.  Tackling this allows you to identify trends which enables  fact-based decision making for implementing change to create a more engaged workforce and thus decrease turnover.

Just as important is understanding the cost of your turnover.The Saratoga Institute (global leader in Human Capital research) and the Board of Business Canada suggests that on average the cost of turnover is 1.5 times the persons annual salary.  If you know why people are leaving and can correct this, you can now calculate costs savings and assess it’s impact on your finances.

Revenue per Full time Equivalent (FTE)

This metric speaks to the efficiency of the structure of the organization by measuring the number of dollars of revenue from operations generated per FTE.

Formula: Revenue per FTE = [Revenue]/[Total Number of FTE] or [Total Number of employees]

This is a cost leadership and  efficiency measurement.  If used only to measure sales then it would be considered an effectiveness metric.

Refer to my previous article “How to Make Sure Your HR Metrics Measure the Impact on the Bottom Line” to refresh yourself on key questions for determining what to measure and why.

Recruitment Costs and Percentage of Vacancies Filled Internally

Depending on your business needs you may want to consider measuring the following:

• External Cost per Hire (ECH).  This is the average direct costs for external hiring per external hire.

Formula:  ECH = Total External Hiring Costs/External recruits

• % of vacancies filled internally (VFI).  This provides you with insight on employee engagement, career development and training effectiveness.

Formula: VFI = [number of vacancies filled internally]/[total number of vacancies]

IMPORTANT NOTE: Keep your metrics simple until everyone is comfortable collecting and using the data effectively.

Sources for Metrics with useful formula’s and industry benchmarks:

The Saratoga Institute
KPI Library
BC Human Resource Association
HR Metrics Service