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The Importance of Measuring Human Resource Initiatives
Although the importance of human resources has grown significantly during the past decade, many upper-level leaders still hold a negative view of HR departments, which is that a human resource department cannot add strategic value to an organization because it provides purely administrative services.
One way to demonstrate the importance of an HR department’s role in strategic planning is through the use of human resource metrics, which track workforce data and allow HR professionals to analyze trends throughout an organization that are of importance in strategic planning. Through the use of concrete data, HR professionals can prove that human resource initiatives are lending a hand to lowering costs, improving workplace productivity, and improving an organization’s well-being and longevity.
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Types of Human Resource Metrics
There are a number of HR metrics that are beneficial to an organization, which fall into either a quantitative or qualitative category. Quantitative metrics, which deal with hard numbers, generally hold more ground when attempting to provide strategic support to an organization, but many HR initiative results are hard to quantify. Alternatively, qualitative metrics can provide a valuable insight into general trends involving employee attitudes, motivation, and satisfaction, but these metrics are more subjective and inconclusive.
Since quantitative metrics are easier to observe, track, and analyze, they are the preferred method of HR reporting. The following five HR metrics are the easiest quantitative metrics an organization can track, and they are the most beneficial and easiest to calculate with certainty.
1. Recruitment Response Time
The amount of time it takes a recruiting department to fill a position is an important metric to track. The longer it takes for a department to post an advertisement, identify qualified applicants, complete pre-employment screenings and employment tests, and then extend an offer greatly influences an organization’s ability to maintain productivity levels and momentum during the period of transition. To add strategic value, an organization must find the optimal balance between reducing recruiting response times while still ensuring the best applicant is selected.
2. Candidate Acceptance Rates
Once an offer is extended, it is now the candidate’s turn to decide whether the company is a worthwhile investment. Deciding whether or not to accept a position can stem from initial feelings during the recruitment and interview process, but it can also result from the offered compensation, benefits package, and overall fit between a candidate and a company. In a perfect world, an organization’s acceptance rate would be 100%; however, there are times when other competing offers are more enticing and promising. Tracking candidate acceptance rates can help an organization determine whether its compensation, benefits, and organizational culture or initiatives are in alignment with market competitors.
3. Compensation Value Added
Any strategic initiative must add value to the organization or its bottom line, and this is no different when considering human resource initiatives. One way to determine whether a company’s increases in payroll expenditures (the largest fixed cost for a business) are justified is to compare the annual percentage increase in salary with the annual percentage increase in revenues. The goal is to ensure that for every percentage increase in salary, the company is seeing at least the same increase in revenue. However, as a strategic HR initiative, the goal should be to see a much higher increase in revenue compared to salary increases.
4. Absenteeism/Turnover Rates
Two other key human resource metrics are a company’s absenteeism and turnover rates. The higher a business’s absenteeism rate, the higher its turnover rate will be. Therefore, to yield more reliable results, it is better to track separate instances of absenteeism rather than the number of total days because it is a better indicator of dissatisfaction and impending turnover. Furthermore, when tracking turnover rates, be sure to specify whether to track all employees, only skilled/professional positions, voluntary/involuntary turnover, and internal/external turnover. Any inconsistencies in the tracking methods can skew results.
5. Retention Rates
The last HR metric is to observe retention rates. To ensure this metric provides the most value to an organization, it is highly recommended that retention rates be tracked in categories. First, track turnover separately for entry-level and professional-level positions. And second, track turnover by duration, such as 30-days, 60-days, 90-days, and 1-year. The more data gathered by type of position and duration of employment, the more helpful retention rates are to organizations when attempting to increase retention.