The Most Important HR KPIs With Examples
|What are HR KPIs?|
|Characteristics of Efficient KPI|
|Human Resources KPIs Examples|
In the last few years, human resources evolved from being a completely service-oriented benefits management division to a more strategic organizational asset. Nowadays, it's vital to have the right people executing the company's strategy. It's very important to hire and retain the right, talented employees in order to predict organizational success. Many companies know how important this is for success, but many of them don't use updated human resources KPIs correctly.
If you're not measuring and tracking your results, how will you know to define an excellent performance? The right set of KPIs will help you support your HR objectives in a way that is in line with your overall strategy. Key performance indicators will help you assess possible areas that need to be improved and make better strategic decisions.
We gathered the list of most tracked key performance indicators in the human resources department, feel free to use any of them, as long as they align with your objectives and overall business strategy.
What are HR KPIs?
KPI stands for key performance indicators, a strategic metric that has a direct link with the organizational strategy. Aldo, KPIs are metrics, not all metrics are key performance indicators.
Human resources KPIs are metrics that will show you how HR is contributing to the rest of the company towards its core goals. The strategy of the HR department needs to follow the organizational strategy. What does this mean? Well, human resources KPIs reflect organizational performance for HR, as they are determined based on the HR outcomes that are relevant to accomplish business goals.
For instance, your company is trying to innovate in a very competitive landscape, and the board of directors concluded that they would cut expenses in all departments, except in the product innovation department. How will this overall business goal alter to the HR department and its KPIs? Some reductions will be needed so, for example, the current recruitment cost will be reduced from $600,000 to $500,000. KPI recruitment cost in dollars with the current score will be $600,000 and the target will be $500,00.
Characteristics of Efficient KPI
- Sparse - Focus only on the vital KPIs, they are called key performance indicators for a reason. The general rule for KPIs is "the fewer, the better."
- Drillable - You need to drill into the core data. Why aren't you reaching your recruitment cost target? What groups are the most expensive to recruit? By drilling down into the data, you will be able to estimate your future success and recognize where development is lacking.
- Simple - Employees need to understand the KPI, it's importance, what particular KPIs represent, and what actions they should take to reach their objectives. A KPI needs to be simple, for understanding and communication, even to the people you just hired.
- Actionable - The human resources department should focus on KPIs related to HR outcomes, or KPIs they can easily influence. For example, the HR department is not responsible for revenue or sales success, and therefore these aren't the KPIs HR should deal with. Only concentrate on the KPIs which outcomes you can influence.
- Owned - Who is responsible for that KPI? The owner of that particular KPI will be rewarded in case of success, or it will be held responsible if the team fails to reach the target.
- Correlated - The KPI needs to be related to your desired objective. Also, there should be a link from KPI to goals, from goals to targets, and from targets to strategy. Hiring the right employees that will operate on an excellent level is vital, but this shouldn't be your main focus if your company needs to save some money. Try finding a way to reduce your recruitment cost but still maintaining the quality of hire. This is more significant as it helps achieve the company's strategy.
- Aligned - The alignment of human resources KPIs is also important, as KPIs shouldn't undermine each other.
There is a more straightforward structure that you're probably more familiar with that summarizes all of the above.
The SMART program, defined by Hursman in 2010, stands for:
This method should help you design the appropriate human resources key performance indicators that will lead you towards success.
Human Resources KPIs Examples
This KPI is located in the growth category of people insights, and it provides you with the data about the number of employees at your organization in a selected month, according to the number of employees on the last day of the month. Employee headcount is an important KPI to review and communicate company development over time.
Cost Per Hire
Cost per hire is used to measure the amount of money one company is spending on an individual hire. This human resources KPI is usually measured over more extended timeframes, simply because recruitment is not something that happens multiple times on the day, it's an ongoing process.
This crucial internal metric is designed to help you understand your hiring processes more precisely while decreasing costs and advancing recruitment performance. In most cases, high rates of this KPI indicate that your human resource and acquisition teams aren't functioning at top performance. Cost per hire will help you identify areas where operations can be smoothed, brought in-house, or completely excluded. Sometimes, high rates of cost per hire isn't always a bad sign, but it's a cost of doing business.
A cost per hire analysis starts with calculating the total costs you acquire during the recruitment process. These total costs include measuring internal expenses like salaries, development, and training costs, as well as any external costs. The cost per hire equation takes the sum of these expenditures and divides it by the total number of hires.
For instance, you have completed a recent round of recruitment. Still, you realize your cost for the whole process was too expensive, and now you've put your team at a disadvantage when it comes to investing in your new team's training and integration into the workforce. Before you start your next round of recruitment, you can identify why the expenses were so high and determine the methods you've been using are providing you with equivalent unwanted results. Maybe the job board you posted didn't bring you the right candidates as you hoped, or a headhunter you hired didn't pay dividends. Whatever is the case, the accurate perception of your cost per hire will help you make better decisions about how to continue with future hiring.
Yield ratio is another KPI in the HR department, and it's telling you what percentage of applicants from a particular source was invited for an interview, showing you how efficient is the chosen recruiting method.
For example, you posted a job advert to a job board. Through one month, 1000 guests clicked on a link to the job, and 150 of them fulfilled the application form and applied for the job. Of 150 candidates, 30 of them were invited to an interview. The equation for this KPI is: (30 / 150) x 100% = 20%
You can use this formula to measure guest to lead or lead to hiring ratios.
This KPI needs to be continuously tested in order to calibrate it for a specific job, but still, it will show you the best source of candidates for every of your job openings. Yield ratio measures what percentage of applicants passed from one hiring stage to another, and it's commonly used to measure the number of hires from the total candidate numbers.
This human resource metric can help you identify whether your hiring strategies and sources are efficient. For instance, you could use an external agency's services as an applicant source, and you received 200 resumes from an agency ad only 3% of them passed through your screening call phase. This result indicates a problem. Maybe your agency doesn't have exact information about your hiring requirements, or the agency's audience isn't the right fit for your company. With this HR KPI, you can compare different recruitment channels such as employee referrals and recruitment agencies, and identify which source is the most efficient one.
If your yield ratio is decreasing over time, this means that you've become more efficient in the recruitment process, and you're using better screening methods. But, make sure that reducing the number of candidates who pass through every stage isn't affecting the quality of hire.
Average Employee Tenure
The average tenure per employee is telling you how long an employee remains employed at a particular firm before deciding to leave. It can be expressed in years, days, and months, counting from the first day of employment to the last day.
You can calculate the average tenure per employee to identify the total time of all employees and the number of workers that were hired. The formula is to divide the total employment time fr all employees with a total number of employees. You can use this HR KPI to calculate average employee tenure at a particular department or in the whole company. The result you get is a direct pointer of the loyalty of your workers.
How long does an employee stay with a specific company? How long do their tenures usually last? The number generally diversifies from one category of people to another, depending on their age and occupation. Here are a few marks:
- The average tenure for workers aged between 24 and 34 is 3.2 years.
- The average tenure for workers aged 65 and more is 10.3 years.
- The average tenure for workers in the professional management and other similar occupations is 5.5 years.
When employees stay with one company longer than the average person does, that indicates their satisfaction, and it will undoubtedly lead to talent retention. But at the same time, some employees don't have an interest in growing their careers, especially if they have a lack of motivation. Most people leave their jobs if they see that no improvements have been made within 3 to 5 years. But as long as there is space for growth, the average tenure is a sign that the employee is really satisfied with the company, and most likely, they will stay at that job. If your average tenure rate is high, that puts your company in a good light, which will result in a higher employment rate and, consequently, more profit.
This aggregate human resource KPI is measuring how satisfied and engaged a company's employees are at the given time. This measure includes various smaller indicators that can provide you with a crystal clear image of your employees' overall happiness and satisfaction at work.
In terms of employee retention, satisfaction is essential, because when your staff is happy and satisfied, they will stay loyal to your company, and they will not pursue other job opportunities. Also, this metric is essential for ensuring that your employees will remain productive and satisfied when coming to work.
You can understand how your team is feeling by communicating with them through surveys, interviews, and many other ways of receiving feedback. By doing this, you will have a precise image of what your employees like, and you will be able to identify areas where you can develop and actions that will make your work environment a more harmonious and productive place for employees to contribute. Why is this KPI important? Because satisfied employees tend to result in a better bottom line for your company. You will spend less money on rehiring workers, and your team will produce more.
This KPI tends to be an index of various other metrics that are combined to provide you with a better picture of the overall happiness of your staff. The combining process is necessary because of the broad nature of this key performance indicator. Other indirect measures and actions you will need to take to determine this KPI are:
- Net promoter scores
- Informal conversations
- Employee surveys
- Absentee rate, etc.
For example, let's say your attrition rate has been rising firmly for several months, even though you're experiencing record development. When you take a better look at the reasons for this high turnover, you may realize that your staff is unsatisfied with their compensation terms or their compensation terms or that a significantly larger workload has brought the new growth.
Understanding your staff's satisfaction can guide you to the right areas for implementing appropriate adjustments and ensure your top talent is preserved.
Net Promoter Score
This KPI is also known as NPS, and it's an index classifying from -100 to 100, and it's representing the possibility of recommending the company to a friend or colleague. Applicants take surveys where they answer key questions using an accessible and straightforward method, an 11 point scale.
Many businesses use this KPI to estimate whether customers are promoting their brand and as a measurement of overall satisfaction. A high NPS rate is showing you that your company or brand has a good reputation or product loyalty. Even though this KPI is traditionally used in marketing, it can be easily applied in the human resource field as well. The NPS will provide you with useful information about employee satisfaction and loyalty. To find your net promoter score in the human resource field, organize the survey and ask your employees how likely are they to recommend working at your company to a friend or a colleague on a scale of 0 to 10. The data you get from your survey can be divided into three categories:
- Detractors - This is the category for all people who answered with six or lower. They are not quite excited about working for your company. These employees aren't unhappy enough to quit, but they will most likely leave as soon as a better opportunity arises. Detractors aren't promoting your company and could be actively harming your company's reputation.
- Passives - This group answered with 7 or 8. Passives are somewhat satisfied with their current job at your company, but they might leave if they seize a better job opportunity. Most probably, they aren't spreading any negative thoughts about your company, but they neither are helping with the recruitment by recommending your organization.
- Promoters - Promoters highlighted the 9 or 10 on your scale, and they are delighted with your company. They believe in your goals and see the value of the company, and they generally like coming to work. This group actively helps you to recruit their best and most talented friends and colleagues.
You can calculate your NPS by deducting the percentage of employees who are detractors from the percentage of your promoters. As a result, you will get a score between -100 and 100. If all of your employees answered with six or less, your score would be around -100, while if all of your employees answered with nine or ten, your NPS would be a 100.
In order to understand your NPS score and actions you should take to increase your NPS, you can ask your employees another question. What is the primary reason for the rating you gave us? Answers to this question will help you understand the biggest drivers of employee satisfaction and engagement at your company and what actions you can take to increase your score. By analyzing this KPI's score, you will be able to understand this metric and share it with your audience. Improving your NPS can be an inspiration to make your employee experience as positive as possible, with the right KPI to track progress. Surveys are the first step toward designing a culture of satisfied promoters.
Return On Investment or ROI
Return on investment or ROI is mostly used in the finance industry and business in general, and it measures the performance of the company by evaluating the net profit compared with the overall net worth of the company. But nowadays, the ROI KPI is adopted in many other fields, including human resources, to assess projects and programs on a smaller scale.
In human resources, this key performance indicator allows you to recognize specific, measurable ways that HR operations benefit the company. It's not enough just to state and guess that particular actions and methods are beneficial for your company. You need to prove it with the data. Human resources specialists need to show how HR services directly affect the bottom line while distinguishing and eliminating actions and methods that are not financially efficient.
In the HR department ROI KPI is used to analyze the worth of provided services, as long as a dollar-cost can be defined. For instance, if human resources present a new health and safety program, its efficiency can be measured by the associated reduction in prices of work-related injuries. The worth of a new employee orientation plan can be measured in terms of an ROI by valuing the expenses saved by correlated cuts in turnover.
With the return on investment KPI, you can measure the performance of diversity programs, training, and mentoring initiatives.
In order to calculate the return on investment of human capital, you will need to divide the company's net revenue by the cost of salaries and benefits. Your net revenue is calculated when you take the gross revenue after deducting operational costs, wages, and interests. If you want to calculate the return of investment for a particular program itself, you need to divide it by the expenses spent on implementing that specific program.
The right set of KPIs in the human resource department represent powerful tools that will keep your employees focused on activities that support not only the department but also the company's overall goals. Particularly, human resources departments are usually responsible for managing expenses by reducing inefficiencies. With human resources KPIs you will be able to minimize employee turnover rate and save the organization from the high cost of recruiting, interviewing, and training new employees for your team. Also, you will be able to determine how low-level KPIs, such as decreasing turnover, can affect your high-level goals and the ultimate success of your company.