Top HR Metrics to Begin Using in the New Year

HR metrics have never been more important for sharing insight into one of the most critical areas of an organization. Human Resources should take responsibility for evaluating the strategic initiatives mapped out for the coming year and assessing how best these goals can be quantified and measured from an HR perspective. There are a number of HR metrics that provide insight into employee effectiveness, productivity, engagement and expense. Today, companies expect HR to understand the business and help managers not only maintain the culture and project against risk, but also continually assess the strengths and weaknesses of the team. Many HR groups do not take part in measuring the business. Others sit in meetings and preside over the post mortem evaluation from finance and accounting, perhaps making a suggestion or two as to how to keep the patient (business) from dying next cycle. By identifying and regularly tracking the right metrics, HR can help provide a window into trends which can be managed to deliver the desired results.

The starting point is deciding what to measure. Begin with a manageable number of key measures. Here are a few considerations:

  • Metrics must be custom (meaningful) to your business.
  • Metrics should be capable of being regularly measured.
  • The management team should agree on reporting frequency and establish a discipline on follow up.
  • Once metrics are determined, HR should lead the conversation on benchmarking and setting the appropriate targets for the organization. It’s usually best to measure performance against realistic targets as opposed to results in the prior period. This means you are integrating metrics into your planning.

There are hundreds of metrics that can be used. One good resource for ideas is HR Metrics Calculators posted online by the Society for Human Resources Management (SHRM).

We believe it’s most important to get started, so we have assembled ten key metrics most organizations should consider using in 2016. The first three are more comprehensive and involve compiling several points of data, whereas the latter seven are straightforward and can readily calculated.

  1. Employee Satisfaction and Engagement

Although not a traditional or simplistic metric, understanding and analyzing employee satisfaction and engagement is vital to business performance. Employee satisfaction is best measured through a form of employee opinion or engagement survey. Measuring employee satisfaction, and then taking the necessary steps to address issues, is essential to attracting, retaining, and engaging the high quality talent needed to drive a successful business.

  1. Turnover Cost

Depending on tenure, the costs in lost customers, lost productivity, training time, recruiting costs and more are significant. Are you training talent for competitors? Are you experiencing a brain drain? If turnover rates are trending higher or exceed your benchmark, the need to assess the underlying reason becomes that much more important. Many studies show that most people leave bad managers, not bad jobs.

  1. Quality of Hire

The typical measure is “cost per hire” (Recruitment Costs ÷ (Compensation Cost + Benefits Cost)).

While we think this is useful, identifying the quality of hire metric is even more important. This metric is not as straightforward, but it provides insight into recruiting effectiveness. To calculate quality of hire, assess average job performance ratings of new hires, the percent of new hires reaching satisfactory productivity within a standard time frame, the retention of new hires after one year, and if available, the amount of recognition that new hires received.

  1. Employee Turnover Rate

Formula: Number of Employees Separating During the Period ÷ Average Number of Employees During the Same Period.

This metric is even more effective when calculating turnover by reason, or at minimum voluntary v. involuntary turnover. Some use planned v. unplanned turnover, particularly during a period of reorganization.

  1. Benefit or Program Costs per Employee

Formula: Total Cost of Employee Benefit / Programs ÷ Total Number of Employees.

Given that benefits are such a large (and growing) portion of total compensation, this factor should be measured at least annually. SharedHR clients’ benefits costs average between 20% and 25% of average total compensation (not including worker’s compensation and matching payroll taxes).

  1. Revenue per Employee

Formula: Total Revenue ÷ Total Number of Employees.

This metric is a good one to follow year-over-year or quarter-over-quarter if the business is growing quickly. Be sure to be clear about the inclusion of temporary, part-time employees or groups that may be contracted out so you are measuring appropriate groups.

  1. HR to Staff Ratio

Formula: Number of Employees / Human Resources Team Members.

This ratio is important since over the past decade HR departments have reduced in number or potentially outsourced, and employers must understand demands and capacities for effective HR support and delivery.

  1. Employee Absence Rate

Formula: Number of Days in Month / (Average Number of Employees During Month X Number of Days).

This metric is best used to assess employee absence rates for different departments and managers, identifying potential culture or manager concerns.

  1. Basic Demographics

Formula: Total Age of Employees / by department / Headcount for a Specified Timeframe.

This is an important metric when looking at succession planning and forecasting staffing areas of opportunity as older workers begin to consider retirement. It’s also an important metric when calculating benefits cost for your organization. Many organizations measure gender and race by department if the organization is large enough.

  1. Tenure

Formula: combined years of service / total # of employees / department.

This is a generalized metric when looked at company-wide, but could be revealing at a departmental or job-specific level, illustrating tenure of a specific department or job and potential needs to improve retention efforts.

Significance

There are many possible HR metrics that can be used to better understand and manage an organization. The key is to start small and gain consensus on what should be, and can be, measured and influenced. Your individual business goals and strategy, with the help of external benchmarks, should guide the development of targets. SharedHR is available to assist in determining HR metrics, setting targets and implementing programs to address issues and improve performance.

By Brandi Gordon, SPHR – Senior HR Consultant

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.

Bay Area Human Resources Services

The Rules of the Compensation Game Have Changed: Employers Must Know the New Playbook

Traditionally, employers have used compensation surveys, and “the requirements of the business” to set compensation. Workers either accepted the compensation, argued for a change, or left the organization. New hires often did not really understand the compensation system until an offer was made. That was yesterday.

Today, particularly in places like the Bay Area, where you find many talented workers in a tight labor market, the rules of the game have changed. Savvy job applicants visit sites such as PayScale and spend a few minutes to describe the positon sought in order to ascertain real time, crowd sourced information on what the position “should pay”. Next, the savvy job seeker goes to Glassdoor and reviews what employees are saying about the employer and the compensation. In short, smart job seekers show up at the interview, and consider any offer, in a much more “informed” way. “Informed” in that they perceive or believe they have information about what the job should pay, which may or may not be accurate.

Another new reality which should be of concern to employers, is the reality of pay compression. This is the circumstance where the pay for a particular job has actually shifted in the marketplace faster than increases have been made internally. For example, when the four-year tenured senior accountant leaves your organization, and you go to the marketplace to find a replacement, you find that you must pay 15% more to replace the positon (with less experience) because the market shifted faster than your internal pay increases. If you are in a larger organization where you have three senior accountants, all of whom are paid below the base compensation required to attract the replacement hire, you have experienced pay compression.

So what is an employer to do given these new factors?

Do Your Homework

In today’s competitive market for talent, an employer simply has to keep up on what’s going on in the marketplace. If you are out of the market, you risk the twin challenges of having trouble retaining your key talent and then facing more expensive and difficult challenges attracting replacement talent. To stay informed, there are many compensation surveys available, often by industry. PayScale offers an employer version which at least allows an employer to have the same information (correct or incorrect) that employees and candidates can get on the web for free. (SharedHR subscribes to a consultant account for this survey and can provide affordable job, by job, analysis).

“Do your homework” also means making sure your organization chart and skillsets accurately reflect where your business is today, and more importantly, where your business is going tomorrow. This means if there are highly specialized skillsets that will be needed tomorrow, you must begin thinking about training and developing those internally or keeping an eye out for those skillsets and talents to be hiring in the future.

Next, there is a new factor in the compensation playbook. The California Fair Pay Act. This new law in California, effective January 2016, requires equal pay for “similar” jobs. Clearly, “similar” can be in the eye of the beholder, so in order to defend a claim under this new California legislation, there must be some objective criteria by which you horizontally look at your organization in order to justify pay practices. A compensation study, such as a point factor system analysis or other objective review, is one of the few ways you can justify pay in different positions that may be considered “similar”.

Be Transparent

By transparent, SharedHR is not recommending you post your compensation data on your website. On the other hand, you should be prepared to have a direct conversation with employees about their compensation. This means you should have objective criteria, surveys, salary ranges and other data to help explain and justify the logic used to set bands of compensation within the organization. Clear skills, training and performance should be set to support a conversation with an employee about what it would take to move to the next level.

Between what is available online, and the fact that employees talk about compensation internally, being too tight lipped about compensation only makes the employer look bad to talented and well-informed employees.

Significance

2016 may be a very good year to take a hard look at your compensation structure and rethink the way you talk about it with your key employees. SharedHR can help guide you in finding the right compensation survey and conducting an objective compensation analysis to establish internal equity and appropriately communicating total compensation to employees.

By Paul Finkle, CMC, SPHR – President & Founder

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.

Bay Area Human Resources Services

Attracting Talent: What Makes a Start-Up Stand Out

Perhaps the number one challenge for most start-ups is attracting the kind of talent that will help them develop and grow. Yet talented employees have multiple options, often with highly recognizable, established names in business. So what can a start-up do to stand out?

While there has been research on what drives the perception of job applicants regarding the prospective employer’s image, there has been little research on what makes new ventures appeal most to applicants. Recently, the Harvard Business Review reported the results of German researchers who sought to discover what non-financial qualities most appeal to potential hires. The researchers focused on six key attributes:

  1. Office location
  2. Perceived level of the company’s innovation
  3. Perceived degree to which employees can have an impact (the researchers define this as a quality related to the flatness of the organization’s hierarchy and the breadth and diversity of worker responsibilities)
  4. The founder’s qualifications (including academic credentials and prior start-ups)
  5. Whether the firm has “legitimacy” (big name investors, boards, etc.)
  6. Lifestyle perks (food, laundry, health classes, etc.)

The study asked 297 U.S. college graduates to rank or score their views in the six categories on hypothetical companies asking them to answer the question, “How attractive is this start-up as a place of employment for you?”

The results of the survey turned out to be most interesting. While the attributes positively affected the perceptions of all firms, the least significant was the perceived qualifications of the founder. (Ironically, were the same survey to be given to investors, this factor would likely come out on top.)

The researchers went a level deeper than simply scoring the responses by factor and organized the theoretical applicants into three groups:

  1. Hedonistic – candidates who would be influenced by office location (this turned out not to be true)
  2. Self-directed – candidates who would be greatly concerned with innovation and their ability to have an impact (these turned out to be accurate hypotheses)
  3. Job security – applicants who are concerned with the qualifications of the founder and commitment of investors (these factors also turned out to be valid)

Significance

The elements and findings in this research have significant impacts on how start-up employers should present and position themselves to candidates. Clearly the founder’s qualifications should be viewable on the website, but the findings indicate it is not particularly relevant to put on position profiles or recruiting summaries. The researchers also point out that if the start-up is new and looking for an early team of highly self-directed players, recruiting efforts should focus on the breadth of work and ability to have an impact on the development of a disruptive or path breaking technology. In short, focus recruiting efforts and position descriptions on factors that will appeal to self-directed contributors.

Lastly, the researchers concluded that there are certain expected elements in a start-up that simply must be offered to be in the game. If your start-up is appealing to millennials, there must be certain lifestyle flexibility, the latest technology must be available, and you must offer a culture and environment that is perceived consistent with the type of start-up you want to build.

Whether you are using your recruiter, posting the position on your website, or leveraging your team and contacts, the time and effort you contribute in designing jobs, drafting recruiting documents, establishing policies, creating a clever / leading edge website, and otherwise focusing on how your start-up is perceived will be critical in attracting the talent required to make it successful.

By Paul Finkle, CMC, SPHR – President & CEO

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.

Bay Area Human Resources Services