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How to Measure HR Department Performance

Author: Matt Malet

Everyone has a different definition of success.

This is certainly true in the world of business. Sure, your company could be bringing in a large amount of revenue, but profits could be low. Your employees may be handling a large volume of work, but customer service levels could be suffering. Maybe you are adding several new customers each month, but losing just as many on the other side. Accurately judging performance can be tricky.

Most business intelligence issues stem from a lack of documentation and planning on the front-end. What metrics, or Key Performance Indicators (KPIs), are you going to measure? What are the target levels, or benchmarks, for each metric? Who is accountable for high/low performance in each area? These questions are further complicated when analyzing the operations of a non-revenue generating function, or cost center, such as Human Resources (HR). The HR Department plays a vital role in setting the company up for success, but does not contribute to the bottom line directly. So how can you measure success in HR?

Looking at these five ‘layers’ of performance can provide a holistic, top-down view of HR operations:

Department Headcount

What are you measuring?
How many people are working in HR relative to the number of customers (in this case, the ‘customers’ are the company’s employees) that they serve? How many customers is each HR employee responsible for?

What is the KPI?

Human Resources (HR) Headcount Ratio
The number of company-wide employees for each employee working in the Human Resources department.

Calculation: Total Employees/Human Resources Employees

Typically, you want your HR Headcount Ratio to be as high as possible, which would indicate that staffing levels within the HR function are under control, and that each staff member is serving a large number of customers. Of course, you need to assess the quality of service being provided as well, but we will get to that later. A low, or lagging, value indicates the opposite: overstaffing, poor staff productivity, and non-standard, inefficient processes. Look to examine individual employee productivity and streamline (or automate) repetitive processes such as employee on-boarding and record management.

Other HR Headcount KPIs: Total Revenue per HR Employee, Recruiting & Hiring Headcount Ratio,  HR Training & Development Headcount Ratio

Employee Productivity

What are you measuring?
How much work is each individual employee producing? Who are the high and low performers? What are high performers doing differently?

What is the KPI?

Requisitions Filled per HR Recruiting Employee
The total number of open positions (i.e., requisitions) within the company that were filled over a certain period of time divided by the total number of HR Recruiting and Hiring employees.

Calculation: Total Number of Positions Filled/Number of Recruiting Employees

A high, or leading, value for this metric indicates that individual recruiting employees are on-boarding a sufficient number of new hires. Set a target to see which employees fall below a certain level and look to coach those staff members on how to improve their productivity. Look to high performers to establish best practices that can be rolled out to the entire staff. Of course, you also need to take into account the number of positions that are open and the quality of new hires being brought in before making a final judgment on employee productivity.

Other HR Productivity KPIs: Offer Letters Processed per Recruiting Administration Employee, Time to Fill, Recruiting Administration Cases Opened per Recruiting Administration Employee

Work Quality

What are you measuring?
How frequently are employees leaving the company? Why are they leaving? How can we improve the hiring process to reduce turnover?

What is the KPI?

Turnover Rate
The number of employees who left the organization (voluntarily or involuntarily) as a percentage of total employees working for the company at the start of the measurement period.

Calculation: Number of Employees Who Left the Organization/Total Number of Positions

A high Turnover Rate can be indicative of several things: below average compensation levels (compared to other companies), a lack of thoroughness within the screening process, sub-par employee benefits and/or less than ideal working conditions. In order to move towards industry leaders for this KPI, benchmark compensation levels against peer companies and work on creating an interview process that will weed out candidates who are not a good fit for the company and the position being filled.

Other HR Quality KPIs: Job Acceptance Rate, Employee Retention Rate, Turnover Rate: Voluntary, Turnover Rate: Involuntary

Service Levels

What are you measuring?
Is the HR Department providing quality service to its customers, the employees of the company? How satisfied are the customers? How can service be improved?

What is the KPI?

Healthcare Expense per Covered Employee
The amount of health insurance expense incurred by the company, for each employee covered by the company health plan.

Calculation: Total Health Insurance Expense/Number of Covered Employees

Health insurance costs should be minimized, while still providing employees with a plan that is on par with peers and competitors. In addition to examining cost per covered employee, compare company benefits against those offered by peers and competitors to get a feel for what the quality of benefits provided should be, and how much the company should cover.

Other HR Service KPIs: SLA Adherence: Offer Letter Processing, SLA Adherence: HR Services Case Resolution, Percentage of Premium Covered (Employee Only), Percentage of Premium Covered (Employee and Dependents)

Cost

What are you measuring?
What is the cost of doing business within the HR Department? Where are my costs the highest? Are there costs that can be lowered or eliminated?

What is the KPI?

Cost per Hire
The total cost of recruiting and hiring for all open positions (“front-line” staff, managers and executives) divided by the total number of positions filled over the same period of time.

Calculation: Total Recruiting & Hiring Expense/Total Number of Positions Filled

Costs related to filling an open position (i.e., bringing in a new employee) include posting the job description on relevant sites (Monster, LinkedIn, or similar), travel expenses (e.g., flying a recruit in to interview), and time taken to interview and orient the potential new hire. Examine the performance of individual recruiting channels to see what the success rates are and look to eliminate costs related to low-performing channels. Also, look to promote from within to mitigate recruiting and hiring costs.

Other HR Cost KPIs: HR Expense as a Percentage of Total ExpenseHR Expense per Firm-Wide Employee

Proper planning is half of the battle for any process improvement project: establishing your metrics, determining how to gather the required data, then setting up reasonable goals will get you started on the right foot. Framing your analysis in this fashion can give you the ammo required to start improving HR operations. By examining all five of these factors concurrently, you can uncover hidden improvements that will improve the efficiency and effectiveness of not just HR, but any department or line of business.

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