Developing a Sound HR Metrics System

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Jackie A. Sexson

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Developing a Sound HR Metrics System

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mail: P.O. Box 509 Eau Claire, WI 54702-0509 • telephone: 866-352-9539 • fax: 715-802-1131email: customerservice@lorman.com • website: www.lorman.com • seminar id: 405373

Prepared By:Jackie A. Sexson

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Developing a Sound HR Metrics System

Presented by: Jackie Sexson, JD, MBA, SPHR

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The Speaker

• JD, MBA, SPHR (HRCI), SHRM‐SCP

• Compliance manager with Fortune 300 company

• Former Executive Director with The Sexson Group, a legal and human resources consulting firm

• Former Assistant General Counsel, specializing in employment and labor law

• Former HR and Compliance Director for a regional financial institution

• Experience in employee relations, performance management, AAP, D&I, organizational management, benefits administration, talent acquisition, EEO and T&OD

• Can be reached at jackie80504@gmail.com

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Learning Objectives

• Describe the importance of using sound HR metrics

• Explain why we measure HR and the criteria for selecting metrics

• Identify the transformation of HR through metrics

• Establish metrics in various HR roles

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Introduction

• HR metrics are standards of measurement by which HR performance is assessed.  

•Measuring HR adds value by clarifying information required to make good decisions about talent.

•Metrics report current, ongoing an year‐over‐year numbers for common areas of HR such as• Turnover• Employee engagement

• Performance

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What is a Scorecard?

• By linking clearly defined department objectives and performance to the company’s strategic business goals, the human resource balanced scorecard can serve as a way of focusing human resource staff on activities that will support the company’s goals.

• It also demonstrates the strategic value of HR by defining and measuring its contribution in concrete, clearly understood terms.

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Example of a Recruiting Balanced Scorecard

• Objective: Reduce turnover costs.• Description: Develop effective recruiting methods and new‐hire orientation methods to optimize the retention of new hires.

• Actions:

• Identify key attributes of successful employees who stay at the company for two or more years.

• Utilize technology more effectively for recruiting and screening applications.

• Identify selection methods that will contribute to successful hires.• Integrate branding efforts into recruiting.• Revise the orientation program to ensure new‐hire retention.

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Example of a Recruiting Balanced Scorecard

•Measures:• Cost‐per‐hire (financial).• Turnover rates and costs (financial).• Time‐to‐fill (business process).

• Customer satisfaction with new‐hire performance (customer).

• New‐hire satisfaction with orientation (learning and growth).• Supervisor satisfaction with orientation (learning and growth).

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Human Capital

•Managing human capital will enable the company to execute its strategy

• The HR scorecard interacts with the workforce scorecard to create a more balanced scorecard

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The Workforce Scorecard

• Focuses on the strategic performance of employees.

• Offers crucial lessons for leveraging human capital to achieve business success

• Link between the balanced scorecard and the HR scorecard

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The HR Scorecard

• Five key elements

1. Workforce success

2. Right HR functions and workforce costs

3. Right types of alignment

4. Right HR practices

5. Right HR professionals

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The Balanced Scorecard

• Strategic planning and management system that organizations use to:

• Communicate what they are trying to accomplish

• Align the day‐to‐day work that everyone is doing with strategy• Prioritize projects, products and services• Measure and monitor progress towards strategic targets

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HR Measurement

• The “right” things of HR measurement• What HR does

• Right HR professionals• Right HR practices• Right types of HR alignment

• What HR delivers• Right HR function and workforce costs• Workforce success and value

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Metrics

• A metric is an accountability tool that makes it easy to see if the company is producing results

•Most metrics have six elements – measurements of 1. Quantity2. Quality3. Time4. Money5. Satisfaction6. Benchmark comparison

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What is HR Metrics

• As applied to the HR profession, metrics means measurement. Almost anything can be measured — by counting (we had three new hires this month), by qualitative assessment (on a scale of 1 to 10, that class was an 8), by time (it took two months to fill that job) or by a combination of the three. By itself, a single measurement is meaningless.

•Multiple measurements taken over time enable us to track change. That, in a nutshell, is what HR metrics is all about —measuring change.

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Categories of Measures

• Acquisition• Recruitment • Selection

•Maintenance• Comp and ben• Recordkeeping• Performance management

• Development• Employee relations• Training and development

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Why Measure?

• To communicate performance expectations

• To discover gaps in strategies• To make better decisions

• To address the trend toward value reporting• To enhance your career•What you don’t measure doesn’t count

•What you don’t measure well you can’t improve

• You can control your work – instead of it controlling you

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Criteria for Selecting Metrics

• Fits the corporate culture

• Critical success factors

• Issues that are likely to be reported to the CEO

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Strategic HR Management

• Provides input for strategic planning and develops specific HR initiatives to help achieve organizational goals

• The appropriate use of HR management practices to gain or keep a competitive advantage

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Strategic HR Management

• HR can support organizational strategy by:

• Hiring good employees

• Placing employees in the right jobs

• Rewarding employees fairly

• Providing proper training

• Fostering good employer–employee communication

• Focusing employee efforts and rewards toward the company’s bottom line

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HR Contributions to Strategy

• Provide perspective and expertise by:

• Having a seat at the strategic table• Being knowledgeable about business operations• Focusing on the future• Prioritizing business goals• Understanding what to measure

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Key HR Metrics

• HR staff and expense• Staffing• Compensation

• Training• Retention and quality• Development

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Metric in HR

• Employee Attitudes

• Job contentment (the percentage of employees satisfied with their job)

• Manager contentment (the percentage of employees satisfied with their manager)

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Metric in HR

• Employee turnover

1. Cost per hire 

2. Turnover cost

3. Turnover rate

4. Time to fill

5. Length of employment

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Common Errors in Developing Metrics

• Developing and implementing HR metrics in an vacuum

• Developing more metrics than it is feasible to maintain and utilize

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HR Excuses Against Metrics

• You can’t measure what we do

• Lack of clear purpose for measuring

• Lack of cooperation between departments

• Difficulty extracting data from multiple systems

• Difficulty understanding and analyzing metrics

• Numbers used to draw inaccurate conclusions

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Transform the HR Role and Contribution

• Transform from• A transactional focus to• A value‐added business focus

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Recruitment Metrics

•Metrics dominate recruiting

•What should be measured• Cost per hire• Speed of hire• Yield ratio• Number hired

• Quality of hire• Interview offer yield ratio• Interview accept yield ratio

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RecruitmentEXAMPLE: COST PER HIRE

CPH = Ad + AF + ER + T +Relo + RC+10% (7things)

H

Ad = Advertising fees 10%= All Other Overhead

AF = Agency fees

ER = Employee referrals

T = Travel

Relo= Relocation

RC = Recruiter Costs

H = Number of Hires

Speed to Hire

11/3/2018 ‐ 8/1/2018

Date of Hire ‐ Date of Vacancy

=

65 business days

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Training and Development

• Cost per trainee hour

• Number of employees

• Costs of training per employee

• Cost of lost work per employee

• Lost sales per employee

• Cost benefit ratio

• Rate of return

• Travel expense

• Trainee response

• Test scores

• Skill change resulting from training

• Training expenditures as a % of personal services expenditures

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Cost per trainee hourThis metric may help in determining if current training is cost effective.

• CTH = TCT / (NT * HT)

CTH = Cost per trainee hour

TCT = Total cost of training

NT = Number trained

HT = Hours trained

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Cost of traininga. Number of employees attending training

b. Costs of training PER employee

(eg training fee + transport + meals + material costs)

c. Cost of lost work PER employee

(hrs of work missed x hourly rate)

d. Lost sales PER employee

(for sales staff only;)

hrs of work missed x hourly sales;

(Note: hourly sales = employees monthly sales / 40 hours)

Compensation 

•Maintenance – compensation

• Possible measures• Job evaluation factor• Benefits + payroll as a % of operating expenses• Compensation to costs %

• Management compensation as  % of total compensation

• Workers compensation cost per employee

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Retention

• Cost of turnover•Workforce stability

• Turnover rate•Workforce capacity

• Turnover reason

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Turnover Rate

• Number of Employees Separated During Month/Average Number Employees During Month

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Turnover Rate

Turnover/Stability

• Formulas:

• SF = OS / E

• IF = OL / E

• SF = Stability Factor

• IF = Instability Factor

• OS = Original employees who stay for the period (e.g., 1 year)

• OL = Original employees who left during the period (e.g., 1 year)

• E = Employee population at the beginning of the period

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Costs associated with the turnover

• (Turnover costs = Separation costs + Replacement costs + Training

• costs)

• Separation costs

• 1.Exit interview cost for salary and benefits of both interviewer

• and departing employee during the exit interview

• 2.Administrative and record‐keeping action

• Total separation costs

• Replacement costs

• 1.Advertising for job opening

• 2. Selection interview

• 3.Employment tests

• 4.Meetings to discuss candidates

• Total replacement costs

Absenteeism 

•Why do you want to measure this?• This shows you the ratio of absences to workdays during a period of time, such as monthly, quarterly, annually.

• Absences are generally linked to days off from work that are unplanned and not approved ahead of time.

• Absenteeism is when employees habitually miss work.

• Employees who request time off from work in advance for personal or vacation leave are not considered absent.

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Example of Absenteeism

• Let’s say you want to calculate the absenteeism rate for your business during October (2018).• Step 1 – find the average number of employees.  At the beginning of October, you had 7 employees.  At the end of the month, you had 9.  • Average number of employees is 8 ([9+7]/2)

• Step 2 – calculate your total workdays in the period.  Your business is open Monday – Friday.  There were no holidays in October.  Your total number of workdays is 23.

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Example of Absenteeism (cont.)• Step 3 – find the number of workdays lost to absenteeism.  Workdays are eight hours long in  your business. One employee missed one day and another employee missed on day.  In total, your employees were absent for two full days.  Another employee was gone for an additional four hours.  • first, divide the four hour day by eight hours to get 0.5.  Then add 0.5 and 2 to get a total of 2.5 missed days.

• Step 4 – plug your numbers into the absenteeism forumla:• Absenteeism rate = (8x2.5) / (8x23)

• Absenteeism rate = 20 / 184

• Absenteeism rate = 0.11

• Your absenteeism rate during October was approximately 11%

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Ways to use your Absenteeism Rate

• Change up business policies

• Absence management

• Decision making

•Make comparisons

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Economic Value Added (EVA

•What is this?

• How is value measured?

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EVA and Motivation

• How does this work?

• Interaction between EVA and compensation, rewards and bonuses

• Training and development and how it plays into EVA

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Questions

For additional information, please contact me

jackie80504@gmail.com

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Notes