How to Measure HR Effectiveness: 12 Useful Metrics
An effective Human Resources team is a linchpin in the success of an organization. But how do you determine what being effective means? Let’s look at how to measure HR effectiveness to make sure that you’re creating as much positive impact as possible!
Contents
What is HR effectiveness?
Why should you measure HR effectiveness?
How to measure HR effectiveness
– Employee net promoter score (eNPS)
– Engagement rate
– Employee turnover rate
– Employee retention rate
– Absenteeism rate
– Training effectiveness
– New hire performance
– Cost per hire
– Internal mobility rate
– Cost of HR per employee
– HR tech ROI
– HR tech user adoption rate
What is HR effectiveness?
HR effectiveness refers to measuring how effective an HR department’s actions and activities are to a business. A highly effective HR team plays a major role in helping a company thrive, especially since HR leaders are involved in shaping overall business decisions.
For example, an efficiently designed and executed recruitment and onboarding strategy can help bring top talent on board, leading to increased productivity and, therefore, revenue. Similarly, a dynamic performance management system allows managers and employees to keep track of progress and performance, improve, and meet organizational goals.
Why should you measure HR effectiveness?
Measuring HR effectiveness is important for several reasons.
Ensuring effective use of resources By measuring HR effectiveness, you’ll get an indication of how effectively you’re using your resources (time and money). Discovering inefficiencies enables you to improve these or eliminate them. Workforce and budget planning To understand how effective HR is in your organization, you’ll have to track and analyze various metrics. These metrics will help you plan what your workforce will look like in the future and take steps to plan your strategy and budget accordingly. Understanding the overall impact of HR Measuring HR effectiveness will also help you visualize and demonstrate the overall impact your Human Resources department has on the organization.
How to measure HR effectiveness
To measure the effectiveness of your HR function, you need to establish relevant metrics. The metrics you choose will depend on what exactly you want to find out.
For example, you’d track metrics like quality of hire and cost of hire if you want to understand your recruitment process effectiveness. If you want to assess how effective you are in utilizing your HR budget, you might want to look into cost of HR per employee and training effectiveness in terms of ROI.
Enrolling in our HR Metrics & Dashboarding certificate program will teach you how to identify and implement relevant HR metrics to track.
Let’s explore some of the metrics you can use and how to measure them.
1. Employee net promoter score (eNPS)
What is it?
Employee Net Promoter Score (eNPS) is a metric that allows you to measure how likely your employees are to recommend your organization to others as a great place to work.
How to measure and calculate it:
The base of the eNPS is the question: “How likely are you to recommend our company as a place to work?” Employees rate it on a scale from 0 to 10 in a survey.
- 9 to 10 = Promoters. Happy and motivated employees.
- 7 to 8 = Passives. Employees who are content but not passionate about the company.
- 0 to 6 = Detractors. Dissatisfied employees.
To calculate your eNPS, subtract the percentage of Detractors from Promoters.
For example, a company with 75% Promoters and 20% Detractors equals an eNPS score of 55.
Generally, a good score is between 10 and 30, while anything over 30 is considered excellent.
Why it’s important:
An eNPS survey can help you gauge how happy or dissatisfied your employees are, pinpoint the steps HR can take to improve these results, and take action. It’s quick for employees to answer (so more employees are likely to participate) and can be distributed via your preferred communication channel with relatively low costs.
However, while this metric is a solid starting point, you should follow up with more questions. For example:
- Why would you (not) recommend our organization as an employer?
- What do you enjoy about your job?
- How can we as an organization improve?
2. Engagement rate
What is it?
Engagement rate is the share of employees engaged in their work in your organization.
How to calculate it:
Some of the simplest ways to track the engagement rate are to collect feedback during one-to-one meetings, stay and exit interviews, and pulse surveys.
In a survey, aim to stick to a maximum of five questions, such as:
- Are you happy at work?
- Have you received sufficient training to perform in your role?
- Do you have a good relationship with your colleagues?
- Would you recommend this organization as an employer to others?
A weighted average should be applied to each question, where the maximum score an employee can receive is 10.
An example:
Question 1: Are you happy at work?
- Yes = 2 points
- Somewhat = 1 point
- No = 0 points
- Total number of points = individual employee engagement score.
To work out the average engagement rate across your business, the calculation would be:
(Number of employees above the engagement norm / Total number of employees) x 100 = Engagement rate
Bear in mind that a good average engagement score for an organization is 50% or more.
Why it’s important:
According to an analysis by Gallup, an engaged team will have a lower turnover rate and 21% greater profitability. Yet, only 36% of employees in the U.S. are engaged at work.
A low engagement rate could indicate weaknesses in your hiring, onboarding, and training processes and will help you start to tackle these. Equally, employee engagement will show you who your star players are—the ones who are prepared to put in extra time, effort, and attention to their work and will go above and beyond for the business—and it’s crucial that you don’t let these employees slip through the cracks.
3. Employee turnover rate
What is it?
Employee turnover rate refers to the rate at which employees leave an organization. Turnover can be voluntary or involuntary.
How to calculate it:
Number of employees who left / Total number of employees x 100 = Employee turnover rate
First, it’s important to note that new hires aren’t included in the turnover count.
For example, let’s say your organization had 200 employees in 2020. You also made 10 new hires, and 15 people left during that year.
The calculation would be:
15 / 200 x 100 = 7.5%
Why it’s important:
Turnover rate averages vary greatly across industries. For example, a 50% annual staff turnover rate wouldn’t be considered poor in fast-churn sectors like call-centers or retail.
Turnover rate is an important metric to track because it can reflect your company culture and current HR processes. Do employees have what they need to do their jobs? Are new hires welcomed by their managers and colleagues and integrated into their teams? Are you on top of pay equity, and are you offering competitive benefits that your employees value?
4. Employee retention rate
What is it?
Employee retention rate shows the number of employees who remain in an organization over a set period compared to the total number of employees who worked there during that time.
How to calculate it:
For example, if an organization has 500 employees, and over the last year, 20 of them left, their employee retention rate would be 96%.
Why it’s important:
Employee retention rate is a meaningful indicator of a company’s ability to retain a stable workforce, and it’s one of the most important HR metrics. It helps HR departments analyze and tweak their talent acquisition and retention strategies to ensure they’re keeping up to date with changes in the workplace and labor market and doing everything they can to retain top talent.
Failure to do so can result in low team morale, disruption, and a knock on the wider goals of the business. Knowing your employee retention rate can help reduce company costs, increase employee productivity and engagement, and address recruiting issues.
5. Absenteeism rate
What is it?
Absenteeism rate (also known as absence rate or absence percentage) is the rate of unplanned absences during a set period, whether due to illness, stress, a fake sick day, or anything else, but does not include holidays or lateness. This can be measured for individuals, teams, or the entire organization.
How to calculate it:
Number of absent days / Number of available workdays in a period x 100 = Absenteeism rate
For example, let’s say you want to work out Sally’s absenteeism rate for 2021. Her total available workdays (minus holidays and weekends) are 220. She was absent for 5 days that year.
5 / 220 x 100 = 2.27%
Why it’s important:
Generally, 1.5% is deemed a healthy absence rate, given that it’s impossible to prevent illnesses all of the time. However, it’s important to note that certain illnesses (such as the flu or Covid-19) can result in an employee being absent for a few weeks, which would bring their absenteeism rate up to over 4%.
But an absenteeism rate higher than 1.5% can often indicate the absence is due to something more serious such as stress or burnout, lack of engagement, or conflict with team members. Anything significantly lower than 1.5% can also be a cause for concern—are employees afraid to call in sick, so they come into work unwell? This can lead to a drop in productivity, poor health, and even exhaustion in the long run.
The absenteeism rate provides insight into the health of your organization. Analyzing average rates across teams and departments can help highlight where the problems are and address them.
For example, maybe many employees have absence days when their children are sick and need to be looked after. In this case, a flexible working from home policy could help reduce absenteeism. If employees are paid a full day’s work even when absent, you might consider rewarding and incentivizing the employees with the lowest absenteeism rates on a quarterly or annual basis through a small bonus or gift.
6. Training effectiveness
What is it?
Training effectiveness measures how a particular training program impacts an employee’s knowledge, skills, and performance and how this, in turn, affects the company’s efficacy.
How to calculate it:
You can measure training effectiveness through post-training quizzes or assessments, one-on-one discussions, surveys, and questionnaires.
It’s important to decide your goals for the training and how you’ll measure training effectiveness before the training begins. For example, you may choose to measure the trainee’s productivity levels, mood, and engagement before and after the training.
There are five proven learning evaluation models that are most often trusted by companies today:
- Kirkpatrick’s Four-level Training Evaluation Model
- The Phillips ROI Model
- Kaufman’s Five Levels of Evaluation
- Anderson’s Model of Learning Evaluation
- Summative vs. Formative Evaluation
Why it’s important:
Measuring your training effectiveness can help you gauge how useful your current offerings are and how you can improve them. Organizations invest a great deal of resources into training programs; therefore, you must monitor them closely to see what’s working, what’s not working, and why.
More effective training results in greater employee performance and satisfaction, improved team morale, and a higher ROI.
7. New hire performance
What is it?
New hire performance is one of the most popular ways of measuring quality of hire and will usually be assessed by the extent to which a new hire adds value to the business.
How to calculate it:
Any performance metric that demonstrates a new hire’s value can be used to measure new hire performance. This includes meeting a specified sales quota, achieving a certain customer satisfaction score, or receiving positive managerial feedback during a performance review.
Organizations will usually use a combination of different metrics to assess new hire performance, including job performance, productivity, and ramp-up time.
Why it’s important:
According to a report by LinkedIn, over a third of companies want to improve their hire quality, and 50% of organizations use new hire performance evaluation to improve it.
New hire performance indicates how effective HR is in recruiting the right candidates for the business, onboarding them successfully, and giving them the tools they need to thrive from the get-go. A consistently high new hire performance rate helps organizations meet strategic business goals.
8. Cost per hire
What is it?
Cost per hire tells you exactly how much it costs your organization, on average, to hire a new employee.
How to calculate it:
For example, let’s say your company hired 75 new employees last year and incurred recruiting costs of $150,000. Your cost per hire would be $2,000.
Why it’s important:
Cost per hire is one of the most valuable and most used HR and recruiting metrics. It helps you forecast what budget you need to hire over the next period and demonstrates how recruitment contributes to the bottom line.
It also helps HR teams optimize the recruitment process by investing their resources in recruitment channels and initiatives that bring in high-performing candidates and cutting spending on avenues that aren’t bringing in a high ROI.
9. Internal mobility rate
What is it?
Internal mobility rate is the percentage of employees that move through an organization through promotions, transfers, and demotions. Naturally, the larger an organization is, the higher internal mobility it will have as there are generally more positions available.
How to calculate it:
(Total number of internal movements / Total number of employees) x 100 = Internal mobility rate
Internal mobility rate alone is often not enough to create a clear picture, so it’s important to analyze other HR metrics alongside it.
For example, let’s say you have an internal mobility rate of 5% and a turnover rate of 5%. This indicates that most of your open positions are being filled by the existing talent in the organization. For this to be true, the organization is likely good at succession planning, has a strong pool of skilled employees, clearly defined career paths, and effective mentoring and development programs in place.
However, if internal mobility is at 5%, but turnover is at 25%, it suggests that few open roles are being filled with existing talent, which means more resources are being used to hire externally.
Why it’s important:
The greatest source of talent for any organization is its existing employees, and a solid internal mobility program can help businesses utilize this and reduce time to fill and cost per hire in the process.
You can also view this metric alongside diversity to see how inclusive your organization is and where it needs to improve. For example, is there a lower mobility score for women than men? If so, why, and how can you address this?
10. Cost of HR per employee
What is it?
The cost of HR per employee refers to the total cost a company spends on Human Resources per full-time employee.
How to calculate it:
Total HR costs (salary + benefits) / Total number of employees = HR cost per employee
Let’s say an organization had HR costs of $250,000 last year and 100 employees.
$250,000 / 100 = $2,500
Why it’s important:
HR cost per employee helps HR professionals stay aware of their departmental costs, measure overspending or underspending, predict future recruiting costs and calculate ROI.
11. HR tech ROI
What is it?
HR tech ROI measures the return on investment of various HR software and technology that have been invested in and potentially rolled out across HR and the wider organization.
How to calculate it:
It’s important to begin by outlining why you invested in HR tech in the first place. Was it to improve your recruiting process, boost employee engagement, reduce paperwork and management time, or something else? Pinpoint some metrics that you wanted to improve.
What did the HR tech cost? This includes the ticket price, the cost of implementation (staff time, user training, expert fees, and storage costs), and the cost of ongoing maintenance and upgrades.
Next, compare current metrics with metrics before you rolled out the tech. For example, has there been a boost in HR performance KPIs, increased employee retention or turnover rate, fewer compliance issues, or increased engagement?
The final step is to determine whether you have saved more than you spent. Was the cost worth it?
Why it’s important:
Measuring HR tech ROI is important because it helps to determine whether your old system was working or not, provides a benchmark on the efficiency of your current HR processes, and helps you build your future HR tech strategy using tangible existing evidence.
12. HR tech user adoption rate
What is it?
HR tech user adoption rate refers to the percentage of employees actively using the new technology at work.
How to calculate it:
To work out the adoption rate:
(Number of new users of a feature / Total number of users) x 100 = Adoption rate
Why it’s important:
User adoption plays a significant role in the overall success of an organization, and this metric will help you improve adoption rates.
A low adoption rate can signal a lack of sufficient training or understanding of how the new technology can help employees perform in their roles at work. There may also be extra features or tools needed to utilize the technology effectively. With this data, HR teams and business leaders can make improvements and track progress.
Over to you
Knowing how to measure HR effectiveness will help your HR team gauge what you need to focus on to create a quantifiable impact and add more value to the organization.
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