1.3.2 HR Metrics: Evaluating HR Effectiveness Flashcards
Explain HR Metrics
Also called workforce analytics, allow managers to evaluate the important dimensions of success with respect to people- how they are recruited, trained, retained, and terminated
Good metrics help managers make continuous improvements in how people are treated and often dispel myths and incorrect assumptions
List the most frequently used statistical measures
Employee measures
Productivity measures
HR process measures
List the employee statistical measures
- Job satisfaction and measures of company morale
- Organizational commitment and involvement
- Turnover and retention rates
- Absenteeism rates and days of sick leave taken
- Grievance rates
- Exempt terminations as a percent of exempt employees
- Nonexempt terminations as a percent of nonexempt employees
List the productivity statistical measures
- Output/ Input
- Revenue per employee
- Cost per employee
- Units produced per employee
- Profit per employee
- OSHA incident rate
- Cost of a new hire
- Time to fill vacant positions
- Worker Compensation cost per employee
List the process statistical measures
- HR department expense as a percent of operating expenses
- Ratio of total employees to HR staff employee
- Compensation as a ratio of company operating expenses
- Benefits as a percent of payroll or a percent of operating expenses
- Training expenses per employee
- Cost per hire
- HR department expensed per employee
- Compensation as a percentage of revenue
- Retiree benefit cost per retiree
- Ratio of offers made to acceptances- yield ratios
What are statisticial measures used for?
To assess the performance of HR activities
What are the two ways to make sense of statistical measures
- To compare them with comparable companies
- To compare the with the company’s historical performance by examining changes over time
Revenue Factor equation
Revenue ÷ Total Number of FTE
Explain revenue factor
- primary measure of effectiveness of a company
- represents how much revenue is generated by the average full-time equivalent (FTE) employee.
- This metric views employee as a capital investment rather than as a expense.
- Part-time employees are included in the FTE count proportional to the hours they work
Revenue per Labor Cost equation
Revenue ÷ Total Labor Costs
Explain Revenue per Labor Cost
- recommended as a better measure to track than revenue per FTE
- motivates managers to reduce cost rather than FTEs. –When companies focus on revenue per FTE, managers are motivated to use expensive overtime to meet production deadlines rather than less expensive contingency hiring that increases that number of FTE
Human Capital ROI equation
[Revenue- Operating Expense- ( Compensation Cost and Benefits Cost))]÷ ( Compensation Cost + Benefits Cost)
Explain Human Capital ROI
- measures the return on investment ratio for employees
- mentioned as the prime measure for analyzing HR practices, such as recruitment, training, and incentives -changes in the metric are carefully examined with respect to changes in HR practices to test for causal relationship
Capital Value added equation
[Revenue- ( Operating Expense - ( Compensation Cost + Benefits Cost)) ] ÷ Total Number of FTE
Explain Capital Value Added
- represents how much value is added to the company from the average employee and is interpreted as the value of the workforce’s knowledge, skills, abilities, and performance
HR Expense Factor equation
HR Expenses ÷ Total Employees
Explain HR Expense Factor
- also called HR cost per employee, represents the average cost of providing human resource services to the employees in a company.
- can be benchmarked using surveys that show the average for all responding companies, plus the average HR expense for different industries and companies of different sizes
- Two other popular HR cost metrics are HR costs as a percent of revenue and HR cost as a percent of total operating cost.
Absence Rate equation
[( Number of days absent in the month) ÷ ( Average number of employees during month) x (Number of workdays)] x 100
Explain Absence Rate equation
- the standard measure of absenteeism and can be benchmarked with other absenteeism surveys, such as the BNA Job Absence Report which shows the rates for different industries and companies of different sizes.
- Benchmark data can indicate whether a company had a serious absenteeism problem.
- can track the effects of changes in attendance policies, attendance incentive programs, and other interventions.
Turnover Rate Equation
[ Number of separations during the month ÷ Average number of employees during month] x 100
Turnover rate explained
- standard measure of turnover and can be benchmarked against data supplied by the Bureau of Labor Statistics and the Bureau of National Affairs in its BNA Turnover Report.
- measures the rate that employees leave a company and is usually divided into voluntary and involuntary reasons before examining potential problems in HR policies
Cost per Hire equations
(external costs + internal costs) ÷ number of hires
Cost per Hire explained
- measures the costs associated with sourcing, recruiting, and staffing activities borne by an employer to fill an open position
- first metric developed by a joint committee formed by SHRM and the American National Standard Institute (ANSI)
- Intended for all industries in both the public and private sectors
- metric measures only the cost of hiring a new replacement and not the entire cost of turnover
- Used to examine changed in recruitment and retention policies
Turnover Costs per Employees equation
(Separation Costs + Replacement Cost + Training Costs + Lost Performance) ÷ Number of Replacements
