The human resources department is not income generating. We measure our value and effectiveness not in sales numbers, but the people we hire, train, develop and lead. How the value of the HR department is measured at your organization is dependent upon a number of different factors. It depends on your senior leaders and what they want from their HR team, your company’s focus and mission, and the industry you serve.
No HR department is the same and is unique to the company’s culture and the employees within that organization. When it comes to HR metrics, there has been no short of conversations and controversy around what HR metrics are important to executive and organizational leadership.
While I’m not here to participate in the HR organization metrics debate, I think it’s important to start somewhere as you begin to establish a baseline and measure for the organization. Here's a list of 8 human resource metrics and formulas to get you started in demonstrating your department’s ROI for the organization:
- Monthly Turnover Rate = (number of separations during month / average number of employees during month) x 100).
- Revenue per Employee = total revenue / total number of employees. This is especially important when evaluating the cost of a lost employee due to voluntary or involuntary turnover.
- Human Capital Cost = Pay + Benefits + Contingent Labor Cost / Full Time Equivalents.
- HR to Staff Ratio = Employees / Human Resources Team Members. This ratio is important since during the recession HR departments have reduced in number dramatically. HR serves as the internal customer support staff just like call center customer service employees serve as external facing.
- Return on Investment = (total benefit – total costs) x 100.
- Promotion Rate = Promotions / Headcount.
- Percentage Female at Management Level = Female Management Level Employees/Management Level Headcount. This formula can also be used when evaluating executives at a female level and other diversity categories like veterans and race.
- Cost Per Hire = (External Costs ) + Σ (Internal Costs) / Total Number of Starts in a Time Period
I encourage you to research, experiment, and understand the different HR metrics and formulas. Speak to your leadership teams and talk to your peers. Ask them what’s important to them in establishing value to the HR function.
Is there an HR metric that you analyze that isn’t listed here? Share your insights below to help educate other HR professionals.