Key performance indicators (KPIs) measure the effectiveness of organizational strategies that companies have in place to achieve their business goals. For example, organizations often look at employee retention to gauge whether workers are satisfied.
In the world of human resources (HR), HR-specific KPIs are the quantifiable measures of the success of an organization’s HR department. Much like regular KPIs, HR KPIs help companies and businesses set strategic goals that produce measurable results.
What are HR KPIs?
So, what is a KPI in HR? HR KPIs are metrics that measure how well an HR department contributes to the overall success of an organization through their HR strategy. A typical HR strategy addresses an organization’s challenges with people-focused solutions.
For example, one HR KPI that examines the quality of hires is the percentage of new hires that receive a strong performance review from their manager. It’s important to note that this KPI contributes to the HR team and the organization as a whole.
Finally, HR KPIs are multifunctional. One purpose of HR KPIs is to back an organization’s overall strategy by enabling them to objectively analyze progress toward current goals and decide on realistic future goals. The other major purpose of HR KPIs is to help an HR team fulfill their department-specific goals. Both motives go hand in hand.
HR KPIs vs. HR Metrics
HR metrics assess the value of HR initiatives, such as turnover prevention, employee training, return on human capital, and more. While there are many HR metrics, only those reflecting an organization’s unique strategy are legitimate HR KPIs.
In other words, metrics that fail to measure an organization’s overall effectiveness are just that, metrics. HR KPIs go further than HR metrics by helping companies evaluate and develop strategies. Only businesses that know the difference between HR KPIs and HR metrics stand a chance at reaching their organizational strategy in the long run.
How to use and measure HR KPIs?
The primary way to use and measure HR KPIs is with a balanced scorecard, a tool that helps employers keep their staff focused on activities that further the organization’s goals in addition to serving the department they’re in1. Organizations use balanced scorecards to present and analyze important HR KPIs like employee retention.
An HR-balanced scorecard is a carefully selected visual aid containing HR KPIs that helps an organization’s leadership team measure HR’s impact on organizational success. It’s important to implement a scorecard once an organization’s KPIs are set to make them actionable.
How to create an HR scorecard
Creating an HR scorecard is simpler than it sounds. First, an organization’s HR manager establishes certain HR goals to advance the organization’s goals set by the executive board.
Next, the HR department develops one or more KPIs for each goal. For example, if an HR team’s goals are to decrease lead time and become a more attractive employer, their HR KPIs mean the time it takes to hire employees and the rate candidates accept job offers.
After an organization’s HR team sets KPIs for each of their goals, that’s when data comes into play. HR professionals utilize the available data they collected to decide on the organization’s current score for each KPI and a target score for the future.
A well-made HR scorecard contains a strategy map that includes an organization’s objectives concerning finances, customers, internal processes, and innovation and learning. Next to the strategy map, the organization includes a clear list of their objectives, followed by current measurements of how well they meet those objectives and target measurements to aim for down the road.
Here’s an example of what a scorecard looks like.
12 examples of human resources KPIs and ways to track them
Check out the following list of HR key performance indicators examples, grouped by category, to learn why we’re sharing them and how to measure them.
1. Employee turnover rate
Is your organization looking to assess employee performance and figure out whether any potential issues are getting in the way of organizational goals? If so, employee turnover rate is an important KPI to measure.
Not only does your organization’s turnover rate reveal potential issues with your HR team or working environment, but it also enables your organization to take the right steps to address those problems with targeted strategies.
To calculate your organization’s turnover rate, there are two options:
- Divide the number of employees who leave your organization over a certain period of time by the total number of employees during that period OR
- Divide the revenue your organization generates during a certain period by the total number of people employed at that time.
2. Employee retention
Our next KPIs example is employee retention. A high employee retention rate indicates that your organization’s employees are satisfied with their jobs and don’t plan on leaving anytime soon. In contrast, a low rate (meaning many resignations) signals that your organization’s employees are dissatisfied and might leave.
Employee retention is a key KPI for evaluating organizational success and cost efficiency. To calculate employee retention, divide the total number of employees at the end of a given period by the total number of employees at the beginning of that period.
3. Dismissal rate
Workforce management, or how companies allocate employees and resources, track employee attendance, and comply with labor laws, boils down to an organization’s ability to optimize productivity and reduce risk. To evaluate workforce management, look at the dismissal rate, meaning the number of employees let go over a particular period of time.
The most common way to measure the dismissal rate of an organization is to divide the total number of employees at an organization over a certain period of time by the total number of months during that stretch of time. It’s also a good idea for HR managers to examine how the number of terminations varies from department to department within an organization.
4. Absenteeism rate
Absenteeism is exactly what it sounds like—the number of days employees are absent. Organizations across various industries struggle with absenteeism. It’s crucial for your organization to be aware of their absenteeism rate because a high rate is sometimes a symptom of a serious issue with workplace culture or employee morale that ultimately costs your organization.
To measure absenteeism, HR managers must identify the percentage of employees who are regularly absent and the reasons for their absence. Logging absences under different categories, such as vacation or sick leave, makes relevant data more accurate and helpful. Fortunately, plenty of software automates measuring absenteeism. Another way to track absenteeism is through surveys.
5. Internal career opportunities
The rate of internal career opportunities, otherwise known as the internal job hires rate, indicates the proportion of employees that changed positions within the organization over a certain period of time. Measuring internal career opportunities helps companies to know whether they are providing enough opportunities for growth to their employees, which ties into employee satisfaction and engagement2.
To measure internal career opportunities, divide the total number of internal hires over a specific period by the average number of employees at your organization at the start and end.
6. Employee productivity
Employer productivity suggests how much work each employee at your organization needs to accomplish to help your organization reach monthly, quarterly, or annual business targets. Working to ensure a strong employee productivity rate is an important step for companies to take toward ensuring organizational growth and sustainability.
To track employee productivity, HR managers decipher the number of hours each employee works and how much work they are producing in that time frame. Once your organization knows which employees are more or less productive, providing additional guidance to those who need it becomes possible.
7. Accidents rate
Workplace accidents lead to absenteeism, high costs, low productivity, and many other issues3. Monitoring your organization’s accident rate helps your organization understand how to create a safer work environment for employees and increase organizational efficiency by cutting down on the time and resources it takes for your human resources department to manage accidents.
An organization’s accident rate is one of the easiest HR KPIs to calculate. All you have to do is count the number of workplace accidents that occur over a given time. Of course, this method also means that your organization needs to keep track of accidents when they happen.
8. Employee engagement and satisfaction
Employee engagement and satisfaction levels link directly to an organization’s overall efficiency and productivity. Employees that are happily engaged and satisfied with their jobs are more likely to produce greater outputs for their organization, which yields greater profits and business success. Engagement and satisfaction also affect other HR KPIs on this list, such as turnover rates, talent retention, and absenteeism.
Data on engagement and satisfaction is best collected using employee surveys like the employee net promoter score (NPS). An employee engagement survey aims to determine what percentage of your employees feel engaged in their work and what percentage plans to stay with your organization for more time.
Similarly, an employee satisfaction survey focuses on work culture, work-life balance, employees’ happiness with their roles and compensation, and whether team members feel valued. Allow your employees to feel fully comfortable sharing their honest opinions by making engagement and satisfaction surveys anonymous for the most valuable insights.
9. Training and education investment
There’s a reason we refer to training and education as an investment. The initial cost of providing your workforce with the latest tools and knowledge—whether that’s information about the latest developments in the field, HR KPI dashboards, or topics like diversity and inclusion—is offset by the resulting improvement in retention rates and overall productivity.
Examining employee turnover rates is one way to measure education and training costs. High turnover rates sometimes mean workers feel unvalued or lack understanding about your organization’s HR department.
Performance reviews are another way to track your organization’s employee training and education investment. If reviews improve with more training, that’s a positive sign that they’re working. Likewise, if reviews are weaker in certain areas, that tells your business where more education helps.
10. Cost of the workforce
Your business’s cost to find and onboard new employees is another useful HR KPI to track. That information enables your organization to optimize talent acquisition costs over time and ensure their HR department brings value to the organization.
To track the average recruitment costs for a new employee, divide the total money your organization spends on recruitment by the total number of employees they hire. Then, take that result (the average cost) and compare it to industry norms to get an idea of whether your organization is hiring talent at a competitive rate. Another way of calculating the cost of the workforce is by using a survey to collect data on how much your organization spends on new hires.
11. 90-day quit rate
A high quit rate, or failure rate, conveys how many employees leave an organization during their first 90 days of employment. If your organization has a high quit rate, there’s an underlying problem with either recruitment or company culture.
To calculate a 90-day quit rate, divide the number of people who quit in their first three months by the total number of workers recruited. If your organization’s 90-day quit rate is high, be sure to investigate why people are quitting so that your organization can make worthwhile improvements.
12. Quality of new hires
Quality of hire measures the value a new employee contributes to an organization. It’s helpful for organizations to know the value that new hires bring to assess the quality of talent they are attracting and the effectiveness of their existing recruitment procedures.
The quality of new hires means something different to every organization, so to measure this HR KPI, define what it means to your organization. Then, figure out which key metrics align best with that definition. Some common metrics to measure the quality of hires are new hire performance, turnover and retention, and employee engagement.
To evaluate the productivity of new hires, for example, divide the number of days it takes new employees to reach maximum productivity by the number that your organization expects for that position and then multiply the result by 100 percent.
What is not a human resources key performance indicator?
If you’re wondering about examples of metrics that aren’t HR KPIs, check out this brief list:
- Interview average cost
- Duration of placement
- Service time length
- Average compensation
- Average time spent on training per employee
- The average days of vacation per employee
- Retirement average age
- Satisfaction with training
- HR/CTE ratio
How to set good KPIs for Human resources?
Effective HR KPIs are specific, measurable, attainable, relevant, and time-bound. Organizations also take the time to ensure that HR KPIs are accurately and consistently recorded by assigning them to organizational leaders. To design a solid HR strategy, it’s a good idea to take the time to make sure your organization is selecting the right KPIs and create customized measurement plans to evaluate those KPIs.
Using an HR scorecard is another way to ensure the effectiveness of HR KPIs. And an effective HR scorecard includes leading and lagging KPIs—leading KPIs are metrics based on predictions for future developments and costs while lagging KPIs rely on data from past performance.
Tips for keeping track of your HR KPIs
Follow these four recommendations to monitor the success of your organization’s HR KPIs.
Review progress on HR KPIs
Regular meetings are a reliable way to invite employees’ feedback on how well HR KPIs work.
Check scorecard to stay in alignment
Reviewing your organization’s HR scorecard with the leadership team helps ensure it stays aligned with big-picture goals.
Socialize HR metrics and processes across the organization
Communicating the findings of your organization’s HR KPIs with transparency goes a long way in helping employees to understand their value.
Regularly re-evaluate scorecard metrics
Measures are likely to change as your organization changes and grows. Anticipate changes and make improvements by regularly checking your HR scorecard.
A final word
Measuring HR KPIs is a crucial step toward enabling performance improvement in organizations, tracking progress over time, and ensuring that an organization’s HR department contributes to their overall success.
One common way of measuring HR KPIs is by creating and distributing employee surveys. Take a look at Payscale’s compensation surveys to help your organization better understand how to offer competitive pay.
