Human capital metrics—also referred to as HR metrics—help businesses measure the value and effectiveness of human resources initiatives so that management can plan for the future. Here, we’ll outline ten of the most critical human capital metrics that can help your business.
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The number of days from the opening of a position to a candidate signing a contract is an important metric. It helps to gauge the efficiency of a company’s recruiting process. This HR metric also sheds light on positions that are difficult to fill.
In the United States, time to hire averages from 21 to 28 days, depending on the job category.
Note: A similar metric is “time to fill.” Time to fill uses the new employee’s actual start date as the endpoint for the metric, rather than the date he or she accepted the position.
Similar to time to hire, the cost per hire metric is an indicator of recruitment efficiency. It measures the amount of money it costs the company to hire a new employee.
The average cost per hire across all companies recently surveyed by the Society for Human Resource Management (SHRM) was just over $4,000. So, $3,000 to $5,000 is a good benchmark, depending on the size of the company and the industry.
This is considered one of the most important human capital metrics, indicating a company’s hiring success. Employees leaving within the first year may indicate a mismatch between the person and the position, the person and the company, or something else. It is essential to discover what went wrong because early turnover is very costly to a company. It typically takes anywhere from six months to a year for a new employee to reach optimum productivity, and when employees do not make it that far, it can be damaging to a company over time. Replacing a new employee can cost an employer nearly $44,000 over a year.
Monitoring this HR metric can be useful in preventing high-potential employees from leaving your company. This can be one of the most valuable human capital metrics to track.
According to SHRM, younger employees expect promotions more often than older generations. Roy Mauer writes, “40 percent of Millennials expect a promotion every one to two years, and the youngest generation was more likely than others to say that raises, promotions and bonuses should be provided more than once a year.”
Revenue per employee is a valuable measure of a company’s overall HR and organizational efficiency. This human capital metric can also be used to demonstrate the quality of employees hired.
For larger companies, the average revenue per employee varies greatly across industries, with the energy sector on the high end at $1.79 million and the industrial sector on the lower end at $320,000. Smaller businesses average around $100,000 in revenue per employee.
Overall turnover—in contrast to #3, early turnover—measures the total number of employees who leave a company in any given year. This HR metric is especially useful when combined with performance metrics to make clear any distinctions between attrition of high-performing employees and lower-performing employees. Needless to say, businesses want to retain their top performers, and these metrics can help them identify and remedy any problems.
The turnover metric can also shed light on which departments within a company may be experiencing issues. If a significant number of employees do not want to work in a specific department, it may be an indication of a problem with a particular manager or aspect of the working conditions. When the metric shows something inexplicable, management can be alerted to get to the bottom of the issue.
Turnover rates vary significantly by industry, with federal government positions coming in the lowest at 1.3%. On average, a 10% turnover rate—a 90% retention rate—is a good figure to aim for.
Billable hours per employee may be the most concrete performance measure. This is one of the human capital metrics that are particularly useful in professional services fields such as law and consulting. Pairing this metric with an engagement rating (see #8) offers a strong basis for analysis, as does benchmarking between departments or managers.
Thirty-five billable hours per week per employee is a target to aim for.
The importance of employee engagement is increasingly evident. Although engagement is often still considered a “soft” HR outcome, the higher an employee’s engagement, the more productive he or she is likely to be. Engaged employees tend to be better at handling job-related stress, and view their work as a challenge as opposed to a burden. Overall, team engagement can be an excellent indicator of a manager or supervisor’s skills, helping to identify those who may be ready for a promotion.
According to AON’s 2018 Trends in Global Employee Engagement, global employee engagement has rebounded to match 2015’s all-time high of 65%, while North America stayed flat at 64%.
High or increasing absenteeism strongly indicates employee dissatisfaction and is a reliable indicator of increasing turnover. A typical rate for absenteeism is 2.5%. Closely monitoring this human capital metric can help management keep on top of any emerging trends that could end up being quite costly if not caught and addressed early.
To maximize cost-effectiveness, a company should be striving to keep this number from creeping up. HR professionals who possess strong analytical capabilities can help keep the cost of HR per employee low.
The cost of HR per employee varies significantly depending on the size of the organization. In a 2017 Bloomberg survey, the range was $594 to $2,966.
As demonstrated by the human capital metrics examples we’ve outlined here, they are a valuable source of insight that can help make informed business decisions. Paypro Workforce Management offers a variety of fully customizable services to help you manage your workforce. Many businesses continue to handle their workforce management tasks (i.e., time tracking, payroll, and benefits administration) manually or through multiple service providers. Paypro can help streamline your workforce management tasks so that you can spend more time focusing on your core business.
Contact us today to learn how our team of experts can create and implement a custom solution for your business.
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