1.3.2 HR Metrics: Evaluating HR Effectiveness

Question 1

Explain HR Metrics

Answer 1

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

Question 2

List the most frequently used statistical measures

Answer 2

Employee measures
Productivity measures
HR process measures

Question 3

List the employee statistical measures

Answer 3

• 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

Question 4

List the productivity statistical measures

Answer 4

• 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

Question 5

List the process statistical measures

Answer 5

• 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

Question 6

What are statisticial measures used for?

Answer 6

To assess the performance of HR activities

Question 7

What are the two ways to make sense of statistical measures

Answer 7

• To compare them with comparable companies

- To compare the with the company’s historical performance by examining changes over time

Question 8

Revenue Factor equation

Answer 8

Revenue ÷ Total Number of FTE

Question 9

Explain revenue factor

Answer 9

• 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

Question 10

Revenue per Labor Cost equation

Answer 10

Revenue ÷ Total Labor Costs

Question 11

Explain Revenue per Labor Cost

Answer 11

• 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

Question 12

Human Capital ROI equation

Answer 12

[Revenue- Operating Expense- ( Compensation Cost and Benefits Cost))]÷ ( Compensation Cost + Benefits Cost)

Question 13

Explain Human Capital ROI

Answer 13

• 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

Question 14

Capital Value added equation

Answer 14

[Revenue- ( Operating Expense - ( Compensation Cost + Benefits Cost)) ] ÷ Total Number of FTE

Question 15

Explain Capital Value Added

Answer 15

• 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

Question 16

HR Expense Factor equation

Answer 16

HR Expenses ÷ Total Employees

Question 17

Explain HR Expense Factor

Answer 17

• 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.

Question 18

Absence Rate equation

Answer 18

[( Number of days absent in the month) ÷ ( Average number of employees during month) x (Number of workdays)] x 100

Question 19

Explain Absence Rate equation

Answer 19

• 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.

Question 20

Turnover Rate Equation

Answer 20

[ Number of separations during the month ÷ Average number of employees during month] x 100

Question 21

Turnover rate explained

Answer 21

• 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

Question 22

Cost per Hire equations

Answer 22

(external costs + internal costs) ÷ number of hires

Question 23

Cost per Hire explained

Answer 23

• 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

Question 24

Turnover Costs per Employees equation

Answer 24

(Separation Costs + Replacement Cost + Training Costs + Lost Performance) ÷ Number of Replacements

Question 25

Turnover Cost per Employee explained

Answer 25

• measures more than just hiring costs
• Includes all of the costs associated with turnover and represents the average cost of replacing an employee who quits or is fired
• Separate metrics can be calculated for different divisions, different jobs, and different job levels
• cost provide a significant motivation for examining and improving HR practices that reduce turnover

Question 26

Time to Fill equation

Answer 26

Total day elapsed to fill requisitions ÷ Number hired

Question 27

Time to Fill explained

Answer 27

• counts the number of days from which job requisitions are approved to the new hire starting date
• measures the average time required to full job openings and reflects the efficiency for hiring practices
• the average time to time-to-fill is 36 days

Question 28

Training Investment Factor equation

Answer 28

Total Training Cost ÷ Headcount

Question 29

Training Investment Factor explained

Answer 29

• represents the training cost per employee
• as this metric changes, there should be corresponding changes in other metrics tied to training effectiveness, such as reductions in accidents following safety training

Question 30

Health Care Costs per Employee equation

Answer 30

Total cost of Health Care ÷ Total Employees

Question 31

Health care cost per employee

Answer 31

• measures the per capita cost of employee health care benefits
• measure can be benchmarked against data published by the Bureau of Labor Statistics, by the U.S Chamber of Commerce, and by other industry surveys
• important because the number during labor union negotiations and in communication with employees
• Employees need to know how this metric has changed over time and what they can do individually to reduce it

Question 32

Employee Benefits as a Percent of Payroll equation

Answer 32

Total employer benefits payments ÷ Total gross payroll

Question 33

Employee Benefits as Percent of Payroll explained

Answer 33

• sometimes called Total Benefit Cost
• measure the cost of benefits as a percent of payroll and is one of the most-frequently used metric for comparing the cost of benefits within one’s industry and over time.

Question 34

HR-to Employee Ratio equation

Answer 34

(Total number of HR FTEs ÷ Total Number of FTEs in the Organization) x 100

Question 35

HR- to- Employee Ratio explained

Answer 35

• provides a useful way to compare HR staffing levels between organization
• represents the number of HR staff per 100 employees
• The average ratio reported on a SHRM benchmarking study is 2.6, with a median of 1.58
• The ratio of HR personnel to total employees in an organization is influenced by the organization’s industry and size