How To Measure HR Effectiveness: 16 Most Important Metrics To Track
There’s no checklist of HR metrics that every organization should track. The most meaningful indicators of HR effectiveness are those linked to your current HR strategy. Define your objectives and priorities, select KPIs to track your effectiveness, and achieve your goals.
The most valuable asset of any organization is its people. An effective HR team brings the right people into the right roles at the right time and keeps them engaged and growing. When HR is working well, employee engagement and revenue per employee both tend to be higher. Despite this, a recent survey of HR leaders showed that 63% consider their HR function only moderately effective at best.
So, how can you measure HR effectiveness in your organization and make sure the HR function is operating at its best and creating a positive impact?
Contents
What is HR effectiveness?
Why should you measure HR effectiveness?
How to measure HR effectiveness
What is HR effectiveness?
HR effectiveness refers to how well the HR department meets its goals and contributes to business outcomes. This includes everything from talent acquisition and employee performance to engagement and attrition. An effective HR team supports business success, mainly as HR leaders increasingly help shape organizational strategy.
For instance, a well-designed recruitment and onboarding process can bring in high-quality talent, boosting productivity and revenue. Similarly, a clear performance management system helps employees and managers track progress, improve, and achieve goals together.
Why should you measure HR effectiveness?
Measuring HR effectiveness has many benefits for an organization and its people.
- Optimize resource use: By measuring HR effectiveness, you’ll get an indication of how effectively you’re using your resources (time and money). Discovering inefficiencies enables you to improve these or eliminate them.
- Improve workforce and budget planning: To understand how effective HR is in your organization, you’ll have to track and analyze various metrics. These metrics will help you plan what your workforce will look like in the future and take steps to plan your strategy and budget accordingly.
- Understanding the overall impact of HR: Measuring HR effectiveness will also help you visualize and demonstrate the overall effect your Human Resources department has on the organization.
- Better plan for unforeseen events: An effective HR team is in a stronger position to manage unforeseen issues that arrive in the organization, whether they’re due to internal factors like unexpected turnover or external factors like changes in technology or the economy.
- Create a workplace where people feel valued: By tracking the right HR efficiency metrics and analyzing the data, HR can create an environment where employees feel valued, motivated, and supported to grow.
- Improved compliance and risk management: When HR operates effectively, it helps ensure the company remains compliant with changing employment laws and regulations, reducing the risk of breaking the law and receiving penalties.
HR tip
Regularly reporting and analyzing HR metrics adds business value. In one survey, 82% of executives agreed HR metrics were useful, but nearly a third said they wanted more frequent updates from HR.
How to measure HR effectiveness
To start, decide what you want to learn, then choose the metrics that will give you that insight. For example, if you’re looking into recruitment, track quality of hire or cost per hire. If you’re focused on budget efficiency, consider HR cost per employee or training ROI.
Let’s look at 16 useful metrics to measure HR effectiveness.
1. Employee net promoter score (eNPS)
Employee Net Promoter Score (eNPS) is a metric that allows you to measure how likely your employees are to recommend your organization to others as a great place to work.
How to calculate it
The eNPS’s base question is: “How likely are you to recommend our company as a place to work?” Employees rate it on a scale from 0 to 10 in a survey.
- 9 to 10 = Promoters. Happy and motivated employees.
- 7 to 8 = Passives. Employees who are content but not passionate about the company.
- 0 to 6 = Detractors. Dissatisfied employees.
To calculate your eNPS, subtract the percentage of Detractors from Promoters.
For example, a company with 75% Promoters and 20% Detractors equals an eNPS score of 55.
A score between 10 and 30 is generally considered good, while anything over 30 is excellent.
Why it’s important
An eNPS survey can help you gauge how happy or dissatisfied your employees are, pinpoint the steps HR can take to improve these results, and take action. It’s quick for employees to answer (so more employees are likely to participate) and can be distributed via your preferred communication channel with relatively low costs.
However, while this metric is a solid starting point, you should follow up with more questions. For example:
- Why would you (not) recommend our organization as an employer?
- What do you enjoy about your job?
- How can we as an organization improve?
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2. Engagement rate
This reflects how many employees are genuinely engaged in their work.
How to calculate it
Some of the simplest ways to track the engagement rate are to collect feedback during one-to-one meetings, stay and exit interviews, and pulse surveys.
In a survey, aim to stick to a maximum of five questions, such as:
- Are you happy at work?
- Have you received sufficient training to perform in your role?
- Do you have a good relationship with your colleagues?
- Would you recommend this organization as an employer to others?
Assign weighted scores (e.g., Yes = 2, Somewhat = 1, No = 0), then calculate the average engagement score. To determine the engagement rate:
(Number of employees above the engagement norm / Total employees) × 100
Why it’s important
According to an analysis by Gallup, an engaged team will have a lower turnover rate and 21% greater profitability. Yet, only 36% of employees in the U.S. are engaged at work.
A low engagement rate could indicate weaknesses in your hiring, onboarding, and training processes, and will help you start to tackle these. Equally, employee engagement will show you who your star players are—the ones who are prepared to put in extra time, effort, and attention to their work and will go above and beyond for the business—and it’s crucial that you don’t let these employees slip through the cracks.
3. Employee turnover rate
Employee turnover rate refers to the rate at which employees leave an organization. Turnover can be voluntary or involuntary.
How to calculate it
Employee turnover rate = (Number of employees who left / Total number of employees) x 100
First, it’s important to note that new hires aren’t included in the turnover count.
For example, let’s say your organization had 200 employees in 2020. You also made 10 new hires, and 15 people left during that year.
The calculation would be:
15 / 200 x 100 = 7.5%
Why it’s important
Turnover rate averages vary significantly across industries. For example, a 50% annual staff turnover rate wouldn’t be considered poor in fast-churn sectors like call centers or retail.
Turnover rate is an important metric to track because it can reflect your company culture and current HR processes. Do employees have what they need to do their jobs? Are new hires welcomed by their managers and colleagues and integrated into their teams? Are you on top of pay equity, and are you offering competitive benefits that your employees value?
4. Employee retention rate
Employee retention rate shows the number of employees who remain in an organization over a set period compared to the total number of employees who worked there during that time.
How to calculate it
Employee retention rate = [(Total employees – Employees who left) / Total employees] × 100
For example, if an organization has 500 employees, and over the last year, 20 of them left, their employee retention rate would be 96%.
Why it’s important
Employee retention rate is a meaningful indicator of a company’s ability to retain a stable workforce, and it’s one of the most important HR metrics. It helps HR departments analyze and tweak their talent acquisition and retention strategies to ensure they’re keeping up to date with changes in the workplace and labor market and doing everything they can to retain top talent.
Failure to do so can result in low team morale, disruption, and a knock on the wider goals of the business. Knowing your employee retention rate can help reduce company costs, increase employee productivity and engagement, and address recruiting issues.
5. Absenteeism rate
Absenteeism rate (also known as absence rate or absence percentage) is the rate of unplanned absences during a set period, whether due to illness, stress, a fake sick day, or anything else, but does not include holidays or lateness. This can be measured for individuals, teams, or the entire organization.
How to calculate it
Absenteeism rate = (Number of absent days / Number of available workdays in a period) x 100
For example, let’s say you want to work out Sally’s absenteeism rate for 2021. Her total available workdays (minus holidays and weekends) are 220. She was absent for 5 days that year.
5 / 220 x 100 = 2.27%
Why it’s important
Generally, 1.5% is deemed a healthy absence rate, given that it’s impossible to prevent illnesses all of the time. However, it’s important to note that certain diseases (such as the flu or COVID-19) can result in an employee being absent for a few weeks, which would bring their absenteeism rate up to over 4%.
But an absenteeism rate higher than 1.5% can often indicate the absence is due to something more serious such as stress or burnout, lack of engagement, or conflict with team members. Anything significantly lower than 1.5% can also be a cause for concern—are employees afraid to call in sick, so they come into work unwell? This can lead to a drop in productivity, poor health, and even exhaustion in the long run.
The absenteeism rate provides insight into the health of your organization. Analyzing average rates across teams and departments can help highlight where the problems are and address them.
For example, many employees may have absence days when their children are sick and need to be looked after. In this case, a flexible working from home policy could help reduce absenteeism. If employees are paid for a full day’s work even when absent, you might consider rewarding and incentivizing the employees with the lowest absenteeism rates on a quarterly or annual basis through a small bonus or gift.
6. Training effectiveness
Training effectiveness measures how a particular training program impacts an employee’s knowledge, skills, and performance and how this, in turn, affects the company’s efficacy.
How to calculate it
You can measure training effectiveness through post-training quizzes or assessments, one-on-one discussions, surveys, and questionnaires.
It’s important to decide your training goals and how you’ll measure effectiveness before the training begins. For example, you may choose to measure the trainee’s productivity levels, mood, and engagement before and after the training.
There are five proven learning evaluation models that are most often trusted by companies today:
- Kirkpatrick’s Four-level Training Evaluation Model
- The Phillips ROI Model
- Kaufman’s Five Levels of Evaluation
- Anderson’s Model of Learning Evaluation
- Summative vs. Formative Evaluation.
Why it’s important
Measuring your training effectiveness can help you gauge how useful your current offerings are and how you can improve them. Organizations invest a great deal of resources into training programs; therefore, you must monitor them closely to see what’s working, what’s not working, and why.
More effective training results in greater employee performance and satisfaction, improved team morale, and a higher ROI.
7. New hire performance
New hire performance is one of the most popular ways of measuring a hire’s quality. It is usually assessed by the extent to which a new hire adds value to the business.
How to calculate it
Any performance metric that demonstrates a new hire’s value can be used to measure new hire performance. This includes meeting a specified sales quota, achieving a certain customer satisfaction score, or receiving positive managerial feedback during a performance review.
Organizations will usually use a combination of different metrics to assess new hire performance, including job performance, productivity, and ramp-up time.
Why it’s important
According to a LinkedIn report, over a third of companies want to improve their hiring quality, and 50% of organizations use new hire performance evaluation to do so.
New hire performance indicates how effective HR is in recruiting the right candidates for the business, onboarding them successfully, and giving them the tools they need to thrive from the get-go. A consistently high new hire performance rate helps organizations meet strategic business goals.
8. Cost per hire
Cost per hire tells you exactly how much it costs your organization, on average, to hire a new employee.
How to calculate it
Cost per hire = Total recruitment costs ÷ Number of hires
For example, let’s say your company hired 75 new employees last year and incurred recruiting costs of $150,000. Your cost per hire would be $2,000.
Why it’s important
Cost per hire is one of the most valuable and most used HR and recruiting metrics. It helps you forecast what budget you need to hire over the next period and demonstrates how recruitment contributes to the bottom line.
It also helps HR teams optimize the recruitment process by investing resources in recruitment channels and initiatives that attract high-performing candidates and cutting spending on avenues that don’t yield a high ROI.
9. Internal mobility rate
Internal mobility rate is the percentage of employees who move through an organization through promotions, transfers, and demotions. Naturally, the larger an organization is, the higher its internal mobility will be, as there are generally more positions available.
How to calculate it
Internal mobility rate = (Total number of internal movements / Total number of employees) x 100
Internal mobility rate alone is often not enough to create a clear picture, so it’s crucial to analyze other HR metrics alongside it.
For example, let’s say you have an internal mobility rate of 5% and a turnover rate of 5%. This indicates that most of your open positions are being filled by the organization’s existing talent. For this to be true, the organization is likely good at succession planning, has a strong pool of skilled employees, clearly defined career paths, and effective mentoring and development programs in place.
However, if internal mobility is at 5%, but turnover is at 25%, it suggests that few open roles are being filled with existing talent, which means more resources are being used to hire externally.
Why it’s important
The greatest source of talent for any organization is its existing employees, and a solid internal mobility program can help businesses utilize this and reduce time to fill and cost per hire in the process.
You can also view this metric alongside diversity to see how inclusive your organization is and where it needs to improve. For example, is there a lower mobility score for women than men? If so, why, and how can you address this?
10. Cost of HR per employee
The cost of HR per employee refers to the total cost a company spends on Human Resources per full-time employee.
How to calculate it
HR cost per employee = Total HR costs (salary + benefits) / Total number of employees
Let’s say an organization had HR costs of $250,000 last year and 100 employees.
$250,000 / 100 = $2,500
Why it’s important
HR cost per employee helps HR professionals stay aware of their departmental costs, measure overspending or underspending, predict future recruiting costs, and calculate ROI.
11. HR tech ROI
HR tech ROI measures the return on investment of various HR software and technology that have been invested in and potentially rolled out across HR and the wider organization.
How to calculate it
It’s important to begin by outlining why you invested in HR tech in the first place. Was it to improve your recruiting process, boost employee engagement, reduce paperwork and management time, or something else? Pinpoint some metrics that you want to improve.
What did the HR tech cost? This includes the ticket price, the cost of implementation (staff time, user training, expert fees, and storage costs), and the cost of ongoing maintenance and upgrades.
Next, compare current metrics with metrics before you rolled out the tech. For example, has there been a boost in HR performance KPIs, increased employee retention or turnover rate, fewer compliance issues, or increased engagement?
The final step is to determine whether you have saved more than you spent. Was the cost worth it?
Why it’s important
Measuring HR tech ROI is essential because it helps to determine whether your old system was working or not, provides a benchmark on the efficiency of your current HR processes, and helps you build your future HR tech strategy using tangible, existing evidence.
12. HR tech user adoption rate
HR tech user adoption rate refers to the percentage of employees actively using the new technology at work.
How to calculate it
To work out the adoption rate:
Adoption rate = (Number of new users of a feature / Total number of users) x 100
Why it’s important
User adoption plays a significant role in an organization’s overall success, and this metric will help you improve adoption rates.
A low adoption rate can signal a lack of sufficient training or understanding of how the new technology can help employees perform in their roles at work. There may also be extra features or tools needed to utilize the technology effectively. With this data, HR teams and business leaders can make improvements and track progress.
13. Time to productivity
Time to productivity is an HR metric that measures the time it takes for new hires to get settled in your organization and reach their full productivity, i.e. a desired level of performance.
How to calculate it
Full productivity means different things for different organizations. It could be reaching a specific goal, completing training, or meeting a performance target. The next step is to define the start point and end point, which is usually the employee’s first day, and the date they reach their full productivity. Once you’ve defined these two parameters, you can do the following calculation:
Time to productivity (TTP) = End point − Start point
You can then obtain an average time to productivity for a department or the whole organization, which can be compared with industry benchmarks.
Why it’s important
Tracking how long it takes new hires to reach full productivity can give HR great insight into the effectiveness of their recruitment and onboarding processes and key areas for improvement. New hires who take longer than average to reach standard productivity could be facing unnoticed obstacles in the onboarding journey.
With this metric, HR can improve weaknesses in the onboarding process, reallocate resources, better prepare new hires for success, uncover hidden skills gaps, and reduce overall time to productivity, which will increase revenue generated for the business.
14. Time to hire
Time to hire measures the number of days between a candidate applying for a job at your organization and accepting a job offer.
How to calculate it
Time to hire = Date offer accepted – Date application received
Why it’s important
This metric gives HR a strong sense of the speed at which a candidate moves through the recruitment funnel and can highlight any bottlenecks. It’s also a strong indicator for candidate experience – the quicker a candidate receives an offer, the more positive their experience is likely to be.
According to Indeed, the average time to hire is around 36 days. It’s not recommended that your time to hire be any faster than 14 days, as this period gives a hiring manager a chance to interview a selection of 5-8 candidates and determine the best one.
15. Manager satisfaction score
Manager satisfaction refers to how satisfied your employees are with their manager’s performance. This includes their communication style and frequency, how much support they give employees, how well they help them develop in their careers, and the overall relationship.
How to calculate it
Manager satisfaction is usually measured using a survey that’s sent out to employees, typically once or twice a year. Each question can have a rating scale to give a numerical score (from 0-5 or 0-10). From the feedback, a balanced scorecard is created for each manager, which can be used as a performance metric.
Why it’s important
Measuring manager satisfaction helps HR gather valuable insights on how effective their managers currently are and identify key areas for improvement through manager training initiatives. It’s widely known that employees quit managers, not companies, so by utilizing manager feedback to improve the employee experience, HR teams can not only improve performance and engagement but also reduce turnover.
16. Diversity hiring rate
Diversity hiring rate measures the number of diverse hires your organization makes compared to the total number of hires.
How to calculate it
Diversity hiring percentage rate = (Number of diverse hires / total hires) x 100
Why it’s important
Measuring your diversity hiring rate helps you track how successful your current DEI initiatives are and whether you’re meeting your diversity, equity, and inclusion goals. Improving your diversity hiring rate can help you improve your employer brand and build a more inclusive culture.
Diversity hiring rate can be combined with other metrics like candidate experience, pay equity, and employee sentiment to gain a broader understanding of DEI in your organization.
HR tip
Other ways to measure your current HR effectiveness are to conduct an HR audit, where you review policies and procedures, and gather employee feedback through a survey to understand employee concerns better.
A final thought
Knowing how to measure HR effectiveness will help you gauge how successful you currently are across all HR functions, and the improvements you can make to deliver greater value and help the organization meet its goals. The most effective HR teams focus on sustainable, continuous improvements to attract, nurture and retain top talent and become true business partners.
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