What are HR KPIs?
To answer this question, we should first look at key performance indicators (KPIs). KPIs are strategic metrics. A KPI is a quantifiable measure used to evaluate how effective a company is in achieving key business objectives. This doesn’t mean that everything that you can measure is a KPI in HR. Only metrics that have a direct link with the organizational strategy can be called KPIs.
Human Resources key performance indicators (HR KPIs) are HR metrics that are used to see how HR is contributing to the rest of the organization. This means that a KPI in HR measures how successful HR is in realizing the organization’s HR strategy.
The HR strategy follows the organizational strategy. In other words, HR KPIs mirror organizational performance for HR, as they are defined based on the HR outcomes that are relevant to achieve business goals. These business goals are often formulated in the Balanced Scorecard.
Let’s use an example to illustrate how this works.
Dodgers is an organization trying to innovate in a very competitive landscape. For this reason, the board of directors decided that they will cut costs everywhere, except in the product innovation department. The question is, how will this goal be translated into HR KPIs?
The entire organization needs to save money, including HR. This reduction could apply to recruitment cost, for example. The cost is currently at $500,000 and needs to be reduced to $400,000. In this case ‘Recruitment cost in Dollars’ is the KPI, the current score is $500,000 and the target for this KPI is $400,000.
A second HR KPI could be ‘innovative behavior’ which is measured in the annual engagement survey. Its score on a 10-point scale is currently 6.2. The target is set at 7.5 or higher. Achieving this will require quite some work!
The HR KPI template could look as follows.
HR can add multiple KPIs to reach a specific business goal. Each of these KPIs can be broken down into smaller goals.
To realize the HR strategy, it’s best if these KPIs align. However, sometimes, they conflict.
For instance, if you have to cut costs in your learning & development budget, while also trying to stimulate innovation, you are facing a difficult choice. The strategic challenge is to stimulate innovation while reducing your training budget. This is a good example of how HR KPIs help HR to realize its strategic goals and contribute to the objectives of the rest of the organization.
List of HR KPIs
A lot of articles that you’ll find online will list tens, sometimes close to a hundred KPIs. Don’t be fooled: most of these are simple HR metrics that are not important to track, as they usually don’t align with organizational strategy.
Below are a few examples of what HR KPIs are NOT:
- Average interviewing cost
- Average length of placement
- Average length of service
- Average salary
- Average number of training hours per employee
- Average number of vacation days per employee
- Average number of unpaid leave per employee
- Average retirement age
- Compensation cost as a percentage of revenue
- Employee training satisfaction
- HR-to-FTE ratio
Why are these not KPIs? Because they tell us nothing about effectiveness. For example, do we need 1 HR staff per 100 employees, or 1.5? Simply measuring HR-to-FTE ratio doesn’t answer that question.