In order for an organisation or business to achieve its goals, the management needs to be able to track and measure the results of daily activities. Besides the obvious sales and operational metrics, monitoring employee performance is critical towards ensuring that each department is on track towards achieving its goals.
That’s where KPIs (key performance indicators) come in—more than just being a set of numbers, the right KPIs allow you to understand how well the business and employees are performing so improvements or adjustments can be made to achieve the company’s strategic goals more quickly and efficiently.
But what are KPIs exactly?
KPIs, also known as key performance indicators, are quantitative measures used to evaluate the organisation or individual’s performance in meeting specific goals, but in addition to being measurable, KPIs are specific metrics aligned with the organisation’s overall business strategies and objectives.
Why Are HR KPIs Important?
To ensure that the organisation’s HR activities and resources are in line with the company’s business goals and objectives, it’s essential to set the right HR KPIs that demonstrate how the department is helping the company achieve its goals.
In addition to measuring the HR department’s contribution towards important company objectives, HR KPIs also measure the effectiveness, engagement, and productivity of the workforce, which are key towards ensuring optimal employee performance.
The SMART method helps to formulate meaningful and useful KPIs:
- Specific: Does the KPI have a clear and focused objective?
- Measurable: Can the goal be measured using quantitative terms such as numerical values or percentages?
- Achievable: Is the KPI realistic? No point in setting ambitious goals that can’t be achieved.
- Relevant: Does the KPI add value to the department and benefit the company’s bottom line?
- Time-bound: To be effective, the KPI needs to be designated a specific time frame within which it should be achieved.
As your organisation prepares for the coming year’s challenges, this might be a good time to start mapping out your HR KPIs to focus on in 2022 alongside your organisation’s key objectives for the next year.
7 Essential HR KPIs to Focus on in 2022
A company’s turnover rate shows how many employees leave out of those who join within the same year. The higher the turnover rate, the lower the employee retention, which translates into added recruitment and training costs besides reduced productivity.
A high turnover rate also affects employee morale and motivation, which can encourage more to leave. A sustained increase in turnover should be monitored closely and investigated promptly to identify the root cause and turn the situation around.
Studies show that on average, only 15% of employees are engaged in the workplace. This is a major issue as employees with low motivation and interest are more likely to call in sick or take time off, which has a knock-on effect on the company’s productivity and performance levels.
The absenteeism rate is derived from dividing the number of working days the employee was absent by their total number of working days in a year. A rise in the absenteeism rate should be addressed promptly to prevent the situation from getting worse.
90-Day/360-Day Quit Rate
Measuring the number of new hires that leave within 3 months or a year is a key recruitment KPI. A double-digit percentage is considered bad, as it indicates that either the HR department isn’t recruiting the right talents or that the working conditions or management style aren’t conducive for employee retention.
There is a multitude of reasons for employees to leave so soon after joining a new company: working culture, remuneration, training and promotion opportunities, career growth prospects, work/life balance, and more.
Just like a high turnover rate, a high quit rate within the first 90 or 360 days will cost the company a lot more in added recruitment and training costs besides disrupting the organisation’s growth plans.
It’s not always easy to calculate productivity, but it’s an important KPI to ensure workforce efficiency. Monitoring HR productivity enables the department to measure how much time is spent on the different recruitment and training tasks compared to the number of successful hires and the quality of the new recruits.
There is no fixed formula to calculate HR productivity but it should be aligned with the company’s growth and business goals.
Cost Per Hire
This KPI measures the sum of all recruiting costs (recruitment marketing, time spent processing and reviewing applications, interviews, internal discussions, negotiations, and so forth) divided by the number of hires within a specific time frame.
These costs add up quickly, as such it’s important to monitor how much resources are spent on each hire, especially when evaluated alongside the quit rate and turnover rate, which paints a much clearer picture of the HR department’s overall performance and efficiency.
Employee Satisfaction Index
If your organisation is experiencing a high turnover or low employee productivity, conducting an Employee Satisfaction Index will allow you to identify the issues contributing to those unfavourable statistics.
For an organisation to succeed, it needs happy and motivated employees. Besides financial perks, employees of today have evolving needs which can include flexible working options, greater autonomy at work, healthy work-life balance, a creative working environment, transparency, etc.
But you won’t know until you ask them, which is the purpose of the Employee Satisfaction Index.
Quality of Hire
Calculated as the percentage of new hires with good performance reviews, the Quality of Hire KPI indicates HR’s effectiveness in finding and recruiting the right candidates for the right jobs. It’s a challenging task but maintaining a high Quality of Hire rating allows the organisation to achieve its vital goals much more efficiently.
Setting strategic KPIs is key towards ensuring the department stays focused and aligned with the company’s business and expansion goals, so make sure you prioritise the essential HR KPIs for 2022.
Specialist Recruitment Management Services in Malaysia
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Learn more about our headhunting services or contact us to discuss your recruitment needs. We look forward to helping you find the right talents to drive your organisation’s growth.