Introduction

A KPMG survey indicates that 85% of c-suite executives claimed that their HR teams fail to provide insightful analytics.

Imagine a scenario where the Chief People Officer (CPO) of a company is part of the Annual Business Plan formulation review.  The CEO asks the function heads for the business.

The VP-Finance talks about funding requirements, capex, inventory, margins

The VP–Marketing talks about customer service, market share, customer retention etc.

The Manufacturing Head talks about operating efficiencies, product quality, and volume indicators.

What measures does the Chief People Officer bring to this table?

Traditionally, he/she could talk abstractly and conceptually about employee morale, turnover, and commitment. But with the evolving needs of the time and to fulfil the HRBP role, concepts need to be replaced with evidence, ideas with results, and perceptions with assessments.

This article shows how and why HR can leverage the Big Data generated in a business –

Choice of KPIs

If you search the Internet, you will get thousands of articles professing to be the ideal set of 50+ KPIs.

Define the strategic objectives that you have. The HR department is not a separate business; it works for the company, and it helps the company execute the strategy. Plus, it manages a company’s most valuable asset, its employees. So you must ensure that the HR department understands how its activity is linked to the ultimate objectives of the company.

KPIs to Insights

KPIs run the risk of being labelled as Too anchored in the present and past, too generic and too operational

The idea is not to end up with stockpiling an infinitude of meaningless figures but rather choose ones that drive strategy.

Rather than simply reporting data, the analysis needs to be linked to business outcomes and strategic goals if the insight is ever to be seen as essential for growth.

This can be illustrated as follows

Case of “Time-to-Hire”

A reduced ‘Time-to-Hire, as a number, has little meaning on its own. On the one hand, it could indicate a more robust process in place for recruiting, implying an expedited filling of job vacancies with the right candidate. On the other hand, though, it can be the result of a frantic attempt to reduce the time-to-hire comprising on candidate quality.

Say it you could link time-to-hire with early turnover rate, you could arrive at conclusive observations.

Case of “Turnover Rate”

A not so good HR manager only measures it without making any noticeable impact on a business.

A good HR manager can use the same KPI by clubbing it with proportion of top-performers in the same. He/she can then formulate an action plan about how to retain top-performers, thus making a measurable difference to the company’s outcomes as a result.

Case of the Bell Curve

This KPI can measure turnover and retention behavior of employees based on pay raises. Their traditional approach was to pay based on a normal curve and give top performers slightly higher raises than second-tier performers, they received slightly more than the next group, and so on.

This “normal distribution” curve of pay can be a big mistake. Research has found that employees in the second and third quintile of performance (good solid performers) would stay with the company even if their raise was as low as 91% of average increases in their job class.  So these folks were being overpaid.

On the other hand, people at the top of the performance curve would leave the company unless they received 115-120% of the average pay increase for their job class, indicating that the payroll money should go here.

As most managers know, top performers out deliver mid-level performers by a wide margin, so paying top people “much more” is a huge advantage if it prevents them from leaving.

 

Lead Vs Lag KPIs

Leading KPIs are focused on the future. Leading KPIs measure the input that should be introduced to achieve better results. For example, for the lagging KPI “Turnover rate” a leading KPI pair might be “Employee Engagement Rate.”

Lagging KPIs are focused on the past, and they measure the output. For example, the “Turnover rate” is a lagging KPI. Lagging KPIs tell the story about the current state of your HR, but they don’t tell you how to change this state.

The “rear view mirror” approach to analytics fails to provide useful business insight

Case of “Employee Bench Strength”

This KPI is most commonly used as a lagging measure of the degree to which the organization has effectively conducted training, development and succession planning activities.  However to convert it into a \”Leading\” KPI, we can use it as a predictive indicator of engagement and productivity. This can then help organizations increase retention by developing career paths and rewarding employees with promotional opportunities

When measurement dimensions such as workforce category, job family, business unit, tenure and performance are added, Employee Bench Strength can be used to identify critical roles for which promotions result in the largest cost savings and value creation opportunities for the organization.

Which KPIs to monitor

KPI’s should not be viewed as a ‘cast in-stone’ system of indicators. For long-term success, the system should be a reviewed periodically and a cost-benefit analysis done to gauge alignment with company objectives, transparency and relevance. This can then be an enabler for the ideal HR-Controlling strategy

Here we make an attempt of list some KPIs that you may not be currently measuring, but which could be of immense significance to your organisation.

The idea is to enable understanding the drivers of performance and retention, using statistics to decide who to hire, analysing how pay correlates to performance, etc.

Human Capital Value Added

Human Capital Value Added (HCVA) is a measure of the extent to which employees add value to the business.

HCVA = Revenue – (Total Costs – Employment Cost) / Full Time Employees
Career Progression

This could be an indicator of career progression, which can be one of the most crucial determinants of employee engagement

Promotion Ready Employees / End of Period Employee Head Count

 Employee Engagement Level

​Employee engagement level is a measure of how engaged employees are in their job. Depending on the organisational priorities measures could include recognition, goal clarity, contribution, workplace support, learning, etc.
Staff Advocacy Score

Staff advocacy score is a measure of the extent to which employees are advocates of the business. It can be measured by asking a simple question: \”How likely is it that you would recommend this company as an employer to a friend?” We are adding this question to our engagement study in 2016.

 

Salary Competitiveness Ratio

​Salary competitiveness ratio is a measure of how competitive the current salary is that a company offers for specific job roles. Salary competitiveness can be measured against specific competitors or against the general market.

Salary Competitiveness Ratio (competitor) = Salary offered by your company / Salary offered by your competitor

Salary Competitiveness Ratio (industry) = Salary offered by your company / Average Salary offered  in the industry or sector
Market Opportunity Index

Employee perceptions of opportunities elsewhere.

Example: 67% of employees believe our competitors offer higher compensation.

 

Executive to Employee Pay Ratio

​Executive-to-Employee pay ratio is a measure of the gap between top level and entry level remuneration, & therefore an indicator of remuneration fairness.

Executive-to-Employee Pay Ratio = (Px / Pe) / 1
where 
Px = CEO Pay and 
Pe = Pay for lowest paid worker

Strategy Awareness Level

Strategy Awareness Level measures the percentage of the workforce that are aware of the corporate (or business unit) strategy. Strategy Awareness Level is usually measured as part of an employee survey or a performance review.

​Strategy Awareness Level = (Employees that are aware of the strategy / Number of Full-Time-Equivalent Employees) x 100

Problem Employee Rate
How many employees failed performance reviews?
Rehabilitation Rate for Problem Employees
How many problem employees are rehabilitated within 6 months?

Termination Rate for Problem Employees

How many problem employees are terminated?

 

Summing Up

 

The companies that unlock some of the secrets of their own people performance will greatly outperform their peers.

Thus the war for data is on. The need of the hour is to invest in an integrated analytics capability within HR and create BigData solution about your own internal people and payroll.

The transformation from operational reporting to predictive analytics will ensure that CEOs no longer think their HR teams are long on info but short on insight. The hope must be that, tomorrow, well thought out, predictive, HR analytics will become as important to the CEO as the balance sheet and P&L statement.

References

1. Poor data hampers HR’s boardroom reputation, Janine Milne, 26th February 2013, http://www.hrzone.com/topic/technology/poor-data-hampers-hrs-boardroom-reputation/129480
2. Big Data in Human Resources: A World of Haves And Have-Nots, 2013, Josh Bersin,http://www.forbes.com/sites/joshbersin/2013/10/07/big-data-in-human-resources-a-world-of-haves-and-have-nots/
3. http://www.leewenyong.com/hr-kpis-for-smes.html

 

 

 

 

 

 

 

 

 

 

 

 

 

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Thanks & Regards

1. Sonia Singal

Co-founder: cajobportal.com™

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