An HR Leader’s Guide to Key Performance Indicators

As businesses grow and evolve, it becomes essential to track and measure their progress. This is where Key Performance Indicators (KPIs) come into play. These performance metrics allow businesses to measure the effectiveness of their strategies, processes, and objectives. KPIs can help businesses to diagnose, forecast, and improve their performance from financials to  customer satisfaction to productivity.

Selecting the right KPIs to measure is crucial. Careful consideration must be given to a company or department’s goals, objectives, and industry to determine the most relevant KPIs to track. For example, recruitment teams might track metrics like cost per hire while L&D teams might monitor training expenses or training modules completed. Once identified, KPIs can offer a clear picture of a company's performance, successful strategies, and areas needing improvement.

They are also valuable in benchmarking, a process whereby companies compare their performance to industry averages. This allows organizations to assess how they stack up against their peers and identify any potential opportunities for improvement. An external view of their progress allows them to make more informed decisions.

Ready to build key performance indicators for your department? Let’s dive in!

What are Key Performance Indicators?

Key Performance Indicators (KPIs) are measurable values that gauge the success of a business strategy or objective. They offer concrete, quantifiable evidence of how well a company is progressing toward its strategic goals. When used correctly, KPIs are more than numbers — they're the pulse of your business, bringing transparency to your progress and success.

These valuable tools come into play in decision-making and long-term planning. Leaders use KPIs to monitor trends, identify improvements, and promptly respond to underperformance. KPIs provide a holistic view of organizational health, from productivity metrics to employee engagement rates. They’re like a compass guiding you toward your company’s North Star.

Companies may have three levels of key performance indicators:

• Company KPIs: Business-level metrics to track the overall health and performance of the organization.
• Departmental KPIs: Team-level KPIs help track and measure each department’s contribution to the business’ high-level goals. They should align with the company KPIs but be more relevant to the specific work of the department.
• Individual KPIs: Managers may set KPIs for each employee on their team. This helps people understand how their individual efforts contribute to the team and company goals.

What Makes a Good KPI?

Your KPIs can help you track progress towards your company or team’s overall goals — but only if you’re tracking the right things. Here’s what makes a good KPI, to help you choose the best metrics or indicators to measure:

1. Aligned with strategic goals: A good KPI directly ties to your organization's strategic objectives. It isn't just a random metric — it reflects and measures the progress toward goals that matter to your business.
2. Clear and understandable: Simplicity and clarity are key. Your KPI should be straightforward so that everyone in the organization can understand why they’re relevant and important.
3. Measurable and quantifiable: A valuable KPI must be measurable and data-driven. It allows you to track progress in a tangible way, presenting clear evidence of successes or areas needing improvement.
4. Actionable: Good KPIs trigger action. They provide insights that inform strategic decisions, guiding changes that will move your organization closer to its goals.
5. Regularly reviewed: KPIs shouldn't be static. Regularly reviewing and updating them ensures they remain relevant and aligned with any changes in your business strategy or market conditions.

Benefits of KPIs for Businesses

There are so many metrics companies can track to measure their success. If you tracked every single one of them, you’d end up drowning in all that data. KPIs can help you stay laser-focused on what matters most. And that’s just one of the business benefits of tracking KPIs:

• Improve decision-making: KPIs provide hard data, which helps reduce guesswork in decision-making processes. They deliver valuable insights into what's working and what needs refinement, paving the way for informed, strategic choices.
• Helps with goal setting and monitoring: By translating abstract goals into tangible targets, KPIs make it easier to set, track, and achieve business objectives. They provide a clear roadmap, enabling continuous progress assessment and course correction as needed.
• Increase employee engagement: KPIs create a shared understanding of company goals and individual contributions. By linking personal performance to organizational success, they can foster increased motivation, engagement, and a sense of ownership among staff.
• Enhance communication and transparency: Sharing KPIs company-wide can promote transparency by ensuring everyone is on the same page. It stimulates dialogue between teams and leaders, enhancing collaboration and building a cohesive corporate culture.

Example KPIs for HR Teams

There are lots of things HR teams may want to use as their key performance indicators. The right ones for your team will depend on the status of a business and its overall priorities. 

For example, you’re unlikely to be hiring during an economic downturn. During this time, your KPIs may focus on employee retention over hiring-related goals. Alternatively, if you’re seeing high staff turnover, you may want to track things like employee engagement and benefits utilization, to see when employees start to disconnect from the business.

Other key performance indicators your HR department may want to track include:

• Time to fill: This KPI measures the average time it takes to fill a vacant position. Streamlining the recruiting process allows HR teams to minimize the impact of vacancies on productivity.
• Time to productivity: This measures how long it takes new hires to ramp up to full productivity. It helps you understand the effectiveness of your onboarding and hiring processes, so you can optimize it over time.
• Training effectiveness: By evaluating employee performance and feedback post-training, HR can assess the efficacy of training programs. This KPI helps optimize training content and ensure employees gain relevant skills.
• Training participation rate: This KPI measures the percentage of employees who are taking part in company-provided training programs. Training can be a significant investment, so you want to be sure that if you’re paying for it, employees are actually using it.
• Employee engagement score: Gathering feedback through surveys, HR can gauge the level of employee engagement. A high engagement score often translates to a more productive and satisfied workforce.
• Employee turnover rate: Keeping an eye on the turnover rate helps HR leaders to understand the retention landscape within the organization. A high turnover might signal issues with workplace culture or employee satisfaction, which merit further investigation.
• Cost per hire: This metric evaluates the cost of hiring a new employee. HR teams use it to optimize the recruitment process and make it more cost-effective.
• Offer acceptance rate: This metric measures the percentage of job offers that are accepted by applicants. It can help you judge whether your compensation packages are competitive and the strength of your employer brand.
• Promotion rate: This measures the rate at which employees in your organization are promoted. Ongoing growth and development are important to employees, so HR teams will want to be able to show they’re offering those opportunities across the organization.
• Cost-benefit ratio: This compares the cost of running a program (like improved benefits or a wellness program) with the benefits it offers. If HR teams are considering rolling out new benefits to employees, this metric is useful to track to ensure it’s cost-effective and sustainable.

By focusing on these KPIs, HR leaders can take the pulse of the organization's human capital and steer it in a direction that aligns with the company's goals. Remember, KPIs are not just metrics: they are the catalyst for transformation and growth. 

Employee Wellness is Always a KPI

As an HR leader, you’re probably focused on the big picture rather than the day-to-day activities like running payroll or recruitment campaigns. So you’ve probably already noticed the close link between employee health and business health. In simple terms, healthy employees can be more productive, focus better on their work, and deliver better outcomes for the company. 

Employee wellness and happiness is an important KPI for businesses looking to improve the employee experience. If you’re looking for an initiative that can support employee wellness, one strategy can be to launch or maintain an employee wellness program. 

Our research found that more than 90% of C-suite executives see employee wellness programs as important for talent acquisition, employee satisfaction, and retention. They understand the value of happy, healthy employees to their organization, and know that a formal wellness program is a worthwhile investment for their company. If you’re looking to launch a wellness program within your organization, talk to one of our specialists today!