Which HR metrics really matter (Part II)?

For Part I of this topic see here

Often in HR we present statistics about headcount, attrition, and # of hires when updating the business and board. These are useful descriptive numbers — kind of like when the pediatrician provides my son’s height and weight at his annual checkup. I want to know and it matters.

But to know what is really going on with an organization, I think there’s an additional level of synthesis that’s needed. There are metrics that take more time to get, and that involve judgment calls to design, and that can provide a deeper view of how the company is operating (and where to intervene to make it operate better).

I’ve trialed a bunch of different metrics over time (as a consultant and head of HR) and in Part I I took a dive into the first 4. In this post I dive into the next 4. Collectively these are my current top 8 HR metrics. I strive to develop these metrics and then understand the drivers of performance behind them. I use these metrics to explore and explain the story of what is happening at the company and in HR.

Metric 5: Strategic Clarity and Role Clarity scores. This is the organizational “soft” metric most correlated to Total Return to Shareholder and EBITDA. Each employee in an organization should be able to stand up and say “I know where the company is heading, and I know my role in it.” It makes sense this is important. Hundreds of studies I did, advised or oversaw as an HR consultant also consistently demonstrated this — companies with high scores from employees on these metrics performed better on the financial metrics. Metric design and details: You need 3–4 well-designed questions that ask employees about how well they understand the direction of the company and their role in it. See an example here. I have pulsed employees on these quarterly to track baseline and improvement, and to also see trends across departments and levels. I have also included these as part of a regular annual employee survey. Target: I like to see at least 75% of employees rating some level of agreement with statements that they understand the company direction and their role. If under 50% of employees say they understand the direction and their role I think that’s a watchout and there’s work to do.

Metric 6: Manager ‘Experience of HR’ ratings. Is HR creating real results for managers? Is HR making manager’s lives better and easier as they work to develop talent, get basic talent operations accomplished, motivate and incentivize their teams, and troubleshoot people issues? Managers are a key lever in the organization, and how well HR is partnering with, supporting, and elevating their performance matters. Metric design and details: I like to do a short pulse 1–2 times a year with a statistically representative sample of the managerial population. Survey fatigue is real and the typical manager gets 5–6 surveys a year on top of all the managerial work they do, and the rest of their jobs. At one company we developed a 5-question pulse, pushed it out in February and October to a small group of managers, and created a composite rating per respondent based on their ratings per question. We asked for basic demographic information up front that would allow us to slice and dice the data by country and department while maintaining anonymity. Here is an example of the kinds of questions we asked. Target: Set improvement targets once you know your current performance.

Metric 7: Compa-ratios. Help you see the quality of overall talent and attrition risk across your organization, as well as understand where the organization is over-investing or under-investing in talent. Strictly speaking, a compa-ratio tells you how competitive an employee’s pay is relative to the market for that role, expressed as a ratio or percentage. In aggregate, compa-ratio averages (the average of all individual employee compa-ratios in a group) broken out by department, geography, and level can tell you so much more:

1. Pay competitiveness is a leading indicator of flight risk. Pockets of an organization with lower compa-ratios tend to have higher attrition over time in studies we’ve done at companies where we’ve tracked this. Overlaying compa-ratios with performance ratings can be helpful here for seeing if there is a discrepancy (are the highest performers being paid the least or vice versa? You would be surprised, this can happen and has).
2. Pay competitiveness tells us how much we had to invest in Team A vs Team B or job levels 1–4 vs. job levels 5–9. The actual dollar value of the investment doesn’t communicate everything you need to know to assess the value of the investment — you need the compa-ratio to truly compare compensation investments in one pocket of the organization vs. another. If Team B is working in areas of the company that don’t require specialized, competitive knowledge/skills to succeed then there’s a case for over time re-allocating that investment toward other teams that need it. For example, if your talent strategy involves investments in great skilled managers in order to lead less experienced teams to success, you want to see that your managerial levels have the highest compa-ratios. Sometimes there are nuances that you have to learn to accept (e.g. for highly specialized technical roles, sometimes across job levels the compa-ratios will be very high relative to the rest of the company and that’s just a cost of operating the kind of business you are in)

Metric design and details: this is a more complex metric to design and requires (1) market data, usually purchased from a leading provider such as Radford or Mercer (2) a framework for how you will use the market data to compare it to your company’s roles and employees (you need a compensation professional or someone with compensation acumen to help you with this). (3) a system for maintaining and monitoring the data (an HR information system or database and processes that ensure compensation information is updated regularly and compared to updated market data). There are many ways once you have elements 1–3 above to use compa-ratios to conduct regular reviews. In companies that don’t have elements 1–3 I’ve been able with my team to lay in the infrastructure to support compa-ratio monitoring within 4–12 months depending on company size, employee population complexity, and current employee data quality.

I often like to look at compa-ratios for base salary alone and, for some broader context, for total cash (see the example below). In companies that are putting in place a compensation strategy and system for the first time, base salary is where I usually start to introduce rigor and process, turning to variable and other elements of pay gradually once base salaries are more systematized.

Target: In general most compensation experts will share that you want compa-ratios to hover between 85% to 115% of market, based on updated market data and well-designed benchmarks. Within that, there may be a great deal of variability in targets you set for different populations in your organization depending on which teams, products, job levels and specialized skillsets are priorities in your people strategy and overall business strategy. The higher priority groups should have higher compa-ratios within this 85% to 115% band.

Metric 8: Inclusion, Values and Purpose ratings. How inclusive and values-led and purpose-driven is your culture? Only your employees can really tell you this and including 3–4 well designed questions asking about this in your pulse or annual survey is a great way to monitor this. Metric design and details: One complication I’ve noticed with this metric over time is that great performance on the survey might run against qualitative feedback coming into the People team from employees. I have a number of theories for why this might be. My main recommendation is that when monitoring these survey results, take into account qualitative feedback you are receiving through your HR business partners and managers on inclusion, values and purpose in order to create a more rounded view of what is happening in the organization. When presenting survey scores I’ll sometimes include a summary of qualitative observations verbally for the audience. Target: I look for at least 80% agreement from employees with statements that they feel they feel included and valued at work, that they feel people at the organization live the organization’s values, and that they feel a sense of purpose about their work.