Article -> Metrics Add Value to Human Resources
Date Added: September 2006
Using metrics is no longer limited to the finance and accounting departments of major organizations. Human Resource departments around the globe are beginning to use metrics to gain a better understanding of employee productivity, training initiatives and staffing issues. By measuring items such as revenue and income per full-time employee (FTE), organizations are able to gain a new understanding of productivity. By using these metrics, organizations can determine the value that people are adding and the impact of human resource initiatives on employee performance and engagement.¹
Revenue per FTE is calculated by dividing revenue by the number of full-time employees. This information indicates how effectively employees generate profitability. Income per FTE shows the portion of sales dollars left after expenses are paid, divided by the number of full-time employees. This calculation takes into consideration both sales dollars and expenses. While the math is not overly complicated, organizations using these metrics must take additional variables such as, organization type and revenue calculations, into consideration before making decisions based on numbers.
Organizations must determine what profits should be excluded and included in the calculation. For instance, should investment earnings be included when calculating total revenue? Organizations must also decide who counts as a full-time employee. It is equally important to recognize the type of organization - service industries versus capital-intensive industries like manufacturing. In a capital-intensive industry like manufacturing, the quality of equipment used has a significant impact on productivity and revenue. The service industry, on the other hand, relies heavily on employee knowledge and output per employee. Once this information is established and metrics have been calculated, organizations can use this information to create a business plan that will promote employee productivity and improvement.
Human Resources (HR) can use the metrics to compare their organization’s performance to others in the same industry. The results can help HR manage their training programs, staffing and compensation structure. Specifically, these metrics can help HR better manage compensation to more fully motivate employees.¹ Based on the numbers, HR can begin to create and implement a compensation structure that rewards employees who produce above the average income per FTE and give struggling employees a “push” to help them reach higher standards. When employees know they are being measured, they have an incentive to work harder and produce superiou results.
Understanding how properly using metrics can help HR effectively manage human capital is the first step in creating a successful business plan. Once the plan is established, HR can use the numbers to alter training tactics, determine appropriate staffing needs and create a compensation structure that identifies and rewards the highly productive employees. Through these efforts, organizations will be able to measure employee performance in relationship to the organization’s overall effectiveness.
¹Kroll, Karen M. “Repurposing Metrics for HR.” HR Magazine. July 2006.