Review the essential role of employee performance metrics in evaluating workforce productivity and effectiveness within an organization. Analyze the different categories of performance metrics and how they impact strategic HR decisions.
By Brad Nakase, Attorney
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Metrics for measuring employee performance are essential for monitoring how well workers are doing their jobs. HR has to be able to gauge worker productivity and effectiveness. Metrics for measuring employee performance are useful to the company and the worker. We’ve provided examples for each of the 21 KPIs for employees that you should keep track of.
In general, we can split performance measures related to employees into four main categories.
Metrics measuring work quality provide insight on how well an employee performs. The most widely utilized metric is their immediate manager’s subjective evaluation.
Using management by objectives is one technique to organize a manager’s subjective evaluation. A management approach known as “management by objectives” tries to raise an organization’s performance by converting general organizational goals into particular personal objectives. These objectives are frequently defined by the manager and the employee as goals.
The worker strives to meet these goals and updates their supervisor on their progress. It is also possible to assign a weight (points) to these objectives. The employee receives points for accomplishing these objectives. Managers can then use this information to make goals more concrete and performance evaluations more data-driven.
Worker performance is reviewed twice a year in most firms through performance reviews. Workers are evaluated based on various factors, the most typical of which is the caliber of their output.
An adaptation of this plan is known as the “9-box grid.” Using a 3×3 table, the employee’s potential and performance are evaluated in the 9-box grid. Employees with low potential but excellent performance are ideal for their current role.
Workers in the top right corner of the chart, those with strong potential and performance scores, are often assigned to move up the organizational ladder fast. It is thought they can contribute more value at higher levels.
This 9-box grid is a useful tool for succession management, which is the process of identifying and elevating high potential individuals. It is also a simple approach to evaluate the present and future worth of employees.
Measuring (production) quality objectively is difficult. More conventional manufacturing companies frequently apply the method of figuring out how many product flaws there are for each team or individual employee. Erroneously made or defective products are a sign of poor job quality and ought to be minimized.
This statistic is nearly meaningless due to improved production process standardization, but the methodology for evaluating employee performance can be used in other contexts, like the one below.
Instead of the previously stated product flaws, the quantity of input errors may be used. Software development teams could, for instance, keep track of errors per 1,000 lines of code.
The same holds true for the number of errors in software code or the number of corrections needed in written material. A single mistake can render a whole program unusable, particularly in computer programming. This could significantly affect the company’s operations, particularly for those who unveil new versions of software every week or month.
Another significant aspect of code quality is conciseness. Ten lines of code are a sign of higher quality if they can accomplish the same functional result as one hundred lines of code.
Employee performance may be shown by the net promoter score (NPS). NPS is a figure that, typically ranging from 1 to 10, indicates how likely a customer is to refer a business’s services to other prospective customers. Customers who give the business a 9 or 10 are probably very happy and will recommend it to others. This score is part of the final form that consumers must sign, and it is frequently used to evaluate sales personnel, such as in the car sales industry.
One benefit of NPS is its ease of use. The drawback is that it frequently happens that staff members tell clients to provide a specific grade (e.g., 9 or 10).
An additional instrument for gauging employee performance is 360-degree feedback. An employee’s manager, colleagues, subordinates, and customers are requested to submit feedback on particular issues in order to calculate the employee’s score. An accurate and multifaceted assessment of an employee’s performance, skill level, and areas for growth is frequently provided via this feedback.
A more basic form of the 360-degree evaluation tool is called 180-degree feedback. Only the manager and the employee’s immediate coworkers are able to submit comments under the 180-degree feedback method. Employees without direct client interaction or who aren’t in charge of people frequently use the system as a result.
The vitality curve, also known as forced ranking, is a method of employee ranking in which supervisors are asked to rank their employees from best to worst. In this manner, every employee in the company is compared to one another, and their performance is assessed. The goal of each rating is to improve the workforce. It is said that this method significantly improves workforce potential because the top candidates from the company’s talent pool can replace the poorest 10% of the workforce.
But this “rank and yank” strategy has drawn much criticism, and most companies have abandoned it—including General Electric. The CEO at the time, Jack Welch, championed the technique.
This employee KPI can be measured in various ways because quantity is frequently simpler to monitor than quality. The standards by which quantity is evaluated will change amongst sectors. Certain jobs are more challenging to quantify or need to be a better fit for our approach. For instance, many nations’ governments set a bed cap in hospitals. If this is the case, there is no way to measure how many patients physicians and nurses can approve. However, it would be more beneficial to track the number of days that patients spend in bed.
The quantity of sales
The sales quantity is a very simple indicator of a sales representative’s productivity. This is particularly valid for “simple sales.” This implies that, for instance, organized street merchants focus on the sales volume because, given enough time, the most skilled individuals will close the biggest deals in an hour at the same spot. This exemplifies an outcome metric.
However, sales quantity becomes less dependable when transactions are more complex (i.e., a longer sales cycle), as luck and unpredictability will have a greater influence on the sale’s successful conclusion.
Other metrics are more suited for measuring complicated sales cycles, such as those for software solutions, which can have a sales cycle as long as a year and a half. These are called process metrics since they show the steps that have to be taken to improve the chance of a successful sale. For instance, the individual with the greatest chance of closing a deal is the one who makes the most calls to potential clients. In this instance, a more dependable indicator of long-term sales performance would be the quantity of phone calls.
Metrics for measuring employee performance include things like 10. the quantity of (possible) client connections, 11. the number of phone calls, 12. the number of business visits, 13. the number of current leads, and so on.
Quantity of items produced
Different industries express their numerical output in different ways. The quantity of items produced was frequently a trustworthy quantitative measure in traditional production. Similar measures continue to be employed in contemporary (service) businesses. For instance, businesses that hire people for data entry jobs occasionally track keystrokes per minute to guarantee productivity.
Monitoring the quantity of code that programmers write is another technique to gauge their output in terms of numbers. The use of a strictly quantitative production metric has certain obvious drawbacks. Similar to the previous example, one ought to use such an output metric when one’s production is extremely simple and straightforward. One measure of aptitude would be the quantity of Rubik’s Cubes solved in a given hour; proficient solvers can solve more than a hundred in a single session.
As an aside, once you have determined which metrics are important, don’t forget to incorporate them into your HR report or a tactical HR dashboard.
Contact quality, first-call resolution, handling time, etc.
One of the places where employee performance measurements are most important is contact centers. Average handling time, or the amount of time a customer spends on the phone on average—including time spent on hold—and first-call resolution, or the proportion of callers whose issue is fixed on the first attempt, are examples of employee KPI measures.
Other metrics include service level, which indicates how many calls are answered in what amount of time (e.g., 80% of calls are answered in 20 seconds), and contact quality, which is a rating a customer can make during the call.
Qualitative and quantitative employee performance measures present a challenge because they are largely silent on their own. A programmer produces a lot of code when they create forty lines of code in an hour. However, the quality of the code is unaffected by this.
A healthy balance between quality and quantity is crucial. Work efficiency is the metric used to quantify this balance since it considers the resources (such as money and time: quantity) required to generate a given output (quality).
It is challenging to strike this balance. For this reason, many businesses have difficulty assigning employee ratings and with the performance review process itself. This is the main reason why organizations like GE, Adobe, and Deloitte eliminated performance reviews.
Nonetheless, reliable performance data will assist firms in forecasting their future output.
Organizations can also use metrics on employee performance to evaluate their own competitiveness. These measures are typically applied to evaluate the effectiveness of a workforce as a whole, rather than on an individual basis.
Revenue per worker
Total revenue / FTE = revenue per FTE.
The revenue per full-time equivalent, or FTE, is determined using this function. This measure provides a rough approximation of the revenue generated by a specific employee. A combination with high revenue and fewer staff members is rated higher than one with low revenue and many employees. Additionally, this metric can be used to benchmark businesses.
This statistic is frequently used by Salim Ismail in his book Exponential Organizations. He asserts that whereas exponential organizations have an exponential function of personnel and profit, linear organizations have a linear function. That accounts for a portion of these firms’ significantly higher growth.
Earnings per Full Time Employee
Total profit / FTE = profit per FTE
Similar to metric (17), profit per FTE concentrates on profit rather than revenue. The net income of a business is its entire revenue less its expenses. One reliable indicator of an organization’s financial stability is a high profit per employee.
ROI for Human Capital
An employee KPI statistic called the “human capital ROI” evaluates the worth of human capital, which includes expertise, behaviors, and social and personal qualities. A human capital return on investment can be computed by deducting operating costs from revenue, adding up all of the company’s benefit and compensation costs, and then dividing the result by the total amount of benefits and compensation paid to employees.
Jac Fitz-enz made this strategy well-known in his book The ROI of Human Capital. But his method of gauging human capital is far from dependable and is prone to significant modifications (we at AIHR read his book and attempted to determine the ROI measures for several large Dutch organizations).
The metrics’ failure to account for crucial elements like layoffs, incidental costs, and other one-time events led to disappointing results.
Rate of Absenteeism
Performance and absenteeism have a strong correlation. In general, highly engaged and driven workers take fewer sick days—up to 37% fewer, according to Gallup. Furthermore, missing workers produce less, and a high absenteeism rate across the board is a major sign of poorer organizational performance.
Each Employee’s Overtime
Total hours of overtime / FTE = overtime per FTE.
The last measure of employee performance is the average overtime per FTE. Companies may attempt to encourage workers by offering overtime, but if staff members get overworked, overall performance is likely to deteriorate. This in turn is probably going to make them feel worse and lower retention.
A single worker performance statistic cannot adequately represent performance. Although this post offers a thorough summary, it only includes one metric that fits some situations. Why? Because it simply does not exist. The most effective KPIs for staff members integrate both quantitative and qualitative data. In an attempt to achieve this, most businesses ask managers and colleagues to evaluate employees’ work in a 360 or 180-degree feedback loop.
We think that is the best course of action. A mix of quantitative and qualitative employee performance measurements collected from multiple sources is the most influential metric.
Recruiting data and performance indicators are frequently combined to determine which new recruits are most likely to be top performers. This is accomplished by contrasting applicants’ performance one year later with their profiles. Using patterns found in this data, hiring decisions for fresh candidates can be improved.
Implementing recruiter metrics in the hiring process enhances predictions of candidate success and long-term contributions.
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