Employees play an important role in helping the organization achieve its mission, vision and objectives. Today, many businesses are relying on their employees to drive business performance and remain competitive. This is contrary to decades ago where fixed assets where regarded as the main drivers of superior performance and returns.
As the value and contribution of intangibles continue to increase, it is critical for managers to have the ability to assess the real impact of employees on financial business performance. Measuring, managing and monitoring the following five KPIs help managers just to do that.
- Human Value Capital Added (HVCA): In addition to being the most vital assets of the business and enablers of future success, employees are also one of the largest expense or rather investment. Measuring HVCA helps managers determine how much value is being added by employees to the bottom line. By subtracting all the non-employee related costs from the revenue generated and dividing the result by the number of full time employees, you will be able to establish each employee’s profitability. The higher the profitability figure per employee, the better.
- Employee Satisfaction Index: This measure helps to express to what extent employees are happy and fulfilling their desires and needs at work. There is a financial causal linkage between employee satisfaction and customer satisfaction. If employees are happy, they are more likely to deliver better customer service which in turn improves customer loyalty and financial performance. To what extent are your employees satisfied with the organization’s leadership and direction, communications, staff development, company working culture, facilities and environment and conditions of service?
- Employment Engagement Level: This measure goes a step further than the satisfaction index and tells a bigger story about the employee. An employee might be satisfied because he or she has an easy job, is not stretched or receives an excellent package. Just because an employee is satisfied does not necessarily mean that he or she is committed to delivering to the vision and mission of the organization. The opposite also holds true. Some dissatisfied employees are the most performance-oriented and do everything within their power to deliver to the organizational vision and mission. Measuring employee engagement helps an organization to understand what drives performance and measures commitment, loyalty, trust and those behavioural traits which inspire employees to perform to their ultimate capacity. This ultimately enables it to generate more marketplace power and higher shareholder returns than its competitors.
- Employee Churn Rate: How well you attracting, recruiting, training and retaining talented staff? Replacing employees is a very expensive exercise. Talented employees move around with their knowledge and supposedly a key employee leaves the organization, replacing him or her with a similar individual might take time, if at all. Thus once you have recruited and trained employees, you need to focus on keeping them as opposed to showing them the door quickly. Monitoring employee churn rate helps managers to gain insights about the number of employees leaving the company in a given time period compared to the overall number of employees. When calculating the employee churn rate, it is important to take into consideration wider economic, competitive and other influences that might influence the final figure and explain any major deviations from prior periods.
- Salary Competitiveness Ratio (SCR): In today’s competitive markets, in order to attract and retain talented employees, offering an attractive salary package is important. Although pay is not the only element that matters, understanding the level of salaries your company pays compared to the salaries competitors pay to their employees for similar job grades in the same area or market will help you discover the attractiveness of your company as a potential employer or the risk of key talent switching over to your competitors. To calculate your company’s competitor and industry SCR for a particular job group, divide the salary (base + commission + bonus) offered by your company by the salary offered by your competitor or the average salary offered in the industry or sector. A ratio of 1 or 1:1 is a good benchmark. If your company is already attractive, a ratio of 0.9 or 1 is a possible benchmark. The aim of SCR is to ensure that your company offers salaries that are fair and competitive without unnecessarily overpaying.
What other employee measures can you add to the list?
I welcome your thoughts and comments.