Measuring HR Effectiveness for Businesses

Defining HR Effectiveness

HR effectiveness is measuring how an HR department’s work affects the business. A company’s people-based department plays a major role in an organization’s overall success, whether large or small. 

Signs of HR Effectiveness

There are many gauges of an effective HR department. While every company measures the success of its HR team differently, here are some of the biggest signs your HR team is making a difference.

• Happy, engaged employees. 

If most of a business’s employees are engaged, this is a huge indicator that the HR department is effective. While many factors affect employee happiness, HR initiatives such as team-building activities are significant in crafting a great employee experience.

• Communicative managers. 

Another way to tell if your HR staff are effective is if managers readily approach them for assistance. When managers are open with their HR representatives, addressing workplace challenges is easier. This helps managers to address small issues before they become big problems.

• High retention rates.

If employees tend to stay with the company for a long time, your HR team is succeeding in cultivating the company’s culture. It also shows that your hiring managers have been trained to distinguish good culture fits when interviewing employees and that pre-hire screening processes are working.

• A strong employer brand. 

A powerful employer brand is essential for success in today’s competitive job market. An organization’s image is a huge consideration in hiring and plays a big role in attracting top talent to your firm. 

• Airtight HR compliance. 

Suppose your company managers know the dos and don’ts of interviewing and pass internal audits with flying colours. In that case, your HR team is doing well at guaranteeing your organization conforms to laws, guidelines, and regulations.

• Clearly defined systems and processes. 

When your HR team has a process for everything, this signals they are routing critical actions like recruitment or workplace investigations carefully and with attention to detail.

Characteristics of an Effective HR Professional

The human resources field involves a number of varied roles, and there are several qualities they must personify to be effective in their role.

Dependability

An HR professional must be dependable as well as responsive. HR professionals are required to be reliable and to follow through on assignments. Being a “go-to” in times of need and living up to your obligations establishes a reputation as a reliable person.

Visibility

An essential requirement is for HR professionals to be visible around the office. They need to be on hand. Being visible is essential to their success and can go a long way in building connections with the people they are required to support. 

Responsiveness

It is unpleasant to ask for something and then have to wait what feels like ages for a response. Requests sent to HR are often time-sensitive, such as those relating to paychecks or FMLA. An effective HR professional strives to respond in a reasonable amount of time.

Communication Skills

An HR professional should be able to communicate information, from emails to employees to coaching sessions with managers. In addition, they must be able to express ideas and clearly explain difficult information.

Impactful Leadership

Leadership isn’t just for CEOs or managers! HR professionals must adopt a transformational and strategic HR mindset, earnestly advocating for the company’s people by speaking the business language. This makes them indispensable to senior management.

Human Resources Expertise

To be effective, HR professionals must have a strong grasp of the HR function. While the specific knowledge needed changes from position to position, understanding recruitment, onboarding, retention, training, engagement, performance management, compensation and benefits, employment law, and separation is critical to being a successful HR generalist.

Empathy

HR professionals must have a lot of empathy. Empathy is the ability to place yourself into someone else’s shoes to understand better how they feel about a situation. HR practitioners often need to use this skill, from communications about benefits plans to exit interviews.

How to Measure HR Effectiveness

Now that you know how HR can be effective, let’s review some ways to measure your success.

One basic way to measure HR effectiveness at your organization is through the analysis of data. This is particularly true for HR-related metrics. Below, you’ll find some key metrics you can measure to gauge the effectiveness of your efforts and the formulas by which to measure them.

Revenue per Employee

Revenue per Employee measures how much revenue each employee brings in. You’ll want to calculate using 12 months. This metric is one of the most common, which makes it useful for comparing your business to others in the same industry.

Formula: Total revenue / Total # of employees

Profit per Employee

Profit per Employee is similar to Revenue per Employee, but you use the net income or profit. Using 12 months to measure this metric, you can compare your company to others in your industry. 

Formula: Total profit / Total # of employees

Labor Cost per Employee 

The labour cost is the sum of all the wages employees earn plus the cost of employee benefits and payroll taxes paid by the employer. Simply divide the total labour cost by the number of employees. this gives us how much it costs to employ one person at your company.

Formula: Total labour cost / Total # of employees

Employee Absence Rate

To assess how often employees are missing work (Employee Absence Rate), choose a given period to look at. Then, divide the number of absences during that time by the number of working days. 

Note: Measuring unexcused and excused absences will be more helpful. Unexcused absences are usually more detrimental to productivity, and HR usually needs to take action to reduce them if they are above a specified level.

Formula: # Absence days / Total # of working days

Training Expenses per Employee

How expensive is it to train one employee? To calculate, just find your total training costs for a given period and divide by the number of employees.

Formula: Training expenses / # Employees

Voluntary Turnover Rate

This term refers to employees who opt to leave the company. High levels of voluntary turnover are often an indicator of serious issues at a company: widespread job dissatisfaction, poor compensation, bad management, or a lack of flexibility. After measuring voluntary turnover, look for issues causing employees to leave and work to remedy those issues.

Formula: # Voluntary terminations during period / # Employees at the beginning of the period