CORPORATE LEADERSHIP COUNCIL® JULY 2006

www.clc.executiveboard.com
LITERATURE KEY FINDINGS
Selecting HR Metrics

HR’s increasing responsibility as a business partner requires it to quantify Corporate Strategy

performance in key HR functions to demonstrate HR’s impact on the
organization. HR leaders can accomplish this by tracking HR metrics that Skills Demand
align with corporate strategy and inform business decisions. When Human Capital
Strategy
appropriate HR metrics are selected and used consistently by an Skills Supply
organization, HR can distinguish opportunities to improve workforce
performance and productivity as well as identify HR areas that require cost
HR Performance
control and increased efficiency. Metrics

HR metrics best diagnose and reveal organizational performance when aligned with the human capital strategy and, ultimately, the
corporate strategy. The integrated case profiles from Verizon Communications (Verizon) and General Motors (GM) detailed on the
following pages offer structured processes for identifying HR performance measures or metrics through alignment with corporate
and HR strategy, as summarized below:

Step 1: Evaluate external information, interview line managers and executives, survey HR customers, and
Assess collect HR leadership feedback to determine HR’s responsibilities to the organization. These identified
Business HR priorities and responsibilities inform the creation of HR’s strategy.
Requirements
for HR

Use a cascading process to align overall business goals with HR metrics. The cascading process
Step 2: allows for the categorization of broad business strategy into successive layers of HR objectives and
Identify
actions until it is possible to identify detailed and specific measurement items.
Measurement
Areas

Reveal volume, cost, time, satisfaction, and quality information by expressing raw data in formulas, such
Step 3: as rates and ratios. Organizations can achieve greater insight into the business by segmenting
Translate measurements by dimensions such as organization structure, demographics, employment levels,
Raw Data functions, and employee experience.

Develop a means to evaluate and prioritize metrics based on alignment with strategy, usability, and ease
Step 4: of collection. Evaluating potential measures against this criterion helps HR select those metrics that will
Evaluate provide the greatest insight into the achievement of business objectives.
Identified
Metrics

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Catalog Number: CLC165YPQP
 CORPORATE LEADERSHIP COUNCIL® PAGE 2
SELECTING HR METRICS KEY FINDINGS

Step 1: Assess Business Requirements for HR

HR can evaluate its responsibilities and requirements by examining competitors and the external market, soliciting input from HR
leadership and line executives, and reviewing corporate and business unit objectives and strategy. Identified people requirements can
then be categorized (i.e., workforce development, labor relations, customer service, compensation and benefits) to form an HR
strategy. The example below demonstrates how Verizon organizes identified HR responsiblities and requirements to support business
strategy:1

Figure 1: Sample HR Priorities at Verizon

Customer Service Staffing/Leadership
• Build service capability • Invest in leadership growth
• Create environment that supports • Define leadership competencies
employee engagement • Structure rewards to foster
leadership behavior
Business Objective
Workforce Development Position Verizon to become Labor relations
• Grow talent pool a leading global player in • Build partnership with unions
• Invest in people telecommunications

Compensation/Benefits Diversity
• Offer attractive compensation and • Leverage diversity
benefits package • Provide growth opportunities
• Team with world-class vendors

Step 2: Identify Measurement Areas

Identification of strategically aligned metrics involves translating strategic priorities into HR goals and actions that are measurable and
meaningful. At Verizon, an HR team evaluates priorities against four perspectives—strategic, operations, customer, and financial—
through a cascading process. The team uses an inverse “tree” to structure the dissection of high-level measurement items (i.e., HR
priorities) into smaller pieces that, at the lowest level, yield raw data. This exercise links “real numbers” to more abstract measurement
goals. Below, the Council provides an illustrative tree that examines goals through the strategic perspective.2

Figure 2: Sample Metrics Identification Tree at Verizon

Strategic Perspective Balanced

of the Balanced Scorecard Scorecard
The first level of the tree populates the
Perspective
strategic perspective with HR’s
strategic priorities. This “layer” is
identical across all four perspectives.
Staffing/Leadership Customer Service Strategic
Priorities
The next level down looks at
the factors that affect each
strategic priority.
Talent Workforce
Promotions Retention Factors
Acquisition Diversity
Factors are then broken down
into their constituent parts,
yielding detailed measures.
New Recruit Detailed
Right Fit
Yield Measures
At the bottom of the
tree are the real
numbers, those items
of “raw data” that form
Accepted Extended Hourly Short-Term Salaried Short-Term “Raw Data”
the basis of the
detailed measures. Offers Offers Terminations Terminations

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 CORPORATE LEADERSHIP COUNCIL® PAGE 3
SELECTING HR METRICS KEY FINDINGS

Step 3: Translate Raw Data

“Raw data” identified through the cascading process described in Step 2 can be expressed “as is” but can yield greater meaning and
insight when expressed in relation to other measures or data such as time, employee population, expense, etc. Developing these
correlations through formulas can reveal volume, cost, time, satisfaction, and quality information. For example, companies often
express the number of terminations in relation to overall headcount to understand the rate at which employees leave the organization.
Raw data can be organized by the following formula types:3

Table 1: Formulas to Express Raw Data

Formula Type Definition Example
Proportion of one or more parts • Turnover Rate—[Terminations / Average Headcount] x 100
Rate
to a whole of 100% • Applicant Interview Rate—[Applicants Interviewed / Total Applicants] x 100
One number relative to
• Applicant Ratio—Applicants / Offers Accepted
Ratio another, often expressed as a
• Average Time-to-Fill—Total Days to Fill a Position / Offers Accepted
reduced fraction
• Direct Compensation Breakdown–[Compensation Type (i.e., variable pay,
Breakdown of a whole into its
overtime, base pay) / Direct Compensation Expense] x 100
Composition parts, showing the number or
• HR Expense Breakdown—[HR Function Expense (i.e., Benefits
percentage allocated to each
Administration, Payroll, Staffing) / Total HR Expense] x 100
• New Hire Performance Satisfaction—An indication of how well recent hires
Weighted combination of
are performing within their position based on survey results.
Index disparate data into one number
• Manager Quality Index—A relative measure of employees’ perceptions of
relative to a scale or anchor
manager quality determined by survey results.

The relevance and usefulness of measurement results can be greatly improved if analyzed by particular employee populations or
business unit groupings. Understanding how results differ across different populations or areas of the organization can help to isolate
high-impact targets for intervention and can reveal behavior patterns across the workforce. Common analysis dimensions include the
following:4

Table 2: Segmentation Categories for Measurement Analysis

Dimension Definition Example
• Financial Reporting
Organization Hierarchies for reporting on or organizing • Supervisory Reporting
Structure departments and business units • HR Responsibility
• Geographic Location
• Age
Analysis options that segment the workforce • Gender
Demographics
according to individual characteristics • Ethnicity
• Education Level
• Employment Level (exempt/non-exempt; hourly/salaried)
• EEO Job Category
Employment Analysis options that segment the workforce
• Manager Level
Levels according to seniority
• Compensation Band
• Annual Salary
• Job Family
Analysis options that segment the workforce
Function • Job Title
according to types of jobs performed
• Employment Type (regular/temporary)
• Organization Tenure
Analysis options that provide details about
Employment • Performance Ratings
an individual’s experiences at the
Experience • Benefits Participation
organization
• Position Tenure

 2006 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL® PAGE 4
SELECTING HR METRICS KEY FINDINGS

Step 4: Evaluate Identified Metrics

Metrics that align with corporate and HR strategy must be easy to collect and report and should inform business decisions. To identify
appropriate metrics, GM’s HR group created a prioritization tool that evaluates potential metrics for their strategic alignment, quality
(i.e. usability), and feasibility. First, metrics are divided into objective or contributory metrics that indicate contribution to achievement of
business objectives. Next, metrics receive ratings related to five quality categories and three feasibility categories, as detailed below:5

Figure 3: Definitions of Usability Ratings at GM

Criteria Quality Category Definition of Category Rating One member of the HR

planning team was tasked
Metric cannot be communicated as a number. Subjective terms
Subjective Metric 0 with developing metrics
are used to indicate performance (e.g., employee morale).
categories and assigning
Metric can be communicated as a number. A numeric goal can the ratings. These ratings
Quantifiable Metric be established or trend goal visually apparent (e.g., hours of 1 are weighted based on the
training). relative value and
importance of the metric
Positive performance will directly affect company financial
type for GM. Members of
Quality

Results Metric performance (e.g., gap between current and required workforce 1
the metrics planning team
skills).
may provide feedback on
Metric reflects the quality of performance (e.g., utilization of the categories and ratings.
Qualitative Metric 3
training).
Metric will “raise the red flag” when performance begins to
deteriorate, allowing management an opportunity to put in place
immediate countermeasures designed to reverse poor
Predictive Metric performance. Metric is conducive to problem solving and 6 HR considers predictive
process improvement. Best-practice performance can be metrics considerably more
isolated, globalization practice implemented, and financial valuable than other metrics
impact forecasted (e.g., strength of employment brand). because they allow
Metric exists already or data to support metric is currently management the
Easy to Measure 1
Feasibility

available. opportunity to proactively

Moderately Difficult Metric does not currently exist. Data must currently exist but is identify business
-1 challenges or
to Measure not readily available.
opportunities.
Difficult to Measure Metric does not currently exist. Data may not currently exist. -2

For ease of review and comparison, GM organizes ratings into a metrics decision matrix. As demonstrated below, HR totals the quality
and implementation ratings for each metric to calculate an overall “comparative rating” for the metric. In addition, HR captures
alignment of metrics with objectives by coding metrics as a direct measures (X) or a contributory measures (C).6

Figure 4: Sample Metrics Decision Matrix

Turnover by
New Hire Employee Step 1: Each potential metric
Metrics Rating Categories HR:FTE Ratio Employee Skills Gap
Turnover Productivity is compared against business
Segment
objectives. Contributory
Objective 1 C X X metrics are designated with a
“C” and direct measures are
Objective 2 X C X C designated with an “X”.

Subjective
Step 2: Potential metrics are
Quantitative 1 1 1 1 1 rated against quality and
Usability
Quality/

feasibility categories, as
Results 1 1 1 defined above.

Qualitative 3 3 3 3
Step 3: A comparative metric
Predictive 6 rating is calculated by adding
the quality ratings and the
Feasibility Rating 1 1 -1 1 -1 feasibility rating. This final
number provides a simple
Comparative Rating means to compare the usability
6 6 4 2 9
(Quality Total + Feasibility) of all potential metrics.

 2006 Corporate Executive Board. All Rights Reserved.

 CORPORATE LEADERSHIP COUNCIL® PAGE 5
SELECTING HR METRICS KEY FINDINGS

PROFESSIONAL SERVICES NOTE

The Corporate Leadership Council (CLC™) has worked to ensure the accuracy of the information it
provides to its members. This project relies upon data obtained from many sources, however, and the
CLC cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the CLC
is not engaged in rendering legal, accounting, or other professional services. Its projects should not be
construed as professional advice on any particular set of facts or circumstances. Members requiring
such services are advised to consult an appropriate professional. Neither Corporate Executive Board
nor its programs are responsible for any claims or losses that may arise from any errors or omissions in
their reports, whether caused by Corporate Executive Board or its sources.

1
Corporate Leadership Council, A New Measurement Mandate, Washington: Corporate Executive Board (2001).
2
Corporate Leadership Council, A New Measurement Mandate.
3
Corporate Leadership Council, The Metrics Standard, Washington: Corporate Executive Board (2005).
4
Corporate Leadership Council, The Metrics Standard.
5
Corporate Leadership Council, From Information to Insight, Washington: Corporate Executive Board (2002).
6
Corporate Leadership Council, From Information to Insight.

 2006 Corporate Executive Board. All Rights Reserved.