Is HR just a box you check to make sure that people are paid and that a handbook is distributed? If so, you are missing a tremendous opportunity to leverage your workforce to perform at its highest potential. How do you know if your HR function is running effectively or if you have the potential to improve?
What is HR Effectiveness?
Your payroll costs are probably the highest, if not close to the highest line item on your P&L (profit and loss statement). HR effectiveness is strategically leveraging your HR policies to maximize your company’s return on its investment.
Building an effective HR function is a cost-saving measure. You reduce administrative burden and are able to implement scalable, repeatable processes. Additionally, an effective HR function reduces turnover and saves the company loss through the implementation of effective recruiting, hiring, and training practices.
Three Signs Your HR Function is Working Effectively
How do you know if your HR function is actually working effectively? You need criteria to measure and evaluate against. There are several clear, measurable indicators of whether your HR function is working at its best!
High Retention Rates
Retention rate is the percentage of employees who remain employed over a defined period of time. The defined period can be a month, a quarter, or even a year. When calculating a retention rate, we take the number of employees at the end of the established time period and divide it by the number of employees at the start of that time period. Generally, we don’t include anyone who was hired during the time period for an accurate data set
If your retention rate is high, 90% or higher, then your employees are most likely satisfied and engaged in your workplace. You have saved time and money because you don’t need to regularly go to market to fill vacant roles. You also aren’t pulling your remaining workforce away from their day to day responsibilities to take part in interviews.
Clearly Defined Processes
Do you have established recurring processes and tasks that multiple people in your organization are required to complete? Clearly define and document these processes. When you have clearly defined processes you avoid wasting time with team members attempting to reinvent the wheel. Your team will be more efficient. Clearly defined processes contribute to team alignment and allow the team to be nimble when an expected challenge occurs, such as an unexpected employee absence or the resignation of a team member.
Strong Employer Brand
What do you want your company to be known for? How do you want your customers, your employees and your industry to speak about your company? Is that consistent with the culture and values you wish to hold? If so, this means you are making decisions according to these values. In turn, you are building a strong employer brand.
When you make decisions based on your values, then your decisions are more predictable and consistent for stakeholders. This leads to higher degrees of employee engagement and productivity and satisfied customers, which leads to business growth and profitability.
How to Measure HR Effectiveness
It’s easy to think that a function is working effectively, but how can you know? There are data points you can rely on for a quantitative measure of the quality of your HR function.
Cost Per Hire
How much does it cost you to hire a new employee? In calculating this cost, we consider:
- Cost of recruiting tools including the cost of recruiter fees, job posting fees
- Cost time of the team that it takes to select a new hire
- The cost of onboarding including background check fees, set up fees for equipment
- Any other expenses involved in the recruiting and hiring process, such as candidate lunches or travel expenses
Time to Productivity
Every job has a learning curve, even for the most experienced of candidates. How long does it take for an employee to fully integrate into their role and be able to contribute and productively function? We estimate 90 days. If a role takes longer than 90 days to be fully productive, then it’s time to consider the complexity of the role or evaluate your company’s onboarding and performance development processes. If the challenge in meeting productivity goals within 90 days falls squarely on the shoulders of the employee, and they aren’t meeting expectations, evaluate your screening and recruitment process to see where you missed the mark in establishing the candidate’s subject matter expertise, skills, and abilities. Employee Satisfaction
Are your employees satisfied with their workplace? Happy, engaged employees are more productive and stick around longer than those who are not. Measure employee satisfaction through regular organization-wide surveys and exit interviews.
Effective Surveys focus on gathering employee opinions and feedback on whether they feel –
- They are supported at work
- They have a growth path
- Their work has been appropriately recognized
When HR uses these feedback opportunities to improve business processes and the human resources function, it’s an indicator of an effective and well-operating HR department.
Voluntary Turnover Rate
When an employee resigns their job, it is considered a voluntary termination. Voluntary turnover rate is the percentage of employees who resign over a designated period of time. This statistic helps you predict your future turnover rate and develop an appropriate workforce strategy. Your voluntary turnover rate is a measure of employee satisfaction. A high voluntary turnover rate is a sign that your employees are not engaged with their roles. It signifies that you are losing employees who you have invested in.
Involuntary Turnover Rate
When you release an employee from their role, due to performance or a RIF, it is considered an involuntary termination. Just like voluntary turnover rate, involuntary turnover rate is the percentage of employees who are released from their roles over a designated period of time. This statistic can be a warning sign of the health of your recruiting and onboarding process as well as your organization’s planning. If your involuntary turnover rate is high, ask yourself:
- Are we hiring the right people, with the right knowledge, skills, and ability to do their job?
- Does our onboarding and training process set employees up for success?
- Are we appropriately planning to hire a workforce that fits our needs?
Company Performance
Company performance is a measurement of how your company is meeting its financial goals. If your company is not meeting its KPIs and financial projections t and you’re not sure why, your HR function may not be effectively addressing performance and motivating the behaviors that drive your profit.
Want to Increase the Effectiveness of Your HR?
There is no magic solution to increase the effectiveness of your HR function. Instead, it is a combination of strategic HR processes across the employee lifecycle that enables your people to perform at their best and deliver results for your business. If you think your HR function isn’t as effective as it could be, contact the experienced Consultants at Red Clover to explore how a strategic HR function can help you maximize the potential of your team!
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