Key human resource metrics and their calculations

Businesses assess the effectiveness of their resources, particularly employees, by analysing human resource (HR) data. This analysis informs decisions on recruitment and staff management. Metrics are often calculated through performance management systems to maximise efficiency, and figures are compared with competitors to highlight improvement areas.

Labour productivity

Labour productivity measures the output generated by each employee over a specific period.

$\text{Labour productivity}=\frac{\text{output per period}}{\text{number of employees}}$

Where:

• Output per period = Total goods or services produced in a given timeframe
• Number of employees = Total workforce involved in production

Labour turnover

Labour turnover indicates the percentage of employees leaving the organisation within a period.

$\text{Labour turnover (\%)}=\frac{\text{number of staff leaving}}{\text{average number of staff employed}}\times 100$

Where:

• Number of staff leaving = Total employees who depart during the period
• Average number of staff employed = (Staff at beginning of period + staff at end of period) ÷ 2

Labour retention

Labour retention shows the percentage of employees who remain with the organisation over a period. It is inversely related to labour turnover, meaning high turnover leads to low retention.

$\text{Labour retention (\%)}=\frac{\text{number of staff employed at start of period - number of leavers}}{\text{number of staff employed at start of period}}\times 100$

Where:

• Number of staff employed at start of period = Workforce size at the beginning
• Number of leavers = Total employees who depart during the period

Absenteeism

Absenteeism calculates the percentage of workdays lost due to employee absences over a period. It does not differentiate between various reasons for absence.

$\text{Absenteeism (\%)}=\frac{\text{number of days of staff absence in a time period}}{\text{number of staff employed}\times \text{time period (in days)}}\times 100$

Where:

• Number of days of staff absence = Total absent days across all employees
• Number of staff employed = Total workforce
• Time period = Duration being measured (e.g., 365 for a year)

Worked example - Calculating labour productivity

A manufacturing firm produces 18,000 units in a month with a workforce of 45 employees. Calculate the labour productivity.

Step 1: Identify the values

• Output per period = 18,000 units
• Number of employees = 45

Step 2: Apply the formula

$\text{Labour productivity}=\frac{\mathrm{18,000}}{45}$

Step 3: Calculate the result

$\text{Labour productivity}=400\text{ units per employee}$

Worked example - Calculating labour turnover

A company starts the year with 150 employees and ends with 170. During the year, 30 staff members leave. Calculate the labour turnover percentage.

Step 1: Identify the values

• Staff at beginning of period = 150
• Staff at end of period = 170
• Number of staff leaving = 30

Step 2: Calculate average number of staff employed

$\text{Average number of staff employed}=\frac{150+170}{2}=160$

Step 3: Apply the labour turnover formula

$\text{Labour turnover (\%)}=\frac{30}{160}\times 100=18.75\%$

Worked example - Calculating labour retention

A business begins the quarter with 250 employees. Over the quarter, 40 employees leave. Calculate the labour retention percentage.

Step 1: Identify the values

• Number of staff employed at start of period = 250
• Number of leavers = 40

Step 2: Apply the formula

$\text{Labour retention (\%)}=\frac{250-40}{250}\times 100$

Step 3: Calculate the result

$\text{Labour retention (\%)}=\frac{210}{250}\times 100=84\%$

Worked example - Calculating absenteeism

In a firm with 75 employees, there are 1,050 absent days over a 365-day year. Calculate the absenteeism percentage.

Step 1: Identify the values

• Number of days of staff absence = 1,050
• Number of staff employed = 75
• Time period = 365 days

Step 2: Apply the formula

$\text{Absenteeism (\%)}=\frac{\mathrm{1,050}}{75\times 365}\times 100$

Step 3: Calculate the result

$\text{Absenteeism (\%)}=\frac{\mathrm{1,050}}{\mathrm{27,375}}\times 100=3.84\%$

Factors affecting labour productivity and HR responses

HR influences productivity by promoting employee engagement, motivation, and appropriate role assignments. Productivity can fluctuate due to various factors, requiring targeted HR actions.

Responses to changes in productivity

Increases in productivity:

• May result from enhancements like improved manufacturing methods.
• HR can sustain motivation through rewards such as bonuses or salary increases.

Decreases in productivity:

• Could stem from low morale or the introduction of new product lines that demand more time.
• HR might introduce retraining programmes, provide stronger incentives, or, in extreme cases, implement redundancies to bring in more skilled workers.

HR should engage with employees to pinpoint causes before deciding on actions, ensuring solutions address root issues effectively.

Causes of labour turnover and retention rates with improvement strategies

High labour turnover reflects a significant portion of the workforce departing, while low retention means few employees stay long-term. These metrics vary by context; for example, high turnover might suit seasonal operations but harm stable firms like legal practices.

Causes of high labour turnover and low retention

• External factors - Expansion of rival firms attracting staff with comparable skills.
• Internal factors - Inadequate motivation, insufficient pay, limited advancement paths, or flawed recruitment leading to mismatched hires.

High turnover raises expenses for hiring and training, and results in the departure of knowledgeable staff.

Strategies to improve turnover and retention

Reducing turnover:

• Enhance delegation, introduce job enrichment, raise salaries, or provide superior training opportunities.
• Some innovative firms deliberately encourage higher turnover to introduce new perspectives.

Boosting retention:

• Strengthen induction programmes, emphasise career progression, and promote organisational values to foster a sense of belonging and value among staff.

Causes of absenteeism and methods to reduce it

High absenteeism incurs costs through sick pay and the need for temporary cover, impacting overall operations.

Causes of high absenteeism

• Genuine health issues, including physical or mental conditions.
• Work-related stress, low employee morale, instances of bullying or harassment.
• Unsafe work environments or a workplace culture that treats sick days as extra leave.

Methods to reduce absenteeism

• Tackle management issues, such as aggressive styles, by retraining supervisors.
• Alleviate excessive workloads to prevent burnout.
• Consult employees to identify specific problems, avoiding measures like added duties that could exacerbate overwork.

Techniques to enhance employee motivation and efficiency

Various approaches can boost productivity, lower turnover, and decrease absenteeism by improving employee satisfaction and involvement.

Financial incentives

• Offer rewards like bonuses for extended service or reliable attendance to encourage performance and loyalty.
• These may have drawbacks, such as perceived unfairness to staff with valid health absences.
• Implement employee share ownership plans, where staff save portions of their salary to buy company shares at discounted rates (e.g., Save As You Earn schemes).

Employee share ownership plans decrease turnover, as leaving forfeits share benefits, and heighten productivity, as employees gain from improved company results.

Non-financial methods

Consultation:

• Involve staff in decisions to elevate morale and cut absenteeism.
• This can extend timelines and raise costs in bigger firms.

Empowerment:

• Grant employees greater autonomy and duties to enhance motivation and output, while reducing turnover and absences.
• Success depends on managers trusting staff and being open to sharing authority; reluctance in these areas hinders effectiveness.