Organizations invest in performance management systems to help employees learn and grow, but it is important to pay attention to the right kind of employee performance metrics to be able to do this effectively. In this article, we list the top five performance management metrics that you need to track for your employees and your business.
What Are Performance Management Metrics?
Performance management is the process of monitoring an organization’s activities to ensure that employees meet set goals and objectives. Performance management metrics (including key performance indicators (KPIs) for employees) are data points that demonstrate whether the organization is on track to achieving its goals. This encompasses individual employee performance metrics and overall metrics that help the HR department ensure that the company’s performance management program is on track.
To be effective, performance metrics must be SMART, i.e., Specific, Measurable, Attainable, Relevant, and Timebound.
- Specific metrics, as the name suggests, clearly quantify performance targets. For example, “improvements in performance over time” is not a specific metric, whereas employee net promoter score (eNPS), which measures employee loyalty, is a specific metric.
- Measurable metrics are calculated using specific formulae on data collated by human resource management systems (HRMS) or other performance management systems. Companies track these performance metrics to show the current status of any project.
- Attainable metrics are targets the HR department and employees can realistically achieve. For example, 80% participation in training programs is an attainable goal, rather than expecting 100% participation.
- Relevant performance management metrics ensure that an organization achieves its overall targets or goals. They could also help boost the success of a specific project or quarterly/annual goals. For example, employee productivity, measured as the “number of code defects removed per day”, is a relevant metric pertaining to a specific product release. One should keep in mind that these are not common employee performance metrics and are usually unique to every organization.
- Timebound metrics track performance within a specific timeframe to assess if targets are being met.
Learn More: The HR Scorecard: A Comprehensive Guide
What Are the Benefits of Tracking Performance Metrics?
There are several reasons why companies should continuously track performance. By focusing on clear metrics (such as the five we discuss in this article), HR departments will be able to:
1. Accurately quantify the return on investment (ROI)
Effective performance management requires significant investment in terms of time, money, and effort put into strategy development and execution. Performance management metrics that show progress are essential to get continued support from everyone at the company. For example, if an organization made a substantial investment in a cloud-based communication and feedback platform, it has to track performance management metrics to map how feedback frequency changed from before to after implementing the solution, thereby understanding the real ROI.
2. Make data-driven performance management decisions
A detailed analysis of employee performance metrics can provide insight into the impact that performance management initiatives have on the workforce. For example, a specific type of performance-based reward might boost employee satisfaction and engagement, and knowledge of this can help an organization make decisions that are best suited to optimizing performance.
3. Reduce future uncertainty
A 2021 report by HR.com says that 84% of respondents to a study said that the performance management function has changed significantly. Therefore, measurable metrics and clear goals or outcomes, are essential for HR departments and managers to make objective decisions that will drive a company’s growth and reduce uncertainty. All common employee performance metrics should also be designed with concrete goals in mind.
4. Predict and prevent bottlenecks
Tracking performance metrics help HR professionals predict issues and bottlenecks before they can occur. For example, if an organization sets a company-wide compliance training target, HR departments can ensure that everyone at the company adheres to this mandate by tracking employee participation.
5. Support organizational success
Performance metrics drive organizational success in the long term as they help identify a company’s top performers. They also help identify interventions that are most likely to boost individual outcomes where employees are missing targets, and provide managers with the data necessary to conduct objective and inclusive reviews.
Learn More: 20 Best OKR Examples
What Are the Top 5 Employee Performance Metrics?
In addition to having their company-specific employee performance metrics, HR departments must be aware of the latest industry-wide metrics to keep the performance management function updated and effective.
These are five essential performance management metrics that everyone, regardless of industry, should track:
1. Employee productivity index
The employee productivity index is calculated by dividing the total output or final outcomes by the effort or cost put into an activity.
To track this performance management metric, an organization must first define what productivity is in a specific business scenario. It could range from the number of words typed in an administrative office to the number of garments manufactured in a factory. Then, one has to divide the total outcomes by the total volume of input. For example, if 10 employees take two hours to produce 500 pairs of trousers in a factory, the employee productivity index will be: 500 ÷ (10 x 2) = 25
Tracking this employee performance metric over a period of time helps companies identify certain trends and correlations related to productivity. For instance, certain employee benefits could lead to an uptick in the employee productivity index. Also, if teams or individuals show declining productivity over time, the issue can be identified and addressed.
2. Employee feedback and ratings
Annual reviews are being increasingly replaced by continuous feedback, where managers share their inputs, opinions, and constructive criticism with team members on a monthly, weekly, or even daily basis. These performance management metrics measure the efficacy of feedback in real-time. Feedback can be measured both qualitatively and quantitatively.
The feedback quantity metric refers to the number of conversations a manager has with an employee within a specific period of time.
Some organizations set targets and track the frequency of feedback sessions to gauge progress made over a period of time. Let us say an organization requires each manager to engage in two feedback conversations per employee each month, but a manager with five team members only conducts 8 conversations in a month instead of the prescribed 10. This means the employee's metric achievement alignment is (8 ÷ 10) x 100 = 80%. If the metric is significantly below the target, say below 60%, the leadership should address the issue.
The feedback quality metric indicates if an employee found their manager’s feedback constructive. A simple 1-5 rating system that answers the question ‘Was the feedback you received helpful?’ with a brief explanation of what went well or went wrong will offer clear insights.
Learn More: Top 10 HR Analytics Tools for Organizations
3. Learning & Development (L&D) participation and completion rates
L&D is an important part of the performance management process. Several organizations are integrating learning management systems (LMS) with HR software, and metrics such as learning participation rate and learning completion rate have become part of common employee performance metrics.
Learning participation rate is defined as the percentage of employees participating in an optional or voluntary learning program. While participation in compulsory programs is always high, attendance in optional programs shows employees’ involvement in their job and commitment to growth.
Learning completion rate indicates the number of employees who successfully finished a specific training program vs. the total number that only signed up/registered for it. This performance metric, calculated as a percentage, also indicates the employees’ priorities, and highlights which channels of instruction are more impactful and likely to produce results.
4. Employee net promoter score (eNPS)
An eNPS measures employee sentiment and gives an accurate picture of how happy and engaged they are at work. It is a performance management metric that compares the number of loyal employees (i.e., promoters) vs. the number of employees who are planning to leave (i.e., detractors). This metric is calculated as a number and not a percentage.
The first step in the process of tracking this metric is to roll out a survey with a single question – How likely are you to recommend your workplace to a friend, family member, or peer? Answer on a scale of 0-10, with 0 being not likely at all and 10 being extremely likely. Once employees submit their ratings, the next step is to calculate the number of promoters (those who submitted scores of 9 or 10), passives (those who submitted scores of 7 or 8), and detractors (those who submitted scores between 0 and 6).
The formula to calculate eNPS is:
((Number of promoters ÷ Total number of respondents) x 100) - ((Number of detractors ÷ Total number of respondents) x 100)
For example: Among a pool of 50 respondents, if there are 20 promoters, 10 detractors, and the rest are passives, then the eNPS will be:
((20 ÷ 50) x 100) - ((10 ÷ 50) x 100)
= 40% - 20% = 20
This is an essential performance metric to track for organizational success, as it is a clear indicator of whether employees are happy with the workplace.
5. Performance management system efficiency (PMSE)
This metric tracks the time and effort managers are investing in performance management. How long are they spending on feedback sessions? Are evaluation processes taking less time after installing new software? Are some managers spending more time on performance management than others? Will additional training rectify this? These are some of the questions this performance management metric can help identify and resolve.
PMSE measures the time and effort needed to perform tasks such as reviews, feedback, surveys, etc., after implementing a performance management process or solution, versus the time effort it took before the implementation.
Tracking this performance management metric helps improve efficiency over time. For instance, if manual performance management occupies 100 work hours per year, using next-gen software systems can reduce the time taken by 50% This metric also helps managers struggling with manual performance management and resolves tasks that have bottlenecks.
Learn More: The 30 Best Employee Feedback examples
These are the top five performance management metrics that every organization should measure. You can bring about continuous improvements and make better decisions using software that can simplify the data gathering and calculation process.
Tools like Darwinbox make it easier to monitor and track performance metrics automatically – request a demo to learn how!
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