The Top HR Metrics to Track
The Top HR Metrics to Track
Measuring Headcount Efficiency, Payroll, Recruiting, and Attrition
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At most startups, +70% of costs walk on two feet. Here are the metrics high functioning finance teams should partner with HR on to ensure you’re getting the most out of your human capital.
Note: I’m not going to comment on anything related to gender, diversity, sexual orientation, or pay equity as I don’t believe I’m uniquely qualified to comment, so I’ll leave D&I to the experts and stick to the maths for this particular post. I’m also approaching this from the eyes of a CFO or COO in the SaaS space with 100% salaried employees.
Efficiency
Average Revenue per Employee: The GOAT of SaaS metrics, in my humble opinion
Probably offers the best insight into a company's scalability, and eventual operating efficiency
Are you hiring faster than your company can generate incremental topline results?
At a high level, can your growth eventually outrun your costs?
Span of Control: Number of direct reports
Anytime this gets over 9, I think “under investing”
Nvidia’s CEO Jensen Huang has 50 direct reports. His calendar must suck.
Anytime this gets under 5 (and there are additional managers with the same title elsewhere in the org), I think “over investing”
For example, you shouldn’t have 12 BDRs and 3 BDR managers…that’s just too rich
Pay and Benefits
Average Salary: Should be tracked and trended at both the department and company-wide level
Companies go through chapters where this moves up and down. There should be a story as to why the trend is going in a certain direction:
Increases as they layer in more experienced leaders (think: post Series B)
Decreases as they scale and hire more cookie cutter roles to build out their benches (think: post Series D)
Increases as they look to bring on subject matter experts (think: pre IPO)
Decreases as they strive for efficiency and cash flow at scale (think: mature public company)
Salary Penetration Rate: How do employees match a predetermined benchmark for normal pay at the position
For example, in a position with a salary range of $80,000 to $100,000, an employee making $90,000 has achieved 50% penetration; $95,000 would equal 75% penetration.
Companies should purposefully determine if their strategy is to, on average, pay above or below the 50th percentile. Then finance should help them apply that methodology consistently.
Cost of Payroll per Employee: Helps monitor the return on investment (ROI) for the software and / or services a business uses to run payroll (Paycor, Paycom, Paylocity, Rippling, Gusto, ADP)
This should get cheaper the bigger you get, as you can spread the fixed costs over a larger base. You should also get better rates because the payroll providers want to sell you additional services.
Benefit Participation Rate: Percentage of employees enrolled in a healthcare plan
My rule of thumb is if it’s under ~40% (and you’re employing people in a country that doesn’t offer free healthcare), then employees think your plan is garbage and flocking to that of their spouses
To determine the rate, divide the number of employees enrolled by the number of employees eligible, then multiply by 100 to get a percentage.
Healthcare costs per employee: Average cost of employer-sponsored health insurance. This is the dollar denominated version of the formula above.
Should be benchmarked against companies of a similar size in a similar region.
When paired with the Benefit Participation Rate, it also reveals if you are overpaying for stuff employees don’t care for (like pet benefits)
Recruitment and Hiring
Offer acceptance rate: Number of candidates who accept job offers divided by the total number of offers made.
Reveals the competitiveness of the company’s job offers and if you are just wasting your time, blasting out low ball offers to people.
Time-to-fill: Refers to the time required for the entire hiring process, from creating the job opening to the time a candidate accepts the role, to run its course
Measured as the number of days between the starting point (when the role is approved) and the endpoint (the date the candidate accepts the job).
Time-to-hire: Begins the moment a candidate enters the pipeline and ends at the time they accept the job.
Measured as the number of days between the starting point (when the new hire starts the recruitment process) and the endpoint (the date the candidate accepts the job).
The difference between this metric and the one above is that the candidate has to be identified. In other words, it’s later on in the cycle.
Time-to-hire reflects the efficiency of your recruiting process and time-to-fill reflects the efficiency of your organizational hiring process.
Cost per hire: Average expense of hiring a new employee.
You should have a strategy on outsourcing vs doing it yourself - it should vary based on role and seniority - and be budgeted for at the start of the year accordingly
Referral Rate: What percentage of your hires came from a referral?
In the US, more than 30% of hires are through employee referrals
It reduces time to hire by 55%
And the employees are likely to stick around for 1.5x to 2x as long
The average referral bonus is between $1,500 and $3,000… which is like 5x to 10x lower than using a headhunter
Attrition
Regrettable Turnover: You were mad they left.
Non-Regrettable Turnover: You weren’t mad they left.
New hire turnover rate: Segment of voluntary turnover rate that reflects new employees leaving a role within a set period of time, usually the first year of employment.
It can be 1.5x to 2x more expensive to backfill a new hire turnover, given the sunk cost of learning, development, and time spent recruiting.
Voluntary Turnover: They left on their own accord (Regrettable or non-regrettable)
Involuntary Turnover: You made them leave (Usually non-regrettable, but could be forced due to layoffs)
Time Off
Percentage of Time Off Used: If you have a set vacation policy, out of an employee’s total possible vacation days, what percentage do they use each year?
This can be wildly thrown off by employees’ who take vacation without logging it in a system
The reason you want to track this is
A) People may be getting burnt out
B) You may be running up a tab that you have to pay out when they quit (if it’s uncapped)
I worked at a European based company and the accrued vacation balance would steadily build up as a liability on the balance sheet until August, and then it would go broke when the team inevitably “summered” on the Amalfi Coast. Also, I hate it when people say they “summer” somewhere.
Absenteeism: A similar version of the above, but only considers unplanned days off, like sickness. This means that, on average, [~2%] of the workforce is absent from work on regular workdays
According to the US Bureau of Labor Statistics, the 2023 US annual average absence rate was 2.1%.
For the private sector, the rate was 2.0%, while for the public sector the rate is 2.6%.
In Europe, average rates are between 3% and 6%. Higher absence rates in Europe can be explained by higher levels of unionization and social security laws that protect employees.
Promotions
Career Path Ratio: How many people who switch jobs internally increase their standing in the org
Illustrates if you are offering an upward path for mobility, or just shifting people around from team to team
Ideally promotions are above 50%
Source: HiBob
Time Since Last Promotion: Measured in months
On average, if it continues to climb it may serve as a leading indicator that high performers will bounce
Smart Stuff I Read at 2AM:
Run the Numbers
Apple | Spotify | Youtube
I interviewed Scott Haralson, The CFO of Spirit Airlines. He manages perhaps the most dynamic and complex operating model out of all the CFOs I’ve spoken to so far. It blew my mind how many moving parts there are, literally, when it comes to getting people to and from a destination on time.
On this episode we cover
How spirit makes money, tracing their unbundling strategy into revenue line items
Spirit’s north star metric Operating Costs per Available Seat Mile
How he buckets the different costs in his model, and how he thinks about hedging for fuel
Analyzing routes to determine contribution margin, like you’d look at a product line in the SaaS world
Spirit’s concentration on leisure travelers vs business travelers
And major capital allocation decisions, like buying planes
Quote I’ve Been Pondering
“Why are they confessing?”
“They aren't confessing, they're bragging.”
-The Big Short