Tracking and analyzing your employee performance metrics plays a huge role in creating high-performing companies.
Employees perform better when they have objectives to strive for. Measuring how employees complete their tasks and fulfill their responsibilities helps calibrate those objectives by providing insights into areas where they excel or struggle.
In this article, we’ll discuss the benefits of measuring employee performance and the different types of employee metrics to track.
What are employee performance metrics?
Employee performance metrics are KPIs used to track and measure the performance of employees. It qualifies and quantifies what constitutes above-average, average, and below-average performance.
To employees, it communicates what is expected of them. To employers, managers, and HR teams, it gives a clear idea of how the individual contributes to helping the organization meet its goals.
If employees are unaware of how their performance is measured, it could demotivate them. The lack of performance reviews could make them think that the management doesn’t care much about them.
They perceive that pay raises are given randomly, regardless of whether the individual did good or badly at work. The apathy could also reduce employee morale and increase the likelihood of people leaving the company.
Benefits of tracking staff performance metrics
• Lower turnover rates
When employees know how they’ll be evaluated, it encourages them to do better in their jobs because they know they’ll receive bonuses, salary increases, or even get promoted for excellent performance.
Employees would think twice about leaving the company because they perceived career growth and opportunities with their current employer. However, employer turnover would require additional effort and costs for the organization, specifically the HR department.
Some examples of:
• Better performance
Knowing the performance KPIs is especially helpful for underperforming employees.
It lets them know their areas of improvement so the manager can provide the necessary support via supplementary training or coaching.
It's also important to know the employee KPI as early as recruitment so recruiters and hiring managers can look for individuals with the competencies required for the role. Clarifying the metrics can set the bar for solid performance.
• Help to define employer expectations
Performance metrics establish the standards of what a person needs to do to help the company meets its business objectives.
Without KPIs, miscommunication happens. Employees' productivity is misaligned with company goals, or they fail to meet their performance targets.
Consequently, the company loses business to competitors. Decreased sales, customers, and profits can negatively affect the company's overall performance.
When you know how well your staff performs, you can expect how well your company performs. Measuring their performance and providing them with regular feedback will give you a glimpse into your organization's culture and people strategy.
Top 10 employee performance metrics to track
The type of employee metrics to use depends on the size of the organization, your business goals, and your industry. But mostly, KPIs measure the employees’ quality and quantity of work plus how efficient they are in fulfilling their deliverables as indicated in their job description.
Quality of work
An organization earns a good reputation when it delivers products and services that adhere to the highest standards. Sales and revenues grow when your brand becomes more recognized, thus increasing the company’s bottom line.
The quality of employees’ work is crucial in producing superior products and services. As such, quality should be part of the employee performance metrics. Here are methods to evaluate a person’s quality of work:
• Net promoter score
Net promoter score highlights how a customer is likely to recommend a company’s products or services. Customers answer the question, “Based on your experience using the product/service, how likely are you to recommend it to your friends and family?”.
Customers answer this on a scale from 0 to 10 – very unlikely to very likely. Those who scored 0–6 are called Detractors because they’re not expected to recommend the product/service.
Those that scored 9–10 are called Promoters because they’re most likely to recommend the product/service. NPS is calculated by subtracting the % of Promoters to % of Detractors.
This KPI is regularly used to evaluate staff in the sales department. As for automotive sales, customers or buyers give NPS the final documents they need to sign to purchase the car.
• Product Defect Rate
This metric measures the quality of work the staff produces. It is a standard performance management metric for staff working in manufacturing, production, or repair sectors.
This metric is beneficial not only in tracking individual performance but also in determining the best-performing member of the team.
Moreover, it enables upper management to evaluate the number of defective products produced per team to monitor the performance of one team to another team.
• Error Rate
Error rate is used to evaluate the employee’s error. It is typically used to assess software developers or programmers. The error rate is a critical performance KPI for software companies.
For instance, software development team leads could measure their members’ errors per thousand lines of code. Or the number of bugs or number corrections in the software code.
A single error in the code can halt companies' operations relying on applications or software for decision-making. In the software development error rate KPI, the brevity of a piece of code is another quality indicator.
If 20 lines of code can produce the same computational results as that 120 lines of code, the former is deemed better quality.
• 360-degree feedback
This metric is calculated by gathering feedback from managers, peers, and customers about a specific employee. The information collected is regarded as accurate because it gives a complete picture of the individual’s performance, level of skills, and areas for improvement from multiple perspectives.
This metric also enables the comparison of employee performance across the team. It allows managers to identify common areas of improvement for the whole team, which also helps employees learn how to improve their work relationships with their fellow team members.
• Vitality curve
Pioneered by GE’s Jack Welch, the vitality curve identifies the strongest and weakest performers in the team. Top global companies like Motorola, IBM, Yahoo, and Amazon widely use this KPI.
It presupposes that the best performers should be rewarded with bonuses and promotions for managing challenging tasks. Meanwhile, weak performers should be aware of their poor performance and work on improving them, or risk being laid off.
Quantity of work
Productivity boosts the morale of employees, which is essential for meeting company objectives. Further, it creates a culture of excellence because people strive to reach maximum output.
When a company is highly productive, sales and profits increase. Hence, the company can reward its staff with bonuses, salary increases, and other perks and benefits. The rewards motivate employees to perform better as the organization becomes successful.
With that said, there are several approaches to measuring the employee’s quantity of work:
• Number of Sales
This metric measures the output of a sales employee. This is a straightforward metric like the total number of products sold by an employee. It is a metric commonly used by people in retail, e-commerce, and other B2C industries.
• Number of leads
The number of leads for sales and marketing professionals working in B2B SaaS companies is a primary employee performance KPI.
Selling software has a longer sales cycle than retail/e-commerce because of the heftier price tag and more people involved in the procurement process.
For sales employees selling B2B products and services, the number of sales is not a good performance indicator because of the lower frequency of closing a deal.
Actions performed that increase the chances of closing the deal should be considered. Metrics like the number of phone calls, in-person visits, and sales presentations are more reliable performance indicators. The number of leads a person creates due to these lead-generating activities may show their overall productivity.
• Units produced
Quantitative output is measured depending on the industries. For manufacturing, it could be the number of production outputs per hour. For writers, it could be the number of articles written in a month. For bakers, the number of loaves baked in a day.
Efficiency should be a priority for any organization. Why? Because it is the best indicator of not only employee performance but also company performance.
Efficiency requires getting things done to achieve the best results by maximizing available resources. In short, processes are optimized, and nothing is wasted.
The company spends less, which can increase its bottom line, benefitting all employees.
Employee efficiency is measured by completing the required task correctly and on time.
Other factors to consider when determining the efficiency of an employee are the nature of work, job description, the amount of work assigned, deadlines to complete them and the quality of work produced.
In short, efficiency can pinpoint whether an employee is meeting expectations. It reveals bottlenecks in processes so the organization can make adjustments accordingly.
This metric measures the company’s workforce’s performance, not just individual employees.
• Absenteeism rates
Absenteeism rate is the percentage of unexpected employee absences due to sickness or other personal reasons. In Gallup’s State of Global Workplace 2022 report, disengaged employees cost the world $7.8 trillion in lost productivity, equivalent to 11% of the world’s GDP.
Demotivated employees are more likely to be absent. Absenteeism can decrease productivity, negatively impact work quality and push back critical deadlines.
• Revenue per employee
This metric shows an individual employee earns for the company. To calculate, divide the company's total revenue by its current number of employees.
This is an important metric because it measures how efficiently a company uses its employees. A company with many employees with low revenue has low revenue per employee average. A company with high revenue and fewer employees is deemed to have a high revenue per employee average.
• Human Capital ROI
Made famous in the book The ROI of Human Capital by Jac Fitz-enz, Human Capital ROI evaluates the human capital value of an employee: their knowledge, habits, and social and personal attributes.
For example, you invested in L&D program, which costs $300,000. That is your human capital expense. The savings (increase in skills, expanding into new projects) you made from this investment amounts to 1,000,000.
Your Human Capital ROI is 1.83:1 (represented as a ratio). This means that for every $1 you spent on the training program, there was a benefit of $2.33.
According to HCMI, knowing this metric can help you track the effects of your workforce investment decisions, benchmark your workforce performance against the industry average and similar peers and create your workforce productivity report and disclosure.
Employee performance metrics guide HR personnel and managers to accurately assess staff performance.
It's not enough to just evaluate a person’s productivity or efficiency. Different metrics should be used together to get a complete picture of how the employee performs and contributes to reaching overall company goals.