21 Employee Performance
Metrics
Employee
performance metrics: They are key in tracking how well employees are
performing. Setting them up right way is tricky. However, when done right,
employee performance metrics benefit both the organization and the employee. We
listed the most important ones below and included some practical examples of
each metric.
There
are various kinds of employee performance metrics. We can split them up in four
main categories.
- Work quality metrics
- Work quantity metrics
- Work efficiency metrics
- Organizational performance metrics
Work
quality – employee performance metrics
Work
quality metrics say something about the quality of the employee’s performance.
The best-known metric is subjective appraisal by the direct manager.
1. Management by objectives
A
way to structure the subjective appraisal of a manager, is to use management by
objectives. Management by objectives is a management model aimed at improving
performance of an organization by translating organizational goals into
specific individual goals. These goals often take the form of objectives that
are set between the employee and the manager.
The
employee works towards these goals and reports back to the manager on their progress.
These goals can even be given a certain weight (a number of points). Upon
successful completion of these goals, points are awarded to the employees. In
turn, managers are able to make goals more tangible and make performance
reviews more data-driven.
2. Subjective appraisal by manager
In
most companies, performance is assessed several times a year during (bi-)annual
performance reviews. Employees are assessed on several criteria – the quality
of their work being the most common criterion.
An
adaption of this scheme is the so-called 9-box grid. The 9-box grid is based on
a 3×3 table in which the employee is assessed on performance and potential.
Employees with high performance but low potential are perfect for their current
function.
Employees
in the top right corner, those who score high on both performance and
potential, are often designated to quickly advance through the organizational
ranks as they can add more value higher up the ladder.
This
9-box grid is an easy way to assess the current and future value of employees,
and is a helpful tool for succession management (i.e. you want to promote your
high potentials).
3. Product defects
It
is tricky to measure (production) quality objectively. An approach often seen
by more traditional manufacturing industries would be to calculate the number
of product defects. Defect, or incorrectly produced products, are an indication
of low work quality and should be kept as low as possible.
Even
though increased standardization of production processes has rendered this
metric almost useless, the approach to measuring employee performance can be
applied to other areas.
4. Number of errors
The
number of input errors could act as an alternative to the previously mentioned
product defects. The same goes for the number of corrections in written work or
the number of bugs in software code. Especially in computer programming, a
single error can stop an entire program from working. This can have a major
impact on the business, especially for companies who release weekly or monthly
new software versions.
The
conciseness of a piece of code is another important quality factor. If ten
lines of code can produce the same computational result as 100 lines of code,
the former is an indication of better quality.
5. Net promoter score
Net
promoter score (NPS) can act as an indicator of employee performance. NPS is a
number (usually between 1 and 10) which represents the willingness of a client
to recommend a company’s service to other potential clients. Clients who score
a 9 or 10 are likely to be highly satisfied and will act as promoters for the
company. This score is used regularly to assess sales employees, e.g. in car
sales, where it is included in the final form customers need to sign.
The
advantage of NPS is its simplicity. The disadvantage is that it is not uncommon
for employees to instruct customers to give a certain rating (i.e. 9 or 10).
6. 360 degree feedback
360
degree feedback is another tool to measure employee performance. To assess an
employee’s score, his peers, subordinates, customers and manager are asked to
provide feedback on specific topics. This feedback often represents an accurate
and multi-perspective view of an employee’s performance, skill level and points
of improvement.
7. 180 degree feedback
180
degree feedback is a simpler version of the 360 degree feedback tool. In the
180 degree feedback system only the employee’s direct colleagues and manager
provide feedback. The system is therefore often used by workers who do not
manage people and/or do not have direct customer contact.
8. Forced ranking
Forced
ranking (also called the vitality curve) is a way of ranking employees by
asking managers to make a list of his best to his worst employee, in that
order. This way, all the firm’s employees are compared with each other and
evaluated on their performance. Each ranking is aimed at improving the
workforce. The bottom 10% of the workforce can be fired and replaced by the top
applicants from the company’s talent pool, a practice that is claimed to lead
to a significant improvement in workforce potential.
However,
there has been a lot of critique on this “rank and yank” approach and most
companies stopped the practice, including General Electric, whose then-CEO Jack
Welch popularized the practice.
Work quantity – employee performance
metrics
As
quantity is often easier to measure than quality, there are multiple ways to
measure this employee performance metric.
9. Number of sales
Number
of sales is a particularly easy way to pinpoint a sales employee’s output. This
holds especially true with ‘simple sales’. This means that, for example,
organized street vendors only steer on the number of sales, because, when given
sufficient time, the people with the best skills will sell the most in an hour
on the same location. This is an example of an outcome metric.
However,
when sales is more complex (i.e. a longer sales cycle), the number of sales
becomes less reliable because lower frequency and randomness/luck will play a
larger role in the successful outcome of the sale. Complex sales cycles, like
software solution sales (which can have a sales cycle of up to 1.5 years) are
best measured to other metrics. These are so-called process metrics, as they
represent the actions one needs to do that increase the chance of a successful
sale. For example, the person who calls the most customers has in the end the
best shot at making a successful sell. In this case the number of phone calls
would be a more reliable metric of long-term sales success. Employee
performance metrics like this include 10. the number of (potential) client
contacts one has, 11. the number of phone calls one makes, 12. the number of
company visits, 13. the number of active leads, et cetera.
14. Number of units produced
Different
industries have different ways to express their quantitative output. In
traditional manufacturing the number of units produced was often a reliable
quantitative metric. In modern (service) organizations, similar metrics are
still being used. For example, Bloomberg tracks the number of keys that their
2,400 journalists hit per minute when they are typing on their keyboard.
Another
way to measure quantitative production is to track the number of lines of code
that programmers produce (check for example this Quora question/discussion on
“how many lines of code do professional programmers write per hour?”).
There
are some obvious disadvantages to using a purely quantitative metric of
production. Like in the previous example, only when one’s output is very simple
and straightforward should such an output metric be used. An example would be
the number of Rubik’s Cubes one can solve in an hour, as skilled Rubik’s Cubes
solvers can solve over a hundred per hour.
15. Handling time, first-call
resolution, contact quality, etc.
We
could write a whole article on call center metrics. Call centers are one of the
most employee performance metrics driven places. Metrics like average handling
time, which is the average time the customer is on the phone including when
they are on hold, first-call resolution, which is the number of callers whose
problem is resolved the first time they called, contact quality, which is the
rating a customer can give on the call and service level, which is a measure of
how many calls are answered in what time (e.g. 90% of calls are answered in 25
seconds). Check for a full overview of call center employee performance metrics
this blog.
Advance
Systems published an article on 5 performance appraisal methods in which they
explore some these metrics further.
Work efficiency – employee performance
metrics
The
difficulty of both qualitative and quantitative employee performance metrics is
that they do not say much on their own. When a programmer writes 40 lines of
code an hour, he produces a lot of code, but that says nothing about the code’s
quality.
There
should always be a balance between quantity and quality. Indeed, the best
employees produce high quality labor.
This
balance we call 16. work efficiency, as
it considers the resources (e.g. time and money: quantity) needed to
produce a certain output (quality). It is hard to achieve this balance, which
is one of the reasons a lot of companies struggle with rating employees and
with the performance review practice itself. Companies like Deloitte, GE and
Adobe scrapped performance reviews mainly because of this reason.
Organization level employee performance
metrics
Organizations
can also use employee performance metrics to assess their own competitiveness.
17. Revenue per employee
Revenue
per FTE = Total revenue / FTE
This
function calculates the revenue per FTE (Full-time equivalent). This metric
gives a ball-park estimate of how much an individual employee brings in. Low
revenue and many employees give a lower rating than the combination of high
revenue and fewer employees. This metric can also be used to benchmark
companies. A famous example is the following infographic by Expert Market:
In
his book Exponential Organizations, Salim Ismail often refers to this metric.
According to him, linear organizations have a linear function between employees
and profit, while exponential organizations have an exponential function
between employees and profit. That’s one of the reasons why these organizations
grow much faster.
18. Profit per FTE
Profit
per FTE = Total profit / FTE
Profit
per FTE is a similar metric to the previous one (17), but focusses on profit
instead of revenue. A company’s profit is its total revenue minus expenses. A
high profit per employee is a solid metric of an organization’s financial
healthiness.
19. Human Capital ROI
The
human capital ROI is a metric that assesses the value of human capital (i.e.
knowledge, habits, and social and personal attributes). By calculating the
company’s revenue (minus operating expenses and compensation and benefit cost)
and dividing this number by the total compensation and benefit cost that the
company pays its employees, you can calculate a human capital ROI.
This
approach is popularized by Jac Fitz-enz in his book The ROI of Human Capital.
However, his approach to measuring human capital is far from reliable and
subject to major changes (we at analyticsinhr.com studied his book and tried to
calculate the ROI metrics for a number of major companies in the Netherlands.
The results were disappointing, as the metrics fail to take important factors
into account, like layoffs, incidental cost and other non-reoccurring events).
20. Absenteeism Rate
Absenteeism
and performance are two highly correlated constructs. Highly motivated and
engaged employees take in general fewer sick days (up to 37% less, according to
Gallup). Additionally, absent employees are less productive and high absence
rates throughout an organization is a key indicator for lower organizational
performance.
21. Overtime per Employee
Overtime
per FTE = Total hours of overtime / FTE
The
average overtime per FTE is a final employee performance metrics. Employees who
are willing to put in the extra effort are generally more motivated and produce
more (in terms of work quantity).
Conclusion
It
is impossible to capture performance in one single employee performance metric.
This article provides a comprehensive overview, but the one metric to rule them
all is not in here. Why? Because it does not exist yet. The best metrics
combine qualitative and quantitative metrics. Most companies try to do this by
asking managers and colleagues to review people’s performance, in a 180 or 360
degree feedback loop.
And
I think that’s the way to go. The best metric is a combination between
different qualitative and quantitative employee performance metrics, done by
multiple people.
Regards!
Librarian
Rizvi
Institute of Management
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