Written by Ivan Kuzma
In this article I would like to offer the leadership and management a practical view of several indicators for measuring of human capital in their organization. Anyway, why is it good to measure human capital?
No organization can achieve its business goals without people, who are its human capital. Just as a person needs to have a healthy and functioning body to achieve a certain level of performance, an organization needs to have a healthy and functioning human capital to achieve its goals.
Measuring human capital is like a regular health check-up. A doctor measures certain values, which either confirm that everything is ok or that some treatment is needed. Or further check-ups will be needed, if something unexpected has appeared.
The same should go for organizations. Management knows or sets the indicators and values of their human capital. These indicators and values should be in line with their business plan. Subsequently, the state of human capital is checked on a regular basis through the established indicators. If the indicators show that the state of human capital is not in accordance with the set values, the management prescribes a “treatment” or further “examinations”. If it doesn´t do so, there is a risk that the business goals will not be met. The annual measurement of human capital enables also historical comparisons and identifying trends of organizational performance.
Below you can learn more about what indicators can be used to assess human capital from the perspective of the employee structure. There are several perspectives, how human capital can be measured. This article lists several indicators focusing on employee structure, but there can be more of them. In addition, each organization may have different definitions of indicators, so the list below should be taken as an inspiration, not a precise technical guide.
Headcount
This indicator is used to express the total number of job positions in the organization. Normally it includes both vacant and occupied positions. It is a universal and key indicator, which speaks about the size of the organizational structure. It is also necessary for an organization to define what is counted as a job position. For example, whether it includes also internships, contractors, consultants, agency workers, etc. Of course, when it comes to reporting the headcount to the state authorities, it has to be reported as per definitions defined by the state.
Full time equivalent positions
Employees don´t always work full time for various reasons. There is a difference whether an organization has 10 full-time or 10 part-time employees. If an organisation has 10 part time employees, in reality it has only 5 full time equivalent positions.
Furthermore, an organization can allocate its human resources to different functions e.g. marketing, sales, finance, etc based on the headcount number and full-time equivalent number. FTE number is more precise as it reports how many human working hours are devoted to a given function rather then just the number of people.
Ratio of external staff and trainees
Some organizations choose to use external staff for flexibility or cost reasons. The proportion of external employees can have a strategic impact on the organization and its competitive ability. For such organizations it makes sense to follow this indicator more closely.
Ratio of trainees might be useful for organizations, which engage a considerable number of trainees, who are, for example, technically focused. By monitoring this indicator, the organization can roughly predict and plan the supply of new work force from this channel.
In general, it is better to use ratios or percentages for indicators rather than absolute numbers. Especially if we do not know other numbers, which are related to the indicator. For example, if I know that an organization has three external staff, this number won´t mean much for me, especially if I do not know the total number of all staff. However, if I know that 20% of the staff consist of external workers, it easier for me to put it into the perspective.
Diversity ratios
Some indicators can say a lot about the culture in the organization, such as ratio of men and women in the organization or in the management, ratio of disabled workers, ratio of employees with higher education, ratio of employees based on nationality, ratio of part time employees.
These indicators might be especially important for an organization that wants to build a culture of diversity. Furthermore, in some countries, organizations have different quotas given by law, which they must observe in terms of diversity.
Average age of employees
Measurement of this indicator may be especially necessary for organizations, which have a significant number of employees approaching the retirement age. Based on this indicator, organizations can better anticipate, how much they will need to strengthen their recruitment activities so that they won´t suffer serious staff shortages.
A very interesting indicator is also the share of employees based on the age of employees. The organization could monitor the share of X, Y, Z generation employees and then be in a better position to set up communication channels, benefits, or other initiatives that are the most relevant for these generations.
Average working age
This indicator can serve to measure the level of employee. The higher the average working age, the more stable the organization is. This doesn’t mean that the organization is also more productive. This indicator shouldn’t be the only one, which organizations use to measure the satisfaction of its employees.
Sometimes the employees are unhappy despite their long service in the organization. However, the fear that they won´t find anything better might be one of the reasons why they do not want to leave their current job. In this case, employees stagnate and do not perform at their best. Therefore, I encourage organizations to measure the employee satisfaction and engagement also with other motivation indicators.