Cafe Classic: We've Gone Too Far With Metrics!

Editor's Note:  In a recent Cafe post, Derek Irvine examined the assertion recently made by Peter Capelli that big data has no place in HR.  There are interesting points to be made on both sides of this debate, as Derek notes.  It's also interesting to note that a number of these points were raised early on in the advent of HR metrics by our own Stephanie Thomas -- clearly they still bear consideration today.  And so we feature Stephanie's prescient post, which questions whether we are going to far with our data and analytics, as today's Classic.

I love metrics. I've spent my entire professional life measuring things, running quantitative analyses, and trying to figure out the real-life implications of the numbers I calculate. So it might come as a shock to hear me say... we've officially gone too far with metrics.

What catastrophic event has caused me to rail against my beloved HR and compensation metrics? ANSI is getting involved...

ANSI, the American National Standards Institute, is the "voice of the U.S. standards and conformity assessment system" and the force behind such management systems as ISO 9000 and ISO 14000. They're teaming up with SHRM, the Society for Human Resource Management, to develop a standard for reporting human capital metrics that are "relevant to investors and can readily be audited." The proposed standard centers around six key metrics:

1. Human capital spending, including employee salaries, benefits and taxes; number of full-time equivalents and total headcount; spending on employee support; spending in lieu of employees; and training and development.
2. Employee retention, measured by voluntary and total turnover and a calculation of the number of terminations during the period divided by average active headcount during the period.
3. Leadership pipeline, measured as a percentage of defined positions with an identified successor and the percentage of open defined positions filled internally during the period.
4. Leadership quality, measured using an index of questions from employee surveys and information on response rates and methodologies.
5. Employee engagement, measured using an index of questions from employee surveys and information on response rates and methodologies.
6. Human capital discussion & analysis, providing a narrative context and discussion of the reported metrics to help readers better understand what is being reported, while also disclosing any material risks or information related to human capital.

Let me first say that I'm glad there's an interest in quantitatively evaluating what's going on in the workplace, and I understand that having a standardized system of reporting can facilitate comparisons.

But let's be real about this - are investors going to choose to put their money in Company A rather than Company B because A's employee retention is a few basis points higher?

How to you standardize a measure of leadership quality? Alan Murray said that all great leaders exhibit a paradoxical mix of arrogance and humility. No "magic" ratio of arrogance and humility exists for all companies in all industries at all points in time. The required mix shifts, depending on the circumstances.

Employee engagement is also a shifty area. You can't hold a caliper up to the employee psyche and measure engagement, and employee surveys are a less-than-perfect proxy for calipers. But even if we could use calipers, employee engagement can vary on a daily basis. Engagement is dependent not only upon the workplace, but also upon things unrelated to work. We have arguments with our spouses and our children, we allow ourselves to get overtired and overstressed, we step in dog poo on the way to the office. All of these things affect the way we feel about ourselves, our jobs and our colleagues. If I'm having a bad day today, I may not be engaged. But if you catch me tomorrow when I've got a clean pair of shoes, I might be the most engaged employee here.

When HR and compensation metrics become tools of demonstrating value to shareholders and stop being about the employees, bad things can happen. We keep a handful of really bad performers on board - even though their departures would be good turnover - just so our standardized retention metric doesn't drop and cause us to lose Wall Street's favor.

Our compensation decisions become driven by the need to keep our human capital spending metric within the "investor-tolerated threshold" rather than being driven by what's best for the company and the employees. 

We fail to take advantage of great ideas and great talent that lie outside of our organization, but desperately want to come in. We close the door on happy accidents and exogenous shocks that can push companies and employees to new heights of personal and professional achievement - because we want to keep our leadership pipeline in line with investor expectations.

For all of these reasons, I think we've finally gone too far with metrics. Human capital metrics are about people - wonderful, messy, nonstandardized people. Their purpose is to maximize the potential of each person in the organization, not to maximize the profits of day traders. 

Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.

Comments

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Simply want to say your work is outstanding. The clarity in your post is simply excellent and i can assume you’re an expert on this subject.. Thanks a million and please carry on the rewarding work.

[Jacque Vilet]

ANSI and SHRM partnered on executive pay ratios as well which is another example of metrics gone mad. There are so many variables involved in understanding pay ratios as well as the six key metrics you outlined above.

I can't imagine what value all of this would be to investors. Sorry to say it makes SHRM look naive at best and clueless at worst.

[E. James (Jim) Brennan]

Agree with Stephanie that the number-crunchers seem fixated on the delusion that only what can be counted matters in HR. But, why worry about ratios when you ignore value? All the measures described are totally situational and offer almost no insight whatsoever on the HR health of an enterprise. I must have missed the authoritative studies of SEC-regulated firms that confirmed the importance of those ratios.

Thankfully, there are relatively few publicly traded corporations left at present to be cursed with another set of meaningless metrics. Everything popular with lawyers and auditors is not necessarily good for business. Quite the contrary, in many cases ...

[JAMSO]

Thanks for the thoughts, here are some comments that I also think can add to your debate.

1) Human capital spending - Why note, a worthy metric and one that might highlight ROI or NOTE from unworthy high paid leaders?

2) Employee retention - Interesting idea but seems to lack more consideration to the purpose of the business strategy.....(growth)

3) Leadership pipeline - Love it. This also highlights the need for potential churn for fresh talent and nurturing of existing potential.

4) Leadership quality - mmmmmm Would love to see the design of those questionnaires and define a balance between quantitative and qualitative information.

5) Too easy to cook the figures.

6) Ha ha ha ha ha

I agree with your comments on the whole. It might be admirable to seek deeper understanding with HR metrics and I guess it might be hard to get it right first time.
A more progressive and deeply researched method will be required before such metrics can be applied across all business.

Great idea, poor execution....
Find out more how to apply vision to other metrics here https://www.jamsovaluesmarter.com/metrics/