Not all of your employees will enjoy digging through numbers financial metrics mean more to some people than others. However, when it comes to driving employee performance, there are general financial metric guidelines that apply to all individuals within an organization. By using the advice below, employees will be more engaged with the financial metrics and motivated to perform well.
People care about what they get paid and how their wages compare to the market. The salary competitiveness ratio compares the average salary at your organization with the average salary of competitors, by dividing actual salary expenses by competitor or industry salary expenses. A calculation greater than one means that you provide higher wages. In addition, calculate the human capital value added metric to determine the profitability of each employee. It is calculated by subtracting non-compensation costs from total revenue and dividing by the number of full-time employees
Another aspect of your business that directly impacts employees is the culture. You can offer an employee feedback program that returns a satisfaction index or percentage of satisfied employees. Search for correlations between satisfaction percentages and financial performance to correlate the importance of having happy employees. Another important aspect of culture relates to training. You can communicate to employees the total dollar amount spent on training, average spending per employee, and percentage of training expenses to total expenses to convey the investment you are making in your employees. Finally, employees can be motivated by learning of how much was contributed to community engagements, donations, or pro bono work.
Generally, employees may have interest in high-level performance indicators. This includes questions like, does the company have enough cash to pay our bills? Did we earn a profit? Is the company doing well? Although these questions don’t tie to one specific calculation, they resonate with employees and provide just enough detail regarding the company. By communicating that your company’s profit doubled in the last year, you will be informing your employees of their success without bogging them down with financial details.
The calculation and tracking of metrics over time can reveal what employees are doing right. Therefore, instead of just communicating growth metrics, talk to your employees about why the changes are occurring. For example, imagine that your company reported a gross profit margin of 25% last month and 30% this month. While this doesn’t mean much to employees, it is important to know a new process improved efficiency and a new vendor offers lower pricing for materials. You can increase the value of most financial metrics by supplying relevant context to the employee or division. This could include profit margins, inventory metrics, and cash balances.
Less Meaningful Metrics
Specific metrics especially ones without context or require a financial background will not drive employee performance. For example, if you report a current ratio of 2.5, will your employees know what this means? In addition, communicate metrics that either directly impact employees or can be directly impacted by them. For example, your marketing lead holds little value in the inventory turnover ratio.