How to Calculate an Employee Stability Index
Most of the conversations in HR Analytics focus around turnover and retention. But in today’s post you’ll learn how to calculate two different employee stability indices, powerful complements to those standard metrics.
Why Stability Matters
Fundamentally, any change in the workforce such as a new hire, a termination (voluntary or involuntary), or even a role change creates some degree of instability in an organization.
Bringing in new people, getting fresh ideas, or expanding employee skill sets are all in principle good ideas, but different organizations and departments have different degrees of absorption capacity for such changes.
Too little change and your organization grows stagnant. Too much and things become chaotic.
As the old adage says, the dose makes the poison.
An employee stability index measures the degree of change (or stability) in your workforce. It can therefore increase your organization’s ability to make informed decisions around workforce planning and development.
Two Ways to Measure Stability
Here we will define stability in two ways: Employee Roles and Total Workforce.
As with many things in HR Analytics and HR metrics there is not necessarily a single agreed upon definition. The kind of stability you want to measure should always depend on the specific business question you are trying to answer.
There are certainly many ways to measure stability, but I think the following are two key approaches you should consider incorporating into your HR Analytics Dashboard.
Stability Index #1: Employee Role Stability
Our first employee stability index focuses on how long employees have been in their current role. This measure is particularly powerful because it get at the degree of experience our employees have with their current suite of responsibilities.
For our purposes here, we will define the Employee Role Stability Index as the following:
Here (and in the following index) we are simply taking data from a single point in time. This is different from measures like turnover or retention where we are measuring change over time.
It’s important to note that the selection of 12 months is somewhat arbitrary. A general rule of thumb is that is takes employees roughly a year to become wholly competent in a role. This differs by roles and companies of course but 12 months provides an intuitively reasonable starting point for discussions.
Stabilty Index #2: Total Workforce Stability
Our second employee stability index focuses on the overall stability of the workforce itself by looking at how long individuals have been at the company, ignoring time in the current role.
Accordingly, we define the Total Workforce Stability Index as follows:
This is useful for capturing the stability in overall institutional knowledge. In addition, it also makes a key distinction between simply being new to a role versus being new to a role and to the company overall.
Retaining institutional knowledge over time is typically a good thing so having an index that reflects that interest provides a different angle on topics like turnover, retention, and time in a role.
There is fine balance between stagnation and turbulence. What is the “right” amount of stability for these measures? There is not a definitive answer and it will vary by organizational needs (growth, downsizing, budget cuts) but we can still get a rough estimate.
If we are working for a fairly large and well established, then we can agree that a stability index of .6 probably signals too much instability. On the other hand, a stability index of 1 signals a numbing stagnation.
Given that, we want something that splits the difference so let’s say something around .8 probably strikes the right balance.
Regardless of the exact number, keep in mind that we can use these indices to help us make better workforce planning decisions. In particular, we may wish to spread our new hiring or workforce cuts more evenly across the organization to avoid unnecessary shocks to the system that reverberate throughout the organization.
Finally, I would encourage you to consider folding in these kinds of stability indices with your typical turnover and retention measures. An employee stability index can provide a different twist on workforce changes and may spur additional leadership conversations that lead to more effective decisions and successful company outcomes.
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