What is an employee key performance indicator (KPI)

An employee key performance indicator (KPI) is a measurable value demonstrating how effectively an employee achieves critical business objectives. Companies use KPIs to evaluate an employee’s performance in relation to their specific role, responsibilities, and contribution to the organization.

KPIs provide a clear and objective way to:

• Evaluate an employee’s performance in specific areas critical to the success of their role
• Track employee progress
• Identify areas for improvement
• Align individual performance with the overall goals of the company

For example, for a customer service representative, a KPI might be a target of maintaining an average customer satisfaction score of 90% or above on customer satisfaction surveys over a quarter.

What are the key characteristics of employee KPIs?

Four key features characterize effective KPIs: 

• Measurable: KPIs must be quantifiable to provide clear performance metrics
• Relevant: KPIs should align with the employee’s role and the organization’s strategic goals
• Time-bound: KPIs should have a defined timeframe for achieving the target
• Actionable: KPIs should lead to actions to improve performance

What is the purpose of an employee KPI?

The primary purpose of a KPI is to provide a clear and objective measure of employee performance against specific business objectives. KPIs help organizations:

• Understand whether they are on track to meet their goals
• Identify improvement areas
• Make data-driven decisions

By focusing on KPIs, companies align their activities with their strategic vision and ensure all team members work toward the same objectives.

What are the different types of KPIs?

There are several types of KPIs, including:

• Quantitative KPIs: Numeric measurements such as revenue, profit margins, and number of new customers
• Qualitative KPIs: Non-numeric measurements such as brand awareness, innovation capability, and community impact 
• Leading KPIs: Predictive indicators that can forecast future performance, such as the number of sales leads
• Lagging KPIs: Historical indicators showing past performance, such as annual revenue
• Input KPIs: Measure the resources used in a process, such as hours worked
• Process KPIs: Measure the efficiency of a process, such as the time taken to complete a task
• Output KPIs: Measure the results of a process, such as units produced
• Outcome KPIs: Measure the impact of a process, such as market share or customer retention
• High-level KPIs: Measure the overall performance of a company, such as annual revenue, market share, and overall customer satisfaction score (NPS)
• Low-level KPIs: Measure the performance of specific departments, such as the sales department’s monthly sales growth, the HR department’s employee turnover rate, and the finance department’s operating margin

Additional resource: 90+ Department-Based Key Performance Indicators Examples to Measure Success

How are KPIs different from metrics?

While companies use both KPIs and metrics to measure performance, KPIs specifically tie to strategic business goals. In contrast, metrics are simply any measurable element of a business process.

For example, a metric could be the number of website visitors in a month, while a KPI could be the conversion rate from those visitors.

Additionally, KPIs concentrate on the outcomes indicating success in achieving strategic goals. In contrast, metrics often focus more on the processes and components contributing to overall performance rather than end results.

For example, the KPI “annual revenue growth” measures the result of sales efforts over a year, while the performance metric “average call handling time” measures the efficiency of the customer service process.

Similarly, the “net profit margin” KPI focuses on financial outcomes. In contrast, the “cost per lead” metric focuses on the efficiency of marketing efforts.

Various departments can track KPIs, all working towards the same overarching goal. For example, the KPI “customer satisfaction score” can involve marketing, customer service, and product development departments. Metrics tend to belong to a particular department, focusing on lower-level indicators. For example, the “inventory turnover rate” metric is specific to the supply chain or inventory management department.

A single KPI can have multiple underlying metrics tied to it, providing a comprehensive view of performance.

For example, the KPI “employee productivity” might include metrics like: 

• Number of tasks completed
• Number of hours worked
• Quality of output

A strategic objective to improve customer retention could use the KPI “customer retention rate,” supported by metrics like: 

• Number of follow-up emails sent
• Customer loyalty program participation

What are the benefits of using employee KPIs?

Implementing KPIs allows organizations to systematically manage and measure employee performance, leading to more effective and strategic human resource management.

Enable more objective performance evaluations

KPIs provide a clear and objective basis for assessing employee performance. A survey of Fortune 1,000 companies reported that 66% of employees were strongly dissatisfied with their performance evaluations. This result is because most companies follow a predictable performance evaluation pattern for their employees. Managers evaluate work, provide feedback, and rate their performance on a scale of expectations met—in a more or less objective manner.

However, KPIs provide a tangible way to measure an employee’s performance and help objectively assess their achievements and contributions.

Improve team performance

KPIs can improve team performance by:

• Setting clear expectations: Clearly defined KPIs help team members understand what is expected of them—for example, a marketing team might have KPIs related to the number of leads generated or the conversion rate of marketing campaigns
• Providing focus: KPIs help teams focus on what matters most and prioritize their activities accordingly—for example, a software development team might prioritize bug fixes and feature releases based on KPIs like user feedback scores and system uptime
• Facilitating feedback: KPIs provide a basis for constructive feedback and performance discussions—for example, during performance reviews, a manager can discuss specific metrics such as project completion times or error rates
• Encouraging continuous improvement: Teams can use KPI data to identify areas for improvement and implement changes to enhance performance—for example, a customer service team could analyze response times and customer satisfaction ratings to find ways to improve their service

Create targeted development plans

KPIs offer objective data to identify gaps in skills or knowledge. If employees or departments consistently fall short of KPI targets, it may indicate a need for additional training or resources.

Organizations can design targeted training and developmental programs based on KPI data. These programs can include:

• Workshops: A sales team consistently missing targets might benefit from a workshop on advanced sales techniques
• Training courses: Customer service representatives with low satisfaction scores could take a course on conflict resolution
• Mentorship: Junior developers could be paired with senior mentors to improve coding efficiency and quality
• Access to e-learning resources: Employees struggling with new software can access online tutorials and courses

Interestingly, more than 10,000 PwC survey respondents ranked excellent training and development programs third behind career progression and compensation as the top characteristics of a good workplace.

Additional resource: Learn how to create a competency development plan for employees to bridge the gap between their current abilities and the skills needed to perform in their roles.

Free template: 70-20-10 Employee Development Plan Template

Strengthen employee motivation and engagement by clarifying expectations

KPIs set clear targets that can motivate employees to perform better. Additionally, knowing what is expected of oneself at work is the key factor boosting engagement. 

Clearly defined and tracked KPIs give employees a sense of purpose and direction. When employees see how their work contributes to the organization’s success, their engagement and motivation improve.

For example, a project manager can see how meeting project deadlines contributes to the company’s strategic goals.

A McKinsey survey of contact center employees found that KPIs aligned with organizational goals significantly influence employee engagement. Contact center employees are more engaged when they believe metrics like average handle time and quality scores are within their control. If employers hold agents to a standard they believe they cannot reach, morale and overall engagement will decline rapidly.

Inspire employees to take ownership of their work 

KPIs establish clear expectations and accountability for performance outcomes. Employees understand their roles and responsibilities, leaving no room for ambiguity.

Managers can help team members understand how their contributions contribute to organizational success by setting clear targets and providing regular feedback. It motivates team members to perform at their best and take ownership of their work.

For example, a product manager might be more invested in a product’s success when they see how their KPIs, like user adoption rates, directly impact the company’s growth.

When employees take ownership, they treat the business as their own, making thoughtful and responsible decisions to ensure success.

Provide clues to identify when to act

Employee KPIs provide signals for action, indicating when things are going well or when intervention is needed. With assigned KPIs, managers can understand:

• What is happening now: Real-time sales data showing current performance
• What happened in the past: Historical trends in customer complaints
• Why it is happening: Analysis of feedback highlighting recurring issues
• What is being done to improve it: Current initiatives aimed at reducing response times
• What should be done: Recommended training programs to address skill gaps
• Who is responsible: Assigning accountability for project delays
• Why it is important: Linking project completion to strategic business goals
• What is affected by it: Understanding the impact of performance on overall customer satisfaction

For example, suppose KPIs show a decline in customer satisfaction. In that case, managers can quickly implement targeted training for customer service representatives and monitor the impact of these interventions.

How do you choose the right KPIs for your business?

Choosing the right KPIs for your business involves several steps:

• Define objectives: Clearly outline your business objectives
• Identify critical success factors: Determine the activities or processes critical to achieving these objectives
• Select relevant KPIs: Choose KPIs directly measuring the success of these vital activities
• Ensure measurability: Ensure that chosen KPIs can be accurately measured and tracked over time
• Align with business goals: Ensure the KPIs align with your overall business goals and strategy
• Review and adjust: Regularly review and adjust KPIs as business needs and objectives evolve

How often should KPIs be reviewed and updated?

The frequency of reviewing and updating KPIs depends on the nature of a business and its specific objectives. However, it is generally recommended to conduct:

• Monthly reviews to monitor progress and make any necessary adjustments
• Quarterly reviews to assess overall performance and realign KPIs with business goals—these will be more in-depth compared to monthly reviews

When deciding how to adjust KPIs, consider several key factors:

• Major disruptions in the industry: Changes such as new regulations, technological advancements, or competitive shifts can impact the relevance of current KPIs
• Significant internal changes: Organizational restructuring, mergers, acquisitions, or substantial changes in business strategy may necessitate a review and update of KPIs
• Market conditions: Economic fluctuations, changes in consumer behavior, or shifts in market demand can influence which KPIs are most critical
• Performance trends: Persistent deviations from expected performance levels may indicate the need to reassess and refine KPIs
• Feedback from stakeholders: Input from employees, managers, and other stakeholders can provide valuable insights into the effectiveness and relevance of current KPIs
• New business initiatives: Introducing new products, services, or projects may require the establishment of new KPIs to track their success

By considering these factors, companies can ensure their KPIs remain aligned with their strategic objectives and continue to drive performance improvements.

Set realistic KPIs and elevate your organization’s performance with Deel Engage

Set and track strategic KPIs aligned with your business objectives with Deel Engage:

• Set KPIs for various levels of your organization—organizational, departmental, and team-specific

• Define employee expectations for all roles and seniority levels in your organization

• Add KPIs to the performance review process for an unbiased review process that collects goal data and insights about your people’s strengths and areas for development

• Boost employee engagement and performance with the learning module— address knowledge and skill gaps with thousands of learning resources

• Add goals to manager check-ins to proactively address employee challenges

Learn more about how Deel Engage will enable a high-performance organization.