My friend Sandy shared a link to a fascinating natural experiment comparing the productivity of two similarly tasked developer teams. If you haven’t read it already, take a minute to check it out. I’ve seen this need for visibility throughout my career. [...] if you want to measure actual productivity, in terms of what tasks your development team what can you do? This is where I think a good habit of issue+SCM tracking, rigorous testing , and continuous integration can really shine.
He also talks about a few of the bad practices some companies get in the habit of using to represent this same metric including "butts in seats" time and the totals of billable hours. He suggests a better alternative is measuring things like issues addressed in your bug tracker and ongoing performance metrics from a continuous integration system.