I'd say "don't bother". The very act of measuring changes employees' focus from getting the job done to gaming the system. The more that management focuses on the metrics, the more that people are driven to secondary and even tertiary efforts to look productive, rather than spending their energy just doing their jobs.
It triggers an arms race of workers seeking ways to mask their activities and management building ever-more elaborate and invasive metrics to capture them. The end result is that everyone spends so much time and energy on administration that the output of real work actually falls - along with both employee morale and management confidence.
I found myself nodding my head in recognition when I read the excellent essay on lesswrong.com about spammers trying to game PageRank. http://news.ycombinator.com/item?id=1339704
That confirms my bias, which is that it can't be measured directly and the metrics that people try it with usually do more harm than good. But it's very interesting coming from someone with "years of direct involvement in measuring productivity".
Something akin to productivity measurement isn't completely useless, but it should only ever be used: a) to identify and address systematic problems, as opposed to scrutinizing individual performance; and b) in rare cases to identify extreme outliers - but managers should be aware enough of what their employees are doing to know who those people are already.
Unfortunately, that kind of approach doesn't lend itself to a productivity measurement team seeking a high profile for its activities. Nor does ostensibly objective, non-punitive measurement stay that way - it's just too tempting for managers to use it as a stick.
I've been working on different projects for the past couple of years, and frankly I'm glad to be out of the productivity game.
I have not seen a software project where there is not enough work for somebody.
What I've found useful, and which worked reasonably well for teams which have been working over a period of time together is to collectively estimate complexity of tasks that must be completed.Say on a scale of 1-5. That gives you a reasonably agreeable scale of measurement (not a universal scale, but the one that the team accepts). As time progresses, you see how many such tasks are completed by any person in a given time frame.
Not that this is foolproof, or that it works right from the beginning of a project, but over a period of time, you tend to get a good sense of how productive each member is.
