There is more value that could be added to individuals and through them to the organisation as whole. But the question often overlooked is what is the value of your employees right now?
There are benefits in answering this question because even the process of considering people value can change their importance, not to mention the way they are managed and led.
The typical and traditional focus of stakeholders and investors is profit, return on assets and economic value added – the hard number measures. Most haven’t focused on the value of people, the impact of highly motivated staff and their link to customer satisfaction.
The research at Sears during the mid to late ’90s and the more recently Gallup’s cultural and organisational research is highlighting the power of customer and employee measures.
There is an increasing awareness of the value that lies between employees’ ears – the intellectual capital that more and more organisations are beginning to take into account.
Investors are increasingly considering the potential of brand, technology, potential clients and employee contribution. Thomas Stewart and others are debating, designing and developing these new measures of intellectual capital.
Attempts have been made to measure employee value so it can be compared with other organisations. powerful way to start looking at the value movement is to look at statistics such as employee retention and turn-over. In simple terms, how much value is walking out the door and what is the cost of finding, hiring and developing replacements?
Consider this common scenario. Organisational change is planned in response to the demand of the markets, stakeholders and technology – it could be building and repositioning capability or reducing “no or low demand” capability.
Change management theory and practice acknowledges that when change is in the wind, each individual in an organisation commences grief cycle. It may not be intense grief, but typically it follows similar pattern and it varies in intensity over time.
The result is that individual’s productivity or value begins to dip as they consider the impact of the change on them. Before long they talk to others about their experience and the productivity of others is also affected.
The response may be to start looking for new positions to build options for themselves. People may apply for jobs, go for interviews, consider offers. The value that they contribute day to day is trickling out. From an organisational perspective, they are certainly not working smart or realising their potential.
The story continues but in highly visible manner now. The employee disaffected by the change eventually resigns. Perhaps they work out fortnight, month or quarterly period with diminishing productivity. They leave and there is not replacement on board.
It’s here the business can start slipping. Customer contacts become irregular, information is no longer available, the human support in business processes is interrupted, and colleagues are missing important input. Productivity suffers and the organisation faces costs in replacement training and costs in the time it takes new employee to get up to speed.
The development of formulas to measure these costs has been led and implemented by the likes of international consultant Professor Wayne Casio. Think about it in your organisation. Cost can include exit interviews, administrative functions related to termination, separation/severance pay, costs increased due to increased overtime to cover the vacancy. Replacement costs include attracting applicants, entrance interviews, travel, moving expenses, medical examinations, acquisition and dissemination of information. Training costs include both formal and informal training costs.
How much does this all add up to? Between one and four times the remuneration value. If you include the cost of the employee going off the boil before they resign, this could be two to eight times the remuneration of the employee. As rule, the more senior the employee, the higher the factor used.
For example: $200,000 general manager going off the boil or resigning can have negative impact on direct reports, employee wide, and customer relationships. Using the conservative middle range impact figures, the cost of replacement becomes $800,000 not $200,000.
So what is the true value of the people in your organisation? Think about it in terms of replacement cost by applying the multipliers based on the impact of the roles.
Now consider plant or equipment at the same value, what would be your ongoing maintenance programme? For the moment, we won’t mention enhancements or developments that would build on existing people assets, that’s another story.
John Butters is consultant with the organisational performance consultancy The Empower Group.
