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What Value Do Our Employees Contribute in Real Dollars?

How do we effectively measure the value that our human capital contributes toward bottom-line results? Other than turnover, absence rates, etc., are there more meaningful metrics that shed light on the direct dollar effect that our employees have? —No Line of Sight, general manager of human resources, automotive, Karachi, Pakistan
November 16, 2011
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Related Topics: Finance/Taxes, HR & Business Administration, Dear Workforce
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No Line of Sight:

The seminal books on business analytics were written by Thomas Davenport and, in the HR domain by John Boudreau. A pre-recession study by the Hackett Group in Atlanta drew a financial-impact conclusion between good and great talent management for the Fortune 500.

In our client work, we have developed metric dashboards that create an HR EVA (Economic Value Added) for the domain. The approach has three principles:

1. Narrow down what is measured. Avoid measures such as number of trained versus "real cost" per hire (real monies and hours multiplied by total compensation of those involved in process).

2. Develop an economic model for the metrics: for example, the replacement cost for high potentials is six times total compensation (impact on Income From Operations, or IFO).

3. Relate the metrics to C-suite-desired data. For example, each 0.1 percent increase in engagement is equal to X amount in revenue. (Use historical comparisons from material you have now.)

The reality is that quantifying HR is like quantifying love: It is best to set your own standards rather than rely on the definitions of others.

SOURCE: Thomas Casey, managing principal, Discussion Partner Collaborative, Burlington, Massachusetts

LEARN MORE: Companies should use caution to ensure the metrics they use provide real value.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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