Why CFOs and CEOs Need to Put Real Value on Their Most Critical Asset – People

Talentsorter StaffEmployee Assessment Tools, Engagement, Hiring for Fit

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Too many leaders and managers view things like performance reviews as an exercise in “compliance with HR policy” and not as a task to do because it is simply good business! The job of every single leader is to manage for performance, engage employees, and retain the best people.

Something is still missing in our core thinking around people: we aren’t being deliberate about putting a value on the asset represented by the stream of payments making up our payroll.
The salary and benefits line on the S,G & A portion of the income statement in most companies is seldom less than 30% of expenses … and often can be as high as 80%.

Most companies manage expense items like rent, car leases, IT operating costs, telephones, and so on down to double digits. Are we doing the same for people? If not – why not?

 

Your People Are Your Biggest Asset

Let’s take another look at the salary and benefits line.

Here’s an example:

You have a company with a $1.0m per month payroll (or $12.0m annually) in pay and benefits. If this were an asset on lease to you, the typical cost of the capital for that asset today would run between 5.0%-7.0%.

Using the more conservative rate of 5% to put a value on the asset would give us a capital asset worth $240.0m.

So the operative question is – how rigorous is your methodology to measure the well-being of that asset?

    • Would you buy a $240m building or piece of equipment and not monitor its maintenance records?
    • Would you put the asset to work without any controls or monitoring devices to determine equipment performance?
    • Would you even purchase that asset without detailed analysis and assessment to ensure you are making a good decision?

If your answer to this is absolutely not, then the question I have is – why aren’t we more rigorous in how we hire and measure employees?

 

You Can’t Manage What You Don’t Measure

Measuring employee engagement gives you a sense of the well-being of the entire workforce, as well as insights into individual divisions and their performance versus ‘like’ divisions in the company. It gives you information regarding how skilled the operator (leader) of that work unit is in getting the most out of the asset. And you’ll better understand the company itself.

Measuring employee engagement isn’t a ‘nice to have’. It isn’t ‘soft stuff’ that should be left up to HR.

Likewise, using candidate assessment tools to select employees allows you to choose the candidates who will help your organization succeed. Assessments allow you to critically select the assets you are investing in.

Employee engagement surveys and candidate assessment tools help you manage your most important asset and be better at it than your competitors, so you can be a winner in the marketplace.

How does your business manage its most important asset?

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