Cutting Edge Management: Maximizing your Human Capital Value

Valuing a company based on physical assets is fairly easy to do. Goodwill is a little tougher to evaluate because it is an intangible. Just as challenging to assess in a quantitative manner is the employee, or Human Capital Value.

Human Capital Value includes the practical knowledge, acquired skills, and learned abilities of employees that translate into profit. There is no standard or rule of thumb because different skill sets are valued in different companies.

How can this elusive asset be quantified? A leader in this field, Jac Fitz-Enz, author of The ROI of Human Capital: Measuring the Economic Value of Employee Performance, has created a series of metrics for companies to measure their Human Capital. Here are the top ten:

1. How your employees fulfill your most important issues.
2. Human Capital Value Added. How employees optimize themselves for the good of the company and for themselves--the prime measure of a person's contribution to profitability.
3. Human Capital ROI. The ratio of dollars spent on pay and benefits to an adjusted profit figure.
4. Separation Cost. The average cost of separation for an employee.
5. Voluntary Separation Rate. Lost opportunity, lost revenue and more highly stressed employees who have to fill in the gaps. Plus costs of hiring for these positions or lost customer service quality.
6. Total Labor Cost Revenue Percent. The total benefit and compensation cost of all employees, W2 and 1099, as a percent of organizational revenue.
7. Total Compensation Revenue Percent. The percent of revenues allocated to direct costs of employees. It only accounts for on-payroll employees.
8. Training Investment Factor. Costs to improve individual productivity, including basic skills.
9. Time to Start - the time from approval of a requisition until someone is on the job - is a strategic indicator of revenue production.
10. Revenue Factor.

Recruiting the right employees, giving them the compensation they desire and the training they need, are just a few ways to protect your investment in Human Capital Value. Just as each company values different sets of individuals, those individuals have different requirements to increase their job satisfaction. Money is certainly one motivator, but by no means the most important.

According to Laurie Bassie, author of Human Capital Advantage: Developing Metrics for the Knowledge Era, there are other high-valued motivators for employees, such as:

1. Being in an environment where they can grow and learn and advance
2. The managerial skills/abilities of their immediate supervisor
3. Being treated fairly, appreciated, and acknowledged
4. Doing work that makes a contribution

The people who keep your company running day to day are the most critical assets you have to differentiate your company and to generate profits. It is imperative that companies measure and maximize their Human Capital Value.