Cutting Edge Management:
Maximizing Human Capital Value

Valuing a company based on physical assets is fairly easy to do. Goodwill is a little tougher to evaluate because it's 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. No standard or rule of thumb applies because different companies value different skill sets.

How can this elusive asset be quantified? Jac Fitz-Enz, a leader in this field and author of The ROI of Human Capital: Measuring the Economic Value of Employee Performance, 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 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 an employee separation.
5. Voluntary Separation Rate: Lost opportunity, lost revenue, and more highly stressed employees who have to fill in the gaps. Plus the costs related to hiring for these positions and 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 for direct costs of employees on the payroll.
8. Training Investment Factor: Costs to improve individual productivity, including basic skills.
9. Time to Start: The time from requisition approval until someone starts working 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 job satisfaction requirements. 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, other high-valued motivators for employees include:

1. Being in an environment where they can grow, 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.

Measuring and maximizing Human Capital Value is imperative — the people who keep your company running day to day are the most critical assets you have to differentiate your company and generate profits.

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