Thursday, July 27, 2006

What’s an Employee Worth? Not Compensation! But Value?

HR professionals often discuss the cost of turnover. Some say that the cost is equal to 150% of the employee's salary. The American Management Association uses the figure of 30% of salary. When I'm doing ROI calculations, I usually use a very conservative 25% so as not to oversell my case. But can you really come up with an average value of what an employee brings to a company based on their compensation?

Today's Blog Swap guest post looks at the value of employees in a very interesting way. Welcome David Perry, Managing Partner of Perry-Martel International, Inc.

What’s an employee worth? Not Compensation! But Value?

As an extreme example, entertainer David Bowie floated a personal bond issue a couple of years ago. He offered investors a portion of his future royalties from previously recorded material and receipts from future concerts. The "Bowie Bonds" were gone within an hour of the offer, for more than $50-million.

In an even more striking case, when Dreamworks SKG went public, investors immediately drove the value of it's bonds to $2-billion. Dreamworks was a film studio without a studio, a film or even a star. All it had was the intangible value of its founders: Steven Spielberg, Jeffrey Katzenberg, and David Getten.

The intangible value of being --- that's what the new knowledge economy is all about - Knowledge Value. Veteran information age guru Stan Davis confirms some insights into the increasing value of people in today's economy.

A person's "value" is just a measure of how much someone is willing to pay to obtain something from them.

In Blur, Davis and Meyer make the point that the boundaries between your work life and your home life are disappearing. In fact, today the rate of change and the depth of connectivity is so fast that every person, product, service and company are blurring together.

Computerization and communications have made us all a linked community. There are, for example, nine times more computer processors in our products than in our computers -- nine billion CPUs in item like phones, hotel keys, consumer electronics, day planners and cars.

As products are more driven by software, they become easier to link together. Intelligence and information become the key value being offered in a consumable (some 90 percent of the value of a new car is estimated to be in the computers and software it uses). And you are the value-adder.

Instead of resources or land, "capital" today means human capital. It doesn't take a shoe factory to go into the shoe business these days. Nor do you need raw materials or fleets of trucks. Nike became a shoe industry leader by concentrating on the value-producing capacity of it's employees, for design, marketing and distribution know-how. The real capital is intangible: the person's knowledge level, combined with an aptitude for application.

How you meet your company’s value requirements and those of the employee without overspending is the difference between creative and checkbook recruiting!
[Beth C.'s note: And creative retention too!]

Copyright 2006 David Perry


If you like David's post, check out the book Guerrilla Marketing for Job Hunters which he co-authored with Jay Conrad Levinson.


Anonymous Anonymous said...

The more focus on value and the economic implications of HR, the better in my mind!

10:51 PM, July 27, 2006  

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