Sunday, July 08, 2007

The Happy-to-Grumpy Metric

There's a nice article on metrics in last month's (June 2007) CFO magazine. The article brought up my favorite financial ratio - the "Happy to Grumpy" ratio which Wells Fargo uses to measure actively engaged employees to the actively disengaged. Says Wells Fargo's CFO Howard Atkins,
We want to measure what drives our results, and that includes team-member engagement. That measure might not get cited in your general ledger, but it can be quantified in a statistically valid way, compared over time to certain goals, and correlated to business outcomes.
Wells has found that groups within the bank that have a greater number of happy employees also rank higher on productivity and customer satisfaction measures when compared against areas in the bank with grumpy employees.

Another great example of a company analyzing human capital metrics is Best Buy. Best Buy, the electronics retailer, has been measuring employee engagement for about 10 years. Three years ago, they also began to track customer satisfaction numbers. This has given them the opportunity to correlate employee engagement with customer satisfaction; a task which they have recently begun to undertake. I suspect they will discover some exciting correlations. In fact, one correlation that they have already uncovered, according to CFO, is that for every tenth of a point in increased employee engagement, there is a correlating increase of $100,000 in operating income.

These kinds of metrics go a long way in validating what those of us in the HR world have known intuitively all along. I predict that some day we are going to see more human capital measures making their way into corporate financial data reports. And that will be a good thing for both the success of companies and the worklife of employees.

For the record, Well Fargo's "happy-to-grumpy ratio" in 2006 was reported at 5.8:1. Do you know what yours is?

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