Monday, June 1, 2009

The value of an employee

So many organizations like to try to convince us that people are their most important asset. Well, as a strategy consultant once told me, “that’s nice talk, but if you look on any company balance sheet, you will find that people are often a company’s biggest liability…looking at the line item for wages payable.”

Well that doesn’t sound good.

So which is it? Are people assets or liabilities? And what value should we assign to a manager, for example?

The value of an asset is the net present value of all future cash flows. If an employee is an asset, why not measure their value by determining the net present value of all future cash flows generated by that person?

A liability is a bill owed by the organization either on a loan or to pay a bill like a lease payment or electricity bill or salary. If an employee is a liability, he/she is simply a bill that must be paid…a necessary expense, like a phone bill.

If managers want to think of themselves as assets, and not be a liability, they should consider the present value of the future cash flows they generate. Easy for a salesperson. Not so easy for an operations manager. However, an operations manager does contribute to customer satisfaction, error reductions, process improvement, cost savings, etc. What is the present value of all the expenses saved from those improvements? Managers might want to look into that.

Are you an asset or a liability?

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