With a careful easing of lockdown restrictions on the horizon, many organisations are looking forward to a return to in-person interactions with colleagues, customers, and other business partners. Having highlighted the value of nature in a previous article, we will now begin to look at the importance of valuing the people and relationships that organisations rely on and contribute to through their activities. Referred to in the round as social capital, this complex area will be split into two parts: the people or employee element, referred to specifically as human capital — the subject of this article — and the external relationships: the broader social capital, which will feature in the final article of this three-part series.
Appreciation and valuation: why it matters
The economic benefits of motivated, engaged employees who feel valued and appreciated by their employer are well documented. Indeed, Covid-19 has given added impetus to this with an increased awareness and focus on employee wellbeing. Forbes describes a 3.9 times earnings per share growth rate between companies with employees who have the highest engagement levels versus the lowest.1 Valuing human capital involves an understanding of how this increased financial performance links back to an ongoing investment in employees.
‘Not just a number. A company’s intangible assets, including human capital and culture, comprise more than half of a company’s market value’.2
Given this assertion, organisations should assess the return on investment in their employees in the same way that they would measure financial and intellectual capital.
Why targeted investment increases employee value
Developing an employee and the environment in which they work can lead to an increase in value:
- Continuing to upskill employees, enabling them to thrive in an increasingly automated and digitised economy, improves productivity, increases engagement, and ultimately improves employee retention rates. Avoiding recruitment costs and the potential for business interruption are particularly valuable in areas where skills are in high demand.
- The internal benefits of developing employees can also lead to enhanced value when viewed externally. Highly motivated, skilled teams tend to deliver better customer outcomes, enhancing business performance over time. Reputational enhancement in the job market — becoming an employer of choice — further engenders staff loyalty and reduces attrition. It can also afford the organisation an opportunity to influence local training provision, thereby benefitting the wider economy. We will expand on this in the next article on the broader topic of social capital.
Seeking out the employee value in your business
Despite Infosys having attributed a value to its entire workforce from as long ago as 2008,3 it is still very unusual for organisations to place a direct monetary value on their employees. Instead, perhaps a more useful approach to understanding the value of the human capital in your organisation is to devise metrics and then monitor data which enable you to measure whether the benefits discussed above are being maximised.
Take the time now, as you think about meeting up with your colleagues, to make sure you have access to transparent and consistent data on the following:
- Recruitment and induction costs compared to headcount. If the cost per head is rising over time, it suggests that the attrition rate is rising, and value is being lost. Reviewing this data alongside employee engagement survey results or exit interviews might help highlight whether an increased investment in employee development might deliver a better outcome.
- Training costs. Monitoring the correlation between training costs and a) productivity improvement and engagement metrics, and b) attrition rates will demonstrate the positive value-add from investing in employees.
Whilst valuing human capital is still a subjective topic, an objective reality is that an engaged and productive employee will be your best advocate.
- Rotenberg, Z., 2021, The Impact of Employee Engagement on Performance and Results, Careermetis.com [Accessed 18/02/2021]
- Chan, Q., 2020, We need to get better at measuring the value of human capital – here’s how to do it, World Economic Forum [Accessed 15/02/2021]
- Kaye, L., 2012, Time to start valuing human capital as an asset on the balance sheet, The Guardian [Accessed 18/02/2021]