GDP Blog

Human Capital vs Investments vs Payroll Expense

Posted by Carrie May

May 9, 2016 2:29:59 PM

Employee Risk & Retention         HUMAN CAPITAL vs. INVESTMENT vs. PAYROLL EXPENSE

As I look around our office today, I see a flurry of activity, people laughing, a bit of cleaning and a lot of good old fashioned hard work.  And as I reflect on how our business has changed during the past twelve months, I see many ducks-follow-chicken_-_Week_1_blog-1.jpgnew faces, some understandable anxiety and the confusion of a desk relocation this week just tops it off.  One key facet of our advisory service business includes advising clients on Employee Risk and Retention.  I thought it would be beneficial to post a series of topics this month about this issue and share our experiences and vision with you.

Capital: isn’t that something that shows up on a company’s balance sheet?  Yes, it is the equity or the investment owners have in their company.  For many, the most significant portion of an organization’s equity is the result of year-over-year accumulated earnings and losses.  This may be true, but what of the other critical asset: human capital.

The definition of human capital is: “a measure of the economic value of an employee’s skill set”.  As a business owner, when you look at your financial statements every month and see your top three expenses, payroll always stands out.  That number is a quantifiable figure used to calculate metrics about the performance of our business and manage operating cash flow.  But as you stare at that number, do you ever start to think about: the non-quantifiable time and effort it takes to retain that employee, the on-going coaching and mentoring required?  What about the hours owner executives spend thinking and discussing employee risk hedging?  We constantly ask ourselves “How much more do I have to do to keep these employees happy and productive”?

The cost of employee risk and retention is difficult to quantify and unfortunately goes straight to the bottom line of your profit and loss statement and affects the value of a company each and every month.  Your accumulated earnings as an organization is a direct reflection of not only having strong leaders and satisfied clients, but also having employees who are happy to spend their days feeling challenged but not too challenged, satisfied but not too satisfied with the job they do, confident but not too confident enough to walk in and demand a big raise.

As a preface to writing this, I was doing some research and Googled “Employee Risk and Retention”.  The first website to appear was entitled “Scholarly articles for Employee Risk and Retention”.  I have to admit that I had no idea there were actual scholars that had published articles on the subject.  I thought I might find some articles written by human resources managers but the word scholarly felt awfully intimidating because my thoughts about this are pretty straightforward. 

NO MATTER WHAT YOU DO, NO MATTER HOW HARD YOU TRY, NO MATTER HOW MUCH YOU THINK ABOUT THEM, AN EMPLOYEE CAN BE HAPPY WITH THEIR JOB ONE DAY AND THE NEXT DAY…EH, NOT SO MUCH. HERE IS THE KEY: YOU HAVE VERY LIMITED CONTROL OVER THIS!  Scholars may write about it, they may create interesting theories about it but, unless you are that rare individual than is able to control human thoughts and emotions, you have to deal with reality.  Life can be black and white, but it can also be gray, so let’s deal with reality and come up with a plan that works.

During the next several weeks I will explore some strategies that you may have considered, utilized or completely written off.  As the owner, chief executive or team leader in your organization you have to have the right strategies and the right people in place; you also need to know how to use them effectively.

Topics: Culture, Human Capital

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