GDP Blog

Human capital vs Investments vs payroll expense

Posted by Carrie May

May 26, 2016 4:10:36 PM

Moderate risk investments are typically investment instruments for people who can bear risk up to a certain extent to reap the best possible returns.  Moderate risk human capital investments play a significant role in managing and hedging your riskier and lower human capital investment.  Again, these are going to be long-term investments that may fluctuate somewhat and the return is not going to be as significate as with a riskier-type investments.  In terms of moderate risk human capital, who would be included in this type of investment?  These are the employees who turn over in your organization between two and five years.  And yes, we do want to attract these types of employees.  Not only does it help us maintain focus on having a strong on-boarding and training program but from this group of employees is where you will find those individuals who have the potential to become a key member of the organization someday.stock-photo-70392605-chickens-with-egg.jpg

For many organizations over a two to five year period, your moderate risk human capital investment will give you the opportunity to interview, hire and train a  significant percentage of your current talent and identify potential “key” employees.  Odds are that there will always be one person who stands out in the crowd and is at the right time in their career, maturity and personal life; this is a person who will willingly adopt the mission of the organization.  The most efficient way to make the least amount of investment in these employees is to have a well-documented onboarding and training program.  This is not easy for smaller organizations but can be developed over a period of time with the aid of key employees.  This training cost is a one-time, long term capital funding requirement that will need to be paid into the investment and then require minimal administrative expense for ongoing maintenance and updating as the organization grows and changes.

The most important issues to these employees are pay, training and a positive working environment.  This group of employees fall in the “payroll expense” piece of the investment and can be costly if an organization is not hedged properly.  They are worked the hardest in order to become subject matter experts (SME) and will want to be given clear direction as to what their daily responsibilities and tasks are.  These are typically salaried employees who contribute greatly to an organizations culture and desire to understand the business to develop the skills necessary for their craft.  Their workday hours will fluctuate and depend on workload and may also be impacted by time of month or time of year.  During this phase natural leadership skills and adaptability to organizational changes will develop for certain individuals.

Post probationary period, from an employees start date up through about two years, management should begin the process of vetting these individuals and evaluating natural strengths and qualities the organization is ideally seeking.  Executives who invest the time and effort in coaching opportunities with this group of individuals will be able to easily identify the strongest and weakest talent.  Nature then takes its course and fully-engaged employees seeking continued self-improvement and growth within the organization will continue to elevate and contribute to the long-term investment strategy and hedging the short-term losses from the other moderate risk employee pool.  Because people are so unique, different people may thrive in your company’s environment and others just will not.  Again, circumstances are not in your control.

Every business owner must be responsible not only for the vision of the organization but also continually seeking out talented individuals looking for long-term “key” roles in their field of expertise.  To become a true SME (subject matter expert) may take decades of long hours, continuous dedication to the craft, a deeply developed knowledge of their field of study and daily self-analysis/improvement.  Anything less and you have just devalued your key and moderate risk long-term employees and the organization’s successes you have worked so hard for.  As with any investment, you have to know how much risk your organization is able to bear.  The more you engage in employee training and development, the more astute investor in human capital you become.

Next week, in my final blog on this topic, I will discuss low risk human capital investments and the role this type of investment plays in hedging your other riskier human investments.

 

Topics: Culture, Human Capital

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