Employees are most commonly referred to, in financial terms, as an organization’s largest expense. While it is true that employee-related costs often account for 50-80% of operational expenses, this categorization ignores the true value of employees. In fact, human capital is an organization’s most valuable asset. Without employees, an organization lacks strategy, productivity, and ultimately, revenue. Executives that treat their employees as assets, not liabilities or expenses, will be able to attract and retain top talent in today’s volatile market.
Viewing employees as assets vs. expenses is by no means a novel concept. As early as 2004, the HBR released a paper arguing the case for employees to be treated as intangible assets. The article cited that intangible assets cannot be replicated by the competition which makes them “a powerful source of sustainable competitive advantage.” We take great care to protect our financial assets. We hire trusted advisors, study patterns, create strategies, and even run threat assessments to plug holes and strengthen areas of weakness. We work hard to both preserve our assets and accelerate their growth in value. So, why do we not put the same time and effort into attracting, retaining, and developing our employees?
Preserving your employee investment is especially prudent when considering that they are not risk-free assets. Quite contrarily, they are assets with high investment costs and high risk. NASDAQ defines a high-risk asset as, “an asset whose future return is uncertain”. Employees certainly fit this definition. Considering that the initial investment of hiring a new employee is estimated at more than 50% of their salary, the return on that investment is extremely unpredictable and depends on a variety of factors including productivity, development, and, of course, retention.
To put this into context, consider arriving to work to find a key employee’s computer missing along with all of their files. In this case, the authorities would be notified, an investigation would be launched, and strategies would be put in place to tighten security and ensure a similar incident does not occur in the future. However, when a key employee quits, few organizations even spend time identifying the root cause, let alone creating and maintaining strategies to increase retention. Why does the loss of a key employee valued at $50,000-$100,000+ not illicit the same response as missing equipment?
While employee retention remains an enigma to most executive teams, recruiting has recently come to the forefront of business initiatives. As the talent war wages on and turnover rates approach 17%, or higher in some industries, organizations are recognizing the need to “pay to play” in the recruiting market. Many companies have been forced to invest in high-cost recruiting services just to maintain sufficient staffing levels, let alone increase them. Furthermore, this strategy leaves organizations spiraling through a vicious cycle- investing far too much in acquiring assets and not doing nearly enough to protect their investment.
This is becoming a critical to address at organizations around the world. As Baby Boomers continue to exit the workforce, the demand for skilled workers is at an all-time high and competition for top talent is fierce. Your employees have many choices for a place to work and recruiters are lurking around every corner. To position your organization as an employer of choice, you can’t afford to think of employees as expenses.
Take a look at your organization; are your hard earned assets at risk? Have you studied the trends in the market? Are you investing in strategies to strengthen areas of weakness? It is essential to take time and evaluate why employees are leaving your organization by performing thorough exit surveys. However, it is far more effective, and less costly, to stay ahead of the curve by investing in professional development, promoting from within, and using consistent communication to create a championship culture.