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Using Employee Lifetime Value to make smarter management decisions

The majority of a company's value lies in its employees.

The right employee can make a big difference at any company. Whether it is a top salesman, an effective manager or a friendly front-line employee, the challenge for many businesses is to get the right people into the right roles and maximize their production.

A Brookings Institute study suggests that 85 percent of a company's value is related to human talent. This makes managing people as vital to the success of the business as any new product, marketing campaign or sale. To get the most of any employee,  firms first need to understand how much each worker means to their overall operations. A white paper by Forum suggests that executives consider exploring the Employee Lifetime Value (ELTV) metric.

Measuring an employee's value

The concept of ELTV gives managers a measurable tool to accurately identify top performers and how much they contribute to a company's success. By measuring the money an employee brings in through sales, recruiting or production, the organization can make smarter decisions about how to maximize the success of its workers. ELTV can be used during the restructuring process, taken into account for promotions or raises and leveraged in the creation of training incentives to boost skills lacking throughout the organization.

There are a number of different factors that determine the value of an employee. For this reason, the company must determine who will be measured, how the information will be collected and what factors make up value. Some positions are obvious – for instance, a salesperson who brings in more customers has a higher value – while others are more difficult to see and measure. Consider a customer service representative who creates value by satisfying unhappy customers. This function is clearly important to a business, but it can be challenging to measure exactly how much that translates to additional sales. 

Creating additional value

Watson Wyatt Worldwide developed four sub-metrics for its Human Capital Index that are meant to measure the value of teams and individuals. The sub-metrics include years of experience, level in the company, performance and background. Similar factors that account for the knowledge and skills that workers bring to the job may be helpful in building an ELTV metric, but the company also needs measurable statistics on how well it builds the value of its staff.

Once the company knows how much employees contribute, the next step is to find solutions for adding to ELTV. Employee incentive programs can be used to encourage specific behavior and increase the overall performance of workers. Designing these initiatives with ELTV in mind can help promote specific skills, attitudes or performance within the organization.

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