Added Value per Employee


In an article published on Strategic HR Review by Paul Kearns, I found especially interesting the idea of Added Value per Employee – it is a key business metric that helps to understand the how efficacious the Human Resource Management practices are in producing wealth for a company. According to the author, this ratio is now kind of a guiding principle for Human Resources Management analysis – why it is as it is and what a company can do to improve it.


 






























Company


Full-Time Employees (globally) 


Net income
(last published)


Added Value/Employee (net income / employees)


Wal-Mart


1,900,000


 $ 11,284,000,000.00


 $ 5,938.95


Costco


71,000


 $   1,103,215,000.00


 $ 15,538.24


Microsoft


71,000


 $ 12,599,000,000.00


 $ 177,450.70


Oracle


74,674


 $   4,274,000,000.00


 $ 57,235.45

  Source of data: moneycentral.msn.com

It is irresistible to compare the two companies I researched for this week’s assignment in my MBA: Costco and Wal-Mart, which have very different philosophies regarding employee retention and pay-level base. While at Wal-Mart the turnover rate is over 40%, at Costco it is at a low 6% yearly. In a previous post I calculated how much money Wal-Mart loses with turnover (about 1 billion dollars, see previous post, or click here), but now using the added value/employee ratio, we can see it better.



While Wal-Mart’s employees add an average value of about $6,000 to the net profit, Costco’s add over $15,000 – this should tell a lot about both HRM practices and where they can improve…



 


References


Kearns, Paul (2005). Causation not Correlation. Strategic HR Review; May/Jun2005, Vol. 4 Issue 4, p7-7, 1p.