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.
Full-Time Employees (globally)
Added Value/Employee (net income / employees)
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…