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.