By Larry Reynolds
“All organizations should know the value of their assets, especially
top-performing employees; unfortunately most don't,” John Sullivan, professor
of management at San Francisco State University, told Bloomberg BNA Jan.
One way to determine the worth of an employee is to calculate the
dollar-value difference between the performance of an average employee and an
above-average employee doing the same job, he said.
technology companies, including Google Inc., use variations of this formula to
help determine which employees should be promoted and what they should be paid,
which employees should be released and where additional hiring is needed,
First, a baseline must be created
by calculating the value produced by a typical employee. “The accepted method
is to use the annual average revenue per employee, which is the total corporate
revenue divided by the number of employees over a year, as an indicator of the
average worker's worth,” Sullivan said.
At the retailer Sears, Roebuck
and Co., the average annual revenue per employee is $138,200, whereas at a
company such as Apple Inc., the average annual revenue per employee is a little
more than $2 million, he said.
The next step in the calculation is to
determine the difference between what is produced by an average worker and what
is produced by a top-performing employee in the same job, Sullivan said. “This
is known as the top-performer differential multiplier,” he said.
percentage figure is used for a top-performer's multiplier if their production
is greater than 33 percent above the production of an average worker.
multiplier is used if the production of a top-performing employee is at least
10 times the production of the average employee, he said.
performance differential varies based on the job being analyzed, Sullivan
Determining sales staff's top-performer differential multiplier is
a straightforward process of adding up the sales that were made, he said.
For positions where the correlation between an employee's direct
contribution to company sales is less obvious, such as a product designer, the
compensation staff should work with design department executives to identify
and calculate the value of the creative ideas and product features originated
by each design employee over the past two years, Sullivan said.
Once the top-performer
differential multiplier is determined, the next step is for a team of
executives to estimate each designer's dollar value and effect on business,
Sullivan said. Employees are then ranked based on the value of their
contribution, he said.
This analysis is used by the executive team to
calculate the difference in each job category between the value of what was
produced by an average employee and the value of what was produced by a
top-performing employee, Sullivan said.
“The estimated value doesn't
have to be perfect,” he said, but the process used to evaluate all jobs must be
differential multiplier should emerge from the calculations for major job
A company either has an effective hiring process or a
labor issue that unnaturally restricts employee performance if there is no
differential between average and top performers for a specific job group or if
the differential between the two is very low, Sullivan said.
functions that have a high multiplier “should be made a priority when it comes
to hiring and retention because the indicator is they produce a greater
proportion of revenue,” Sullivan said.
The current multiplier for a
high-performing organization such as Apple, with its average annual revenue per
employee of about $2 million, is 25, Sullivan said. This means it is possible
for a single top-performing programmer to produce $48 million in added value in
a year, Sullivan said. “This may seem outrageous, but if the employee invented
the iPod, it could actually be low.”
Other factors may be added to the
calculation, such as the value created by employees who go beyond introducing
new ideas to implementing innovations that give the company a competitive
advantage, he said.
The calculation also may consider an employee's
ability to build relationships with customers and strategic partners, to
quickly learn and adapt in a way that reduces the time it takes to get a
product on the market and ability to anticipate and solve strategic problems
that the average worker does not have, Sullivan said.
its own calculations, a company may want to compare its results against the
current top-performer multipliers used by Apple Inc., Google Inc. and Facebook
Inc. to identify and quantify the contribution of their top workers.
Based on this benchmark, top workers produce at least one-third more in
value than average employees or three times their own salaries. In comparison,
star performers produces 10 times more value than average workers or 100 times
their own salary.
To contact the editor responsible for
this story: Michael Baer at firstname.lastname@example.org
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