Of all the key value indicators, the team of people you assemble to execute your strategy and breathe life into your daily operation is arguably one of the most vital. Bringing this group together, with the skills and experience necessary to do the job, is only half of the battle. These individuals must share your vision and believe in the goals you wish to accomplish. With that said, it is essential to understand and evaluate the policies, metrics and culture that affect this key indicator as well as the long-term enterprise value of your company.
It is not an understatement to say that it’s harder to find the perfect candidate then it is to find the capital to pay that person. The generational trends that are impacting the current U.S. labor force have brought about record low unemployment. The latest figures out of the U.S. Bureau of Labor Statistics not only reinforce this, but also report record high job openings alongside record-breaking hiring rates. Furthermore, quit rates are now beginning to rise, meaning there is an increase in employees leaving one job for another. This data speaks to a tightening labor market and indicates we are at that point in the economic cycle where demand for labor eclipses supply. Thus, it becomes even more evident that finding the right people for your team is not an easy feat.
Retention, Tenure, and Productivity
When the labor supply is short, it is important to be keenly aware of the value drivers within your employee force. Chief among these is employee retention. We evaluate a company’s ability to retain employees by monitoring average labor turnover and tenure metrics. Market conditions will always sway these numbers and it’s clear that not all turnover is bad. In fact, a review of your team and a weeding out of underperformers is not only healthy but could also lead to increased profit and productivity. Achieving low turnover and high tenure averages are signs of stability within a business and indicate you’ve assembled a group of people that believe in what they are doing and are in for the long haul. Break out these turnover and tenure figures for the various levels within your organization and compare them to geographical and industry averages. Across the country, median tenure as of January 2018 for men was 4.3 years, and for women was 4.0 years. How do your metrics stack up?
Employee tenure further leads to a discussion of skillset and expertise. How well do your team members do what they do? Do they have the knowledge and experience necessary to fulfill their respective roles? How does your company deal with corrective action—when the right person is in the wrong position? And what type of training programs do you offer your employees? If your team members don’t have the skills and tools to do their jobs at the highest level, the organization is not likely to reach its goals which will ultimately have a negative impact on enterprise value.
A healthy workforce should also produce strong productivity levels. One of the more common metrics used to track productivity is Revenue Per Full-Time Equivalent (FTE). This metric breaks down your revenue to the amount generated by each full-time team member. It is easy to calculate, used across virtually all industries and markets, and can be broken out through the divisions of your company as well as various revenue lines. Your Revenue Per FTE figure provides insight into overall company efficiency and performance, and highlights potential weaknesses within your workforce.
Eligibility and Documentation
In addition to retention and productivity metrics, there are other, more indirect factors that can impact the value of your labor force. These include a stringent safety program, a smart benefits package, and a robust Human Resources department. Employee eligibility is a topic of concern for virtually every employer; therefore, the onboarding of new hires is a crucial process. A vigorous, competent and audited I-9 verification program is a necessity in today’s business climate. E-Verify, an employee eligibility verification program set up by the Federal Government and administered by the Department of Homeland Services (DHS), is a tool that can be added to the standard I-9 process as an additional measure of protection. Employers verify the identity of their potential employee, and the web-based system checks against Social Security Administration, DHS, and state DMV records.
When considering using E-Verify, it is important to know what is mandated or allowed by your State. While E-Verify is a voluntary program, some states mandate it, while others strictly legislate it. Further, participation remains light for reasons not limited to implementation costs and the additional bureaucratic work added to your hiring process. To put it simply, the system still has errors. Improvements continue to be made, however, false positives are still a factor and take time and resources to work through. And even with E-Verify, legal action remains a risk. The defense E-Verify provides however, is allowing an employer to state good faith in hiring practices. A robust I-9 verification system can also support this defense. And along these lines, it is important to know the current local, state, and federal employment laws and be prepared in advance as changes to those laws are made.
Beyond all the data and statistics surrounding your labor force, the culture you have created within your company, while much more difficult to measure, is no less vital in driving value. It is imperative to cultivate an environment that keeps your team members committed and engaged. If your staff feels valued, appreciated and compensated appropriately, your retention and productivity metrics will speak for themselves. Further, if your labor force believes in the mission you have set out to accomplish, they are more likely to stay committed through various market conditions as well as personal obstacles faced in their own lives.
The identity of your business is communicated to the market through your employees. They are the first impression of your brand and should be a direct reflection of you and your vision. Creating a labor force of this caliber is not an easy task; however, it is a key component to achieving maximum value for your company. Put simply, it is an effort worth making!