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What's A Worker Worth?


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What's a Worker Worth?

What's the true measure of Man? Before you wax philosophical, glean some practical wisdom from Jac Fitz-enz. His company, Saratoga Institute, devises systems for measuring human capital--in other words, how much economic value employees contribute to their businesses. One of his favorite formulas is what he calls the "human capital return on investment" (table), which calculates dollar-for-dollar profits against pay and benefits. How to use such numbers? Strung together over many months or quarters, they'll help you understand whether you're truly getting more for what are likely increasing employment costs. Most companies actually tend to underestimate human contributions, says Fitz-enz. On average, companies of fewer than 500 employees sock away $1.68 in profits for each dollar in pay and benefits. "All assets other than people are inert," argues Fitz-enz. "They don't add any value until they're leveraged by a human being."Edited by Dennis BermanReturn to top

TABLE

Return on Human Capital

Want to calculate your return on human capital? Suppose your $1 million

service firm earns $500,000. Operating expenses total $200,000, while $300,000

goes to payroll and benefits.

REVENUES $1,000,000

(minus)

OPERATING EXPENSES - 200,000

(only for facilities,

machinery, materials,

and supplies)

(minus)

PAYROLL & BENEFIT COSTS - 300,000

---------------------------------------

(equals)

ADJUSTED PROFIT 500,000

(divided by)

PAYROLL & BENEFIT COSTS / 300,000

---------------------------------------

(equals)

HUMAN CAPITAL RETURN $1.67

ON INVESTMENT (per dollar)

DATA: A SURVEY OF 5,000 SMALL BUSINESSES BY THE WILLARD & SHULLMAN GROUP

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