It's never been more apparent that dollars invested in the development of employees and a positive company culture pay off big for companies, large and small. Indeed, smart entrepreneurs know that engaged employees are their company's most important asset. Yet, human capital is not represented on the balance sheet. In fact, employees aren't technically assets at all. Rather, dollars expended for salaries, benefits, employee development, etc. are simply considered a necessary expense.
"Traditional methods of accounting don't appreciate (pun intended) expenditures on our workforce as necessary contributions to creating and sustaining value in our businesses," says Laura Queen, Founder and CEO of the human capital advisory firm, 29Bison. A ridiculous reality, given today's evidence of the impact of an ongoing investment in a company's workforce. Actions such as professional and personal development, retaining and promoting talent, improving the employees' work experience, and fostering greater levels of trust and transparency can all be linked to tangible economic impacts.
Leaders are calling for a change to recognize the return on investment in human capital. Blackrock CEO, Larry Fink, took a strong position in his 2018 Letter to CEO'sto champion the idea that people and profits go hand-in-hand. No doubt, a growing number of today's leaders agree with Fink's stance.
"Our financial reporting and traditional economic calculus need to catch up to this mindset," says Queen. As such, she is taking a rather creative step to generate more awareness around the topic. Leading a collaborative effort beginning in the Philadelphia area, Queen has brought together a diverse group of professionals to bring these ideas and financial formulas to life. Experts in the areas of human capital, finance, and valuation, have partnered with business-minded artists to produce a unique event in form of a live play. The play, inspired by author Dave Bookbinder's The New ROI: Return on Individuals, demonstrates that the key to generating substantial and sustainable increases in the value of your business lies in the intangible assets. In other words, the human capital that is not even reflected on your balance sheet.
Even if you can't attend the play, you can benefit from a well-plotted plan. "Investment in your people pays off for your bottom-line," says Queen. "In an economy where finding talent is becoming more difficult by the day, paying attention to increasing organizational value through your employees is imperative."
Whether or not your accountant struggles with where to put this asset on your financial reporting, Queen offers these suggestions to begin this shift in your company. It's certain to be reflected on the bottom-line.
1. Create metrics.
Establish, measure, and manage a set of human capital metrics that align with your organization's unique objectives. Partner with accountants and advisors to build a comprehensive framework for metrics reporting.
2. Be intentional about the culture you'd like to create.
Can you answer the questions, "Why does my organization exist? Why do we get up every morning? What do I want our work environment to feel like?"
3. Be clear and communicate.
Set clear expectations and measures of success and tie them to each employee's performance objectives. Frequently remind everyone of what you expect of them.
4. Foster employee/employer relationships.
Develop strong relationships with your employees. Ask about what interests and inspires them. Know when they do their best work, and where they are interested in taking their careers.
5. Build trust and be transparent.
Step into difficult conversations, be honest and forthright with each other, hold each other accountable, and invite feedback so you can both grow.
6. Invest in your people.
Find ways to build their confidence and give them the tools to learn skills for the next evolution of your business and their careers.
7. Create a Succession Plan.
A succession plan helps with a smoother transition when employees at all levels resign or leave the company for any reason. Identify and develop future leaders at your company to prepare for all contingencies. A succession planning process can also help you to identify gaps and weaknesses within the company, so you know where to focus your future recruitment efforts.
No matter what your balance sheet says, continued investment in your employees will always pay off. Engaged, happy, loyal employees do better work. It's as simple as that.