Calculate the Value of Talent
Companies are as diverse as the people who run them, but all organizations benefit by taking a systematic approach to assessing employees and attracting top talent. And it’s important to maintain your talent pool at all times, regardless of economic ups and downs. Why? It always pays, quite literally, to have talented people on board.
You may be thinking that I am going to recommend you do a forced ranking of your employees to weed out the low performers. In response, you may be saying that your company’s culture wouldn’t stand the test of a forced ranking. OK, I can live with this. However, you should understand the intrinsic differences between your top and average performers.
- Produce as much as 10 times more than the average worker, while they often require less than two times the pay.
- Generate most of the innovation and new ideas.
- Help others to improve their performance, because they serve as mentors, trainers and role models.
You may think that even though these findings seem true, it would be nearly impossible for you to figure out the value of your company’s top talent versus its average talent. Think again. If you need a better business reason than my warning to identify and retain your top performers over all other performers, then try this simple value-differential exercise using some of the people from your team.
Start by identifying several jobs with measurable results. Sales positions make for an easy starting point. Other easily measured jobs might be programmers (lines of code) or customer service jobs. The goal is to compare the differences in output or results between those with average performance and those ranked as the best in each job category.
Steps in Calculating the Top-Performer Differential
Here is how it can be done, step-by-step:
- Calculate the output of average and top performers.
- Start with the output of the average performer (the average output per employee).
- Look at the output of the very top performers or the average of the top 10 percent (the top-performer output).
- Calculate the top-performer increase factor.
- Start with the top-performer output per employee as the base.
- Divide into that number the output of the average performer (the small number into the bigger number). That is the top-performer increase factor.
- Calculate revenue per employee.
- Calculate the average revenue for an employee for these jobs (total divisional revenue for a year divided by the number of divisional employees).
- If that is not available, take the total revenue of the firm for a year and divide it by the number of employees.
- Calculate the revenue increase for top performers.
- Take the average revenue per employee and multiply it by the top-performer increase factor. That number is the revenue generated by the top performer.
- Calculate the value difference between top and average performer.
- Subtract the average revenue per employee from the revenue of the top performer. The difference is the value added each year by hiring or retaining a top performer.
- Add additional jobs.
- Follow steps 1 through 5 for other measurable-output jobs. If the ratio (the percent difference) is close for most jobs — and it usually is — use that ratio for all jobs in the firm.
An Example with Numbers
The average salesperson generates $250,000 per year, while your top salesperson generates $400,000. Divide 400,000 by 250,000, and you are provided with a top-performer increase factor of 1.6.
Next, divide total revenues of your organization by the number of current employees, we'll say $100 million and 1,000 respectively, for this example. The result is an average revenue per employee of $100,000.
Multiply this number by the top-performer increase factor, and you get the average contribution to revenues by top performers, $160,000 in this example.
Subtract from this number the average revenue per employee of $100,000, and you see that on average, top performers contribute $60,000 more per year than average performers.