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Added Value per Employee

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In an article published on Strategic HR Review by Paul Kearns, I found especially interesting the idea of Added Value per Employee – it is a key business metric that helps to understand the how efficacious the Human Resource Management practices are in producing wealth for a company. According to the author, this ratio is now kind of a guiding principle for Human Resources Management analysis - why it is as it is and what a company can do to improve it.

 

Company

Full-Time Employees (globally)  

Net income (last published)

Added Value/Employee (net income / employees)

Wal-Mart

1,900,000

 $ 11,284,000,000.00

 $ 5,938.95

Costco

71,000

 $ 1,103,215,000.00

 $ 15,538.24

Microsoft

71,000

 $ 12,599,000,000.00

 $ 177,450.70

Oracle

74,674

 $ 4,274,000,000.00

 $ 57,235.45

  Source of data: moneycentral.msn.com

It is irresistible to compare the two companies I researched for this week’s assignment in my MBA: Costco and Wal-Mart, which have very different philosophies regarding employee retention and pay-level base. While at Wal-Mart the turnover rate is over 40%, at Costco it is at a low 6% yearly. In a previous post I calculated how much money Wal-Mart loses with turnover (about 1 billion dollars, see previous post, or click here), but now using the added value/employee ratio, we can see it better.

While Wal-Mart’s employees add an average value of about $6,000 to the net profit, Costco’s add over $15,000 – this should tell a lot about both HRM practices and where they can improve…

 

References

Kearns, Paul (2005). Causation not Correlation. Strategic HR Review; May/Jun2005, Vol. 4 Issue 4, p7-7, 1p.

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