Employee Lifetime Value – Elevating Employees from a “Cost” to a “Value”

The Forum for People Performance Management recently issued a new white paper on Employee Lifetime Value that attempts to apply the quantification principles of customer lifetime value to employees. The paper draws a few interesting conclusions.

For example, because organizations have long viewed employees as a cost, they have not seen the value in analyzing information on employee contributions to company performance. But, since a Brookings Institute study found that “nearly 85% of a company’s assets are related to intangible capital tied up in knowledge and human talent,” companies are finding it worthwhile to apply the effort to make that capital tangible. One tool to do so is applying the principles of Customer Life Time Value metrics to employees.

The benefits include linking employee lifetime value metrics to HR systems to determine how to most effectively choose which employees are deserving of investment in training, workplace opportunities and even rewards. While I appreciate the thought behind this, an effective method of doing so has already been in place at numerous world-leading companies – using strategic recognition to acknowledge the efforts of 80-90% of employees based on the already-established company values. When planned correctly, these efforts are also measurable.

I am more appreciative of the assertion: “interventions that alter lifetime value.” This construct recognizes employee (or customer) lifetime value can be influenced by proactive management interventions such as training or rewards for employees. Research abounds showing the effect of a simple “thank you” and praise for efforts on employee’s loyalty and continuing efforts on behalf of a company, increasing performance.

I applaud the researches for trying to quantify that which has not yet been quantifiable. But I question if efforts to measure employee engagement may be more effective in the short and long-term for companies in an environment for worker loyalty is considered a lost ideal.