Human resource management has historically struggled with finding a way to define and calculate the value of an employee. But in order to continuously improve the quality of hires and fill strategic roles within a company, it is essential to quantify the employee value contribution.
In this white paper, we aim to define what employee value actually is. What can you do to increase this value? And how can you maximize the return on investment made in your employees?
We’ll also discuss how using the most validated methods of predicting performance will help ensure that the best candidates are the ones getting recruited.
If every employee contributed an equal amount to the organization, there would be no need for selection processes, training or development. Any individual would be just as good a hire as the next one from the get-go. But we know that’s not the case. Every employee is different: some can contribute immediately, some need onboarding and training to get up to speed, while others never quite seem to ease into the role.
For an organization to monitor their return on investment in its employees, it needs to first quantify the value of an employee. To do so, we need to define what an employee’s actual value is.
Employee value can be broken down into three categories:
1. Task Performance
Relates to how you actually perform on the job. For an employee in sales, it would be the number of meetings you book, the number of offers you give, the number of deals you close, and the value of the deals.
2. Organizational Citizenship
Constitutes the voluntary behavior of an employee that is not part of their role description, but still contributes to the company. It can involve altruistic behavior such as helping others, cleaning up the pantry, or simply attending company events that are not compulsory.
3. Counterproductive Behavior
A concept that relates negatively to employee value. It can be defined as any intentional behavior conducted by an employee that creates damage for the organization. Some examples can be loafing, revealing confidential information, stealing, or harassing other employees.
Unfortunately, it is difficult to measure and quantify these categories. Getting objective data on performance to evaluate task performance is complicated. Organizational citizenship is not directly linked to any specific outcome or KPI, making it hard to measure. Counterproductive behavior is hard to detect, let alone measure. What does it cost when an employee reveals company secrets? How much does that lower that employee’s value to the organization?
One of the better ways to operationalize employee value is through a concept called Employee Lifetime Value (ELTV). The ELTV represents how much employees contribute to an organization over the full period of employment.
The ELTV focuses on five parameters:
1. The cost of the recruitment process
2. How quickly an employee gets up to speed
3. The level of an employee’s overall performance
4. The employee’s ability to grow within the company
5. The length of the employee’s employment.
The result is a graph like the one above, with the shaded area representing the total value an employee contributes to a company. It gives us a visual overview of what any given organization excels at and what areas might need improving, while allowing us to quantify the value and evaluate impact.
Analyzing the ELTV starts with a new employee at a company. A new hire’s value to the company is negative by default. This is because the organization has invested time and money in the recruitment process, but the employee has not yet contributed with any value.
For the entire onboarding period, new employees require help and guidance and will continue to cost more than they contribute.
Once the employee is up to speed they should start delivering in accordance with their level of ability. Some individuals have a high level of ability and will likely exceed targets. Others perform at a lower level due to lower ability. This will have a huge impact on performance and employee value—and inevitably the company’s bottom line.
However, performance can be raised when the conditions are right. A higher level of engagement, motivation, and support will impact employees’ performance, and therefore their value to the organization. It is important to note that a high performing individual who receives appropriate support is more likely to reach a higher output than a lower performer receiving the same support.
Different employees perform at different levels initially. But every hire has the potential to increase their output significantly. What exactly can an organization do to boost the average ELTV of employees?
The simplest way to enhance the value of an employee is to reduce the time needed to recruit them. Through a time and cost-effective recruitment process, companies allow a new employee to start with less negative value assigned to them.
Find candidates quickly
You need to get a critical mass of candidates as soon as possible. Make sure you’re using all the channels available to you from the get-go: LinkedIn, job boards, forced referrals, and even cold calling.
Implement fast and efficient screening
Screening can be extremely time consuming and prone to bias. But according to research, the most efficient way to screen candidates is through psychometric tests. These tests are 100% scalable, as they can be automated and require much fewer resources. They are also much more objective and predictive of future job performances compared to CVs and cover letters
If you come into an interview unprepared and ask questions according to the flow of the conversation, you’ll most likely be assessing the candidate’s ability based on your subjective gut feel. But by being more structured and asking all candidates fixed questions, you’ll have a more comparable basis to assess them objectively. This way, you’ll save time as it’ll be easier to rate candidates and there will be less dispute over who to move forward with.
Transparency in decision data
Make all data from candidate interviews available to everyone involved in the hiring process. This allows the team to make quicker and more informed decisions, and reject candidates who don’t make the cut—saving you time in the process.
Another way to increase your ELTV is to make sure that the onboarding process is as efficient as possible.
Hire more for potential than experience
Candidates with high potential are usually onboarded quicker than those with more experience. This is because every new job requires you to learn company-specific aspects of the role, negating past work experience of a candidate. Common traits among high potential individuals, such as high general mental abilities, being goal-oriented, structured, and outgoing, also allow them to utilize what they learn quicker and more effectively—even without years of experience.
Employ a strategic onboarding process
Plan the onboarding carefully. Structure it so a new hire learns things in a logical order. Ensure that all the knowledge the new hire needs to perform the job is handed over properly.
Include the right mix of education, learning by doing and social activities
A person can only handle a limited amount of new information in a day. The human brain works best if you alternate pure learning, building muscle memory around these learnings, and social activities to learn from the team. Mix up the program and don’t get stuck doing the same thing for too long.
Get new hires to run a project
Set a clear deadline when a new hire should be ready. Put them in charge of an actual project, so they can apply what they have learned. Upon completion, they can be considered “ramped” and onboarded.
Raising performance levels raises the height of the ELTV curve. This is one of the most important factors to maximize the value an employee can provide.
The right person for the right job
Different jobs require different traits to perform well. A technical role requires a higher mental ability to allow for quicker problem-solving. An HR manager needs a high degree of empathy and sociability to collaborate better within a team setting. Make sure you have the person with the right traits for the job. Having a person with the right traits for the job allows you to significantly increase performance output with minimal onboarding.
Once we have the right candidates hired, we need to ensure they continue to rise in performance over their employment period. A static ELTV curve is not productive for both the company and employee and will most likely end in a shorter employment period.
Frequent and transparent feedback
Research shows that performance levels increase when you set clear goals and increase the amount of constructive feedback an employee gets. No matter how well a new hire is performing, feedback will always make performance better.
You can also use feedback to encourage the behaviors you want on the job. Good feedback has also proven to increase employee well-being and employee retention.
The final parameter in the ELTV curve is to lengthen the time that an employee is actually employed. In larger cities in Sweden, the average time of employment has recently decreased from five to three years. Similar trends can be identified all over the world.
By extending that time span as much as possible, companies can increase the value each employee provides for the company, while also postponing inevitable spending on new recruitment and onboarding efforts.
Getting recruitment right is again the most important factor for retaining employees. Hiring for long-term potential, and analyzing what profiles thrive and stay in different roles are key to employee retention.
Live up to your company branding
It’s one thing to have good company branding. You also need to live up to what you promise. Candidates want to join great companies they feel a connection to, but are quickly disillusioned when expectations don’t live up to reality.
Have clear career progression
Communicate clearly defined career paths and opportunities available within the company with your employees. Ensure that you have supportive management policies to help them achieve their goals.
Connecting personal values at work
Allow your employees the freedom to pursue or express the values that are important to them—even if they are work-related. Examples include having flexible work hours, open dress codes, or sabbatical leave policies.
As you can see, the most important factor to raise the average ELTV curve (and increase the ROI of your recruitment), is to make sure the best people for the role actually get hired. The following table shows what research deems the most statistically valid selection methods for predicting the performance of a candidate.
Surprisingly, some of the most common methods, such as work experience or education, actually have very low validity when it comes to predicting performance. This is compounded by how time and effort-intensive it is to vet individual resumes—resulting in a very ineffective way to predict job performance.
The single best predictor of performance is having candidates perform a work sample test, where they can be observed carrying out tasks required for the position they have applied for. (Working on a case study or having a probation period are good alternatives as well.) Unfortunately, this is also one of the most time consuming and expensive processes to carry out, both for the company and the candidate.
The most time-efficient (and therefore, cost-effective) way to predict performance is testing for a candidate’s general mental ability and personality.
Testing candidates early in the recruitment process minimizes biases and results in a pool of candidates with actual aptitude and potential for the specific role. With these test results, companies can save time by looking at resumes of only the top candidates, rather than reading through resumes of all the applicants. There is also an added benefit of knowing that hiring managers are basing their selection on objective and proven research.
Using the most valid performance predictors does not mean excluding other evaluation methods. When used in conjunction with each other, you’ll be able to objectively identify candidates who are predestined to perform well in a certain role.
This also opens up the candidate pool to increased diversity and inclusion, when we choose to look past poor predictors like past experience in the early stages of recruitment.
Certain roles may require specific prerequisites, but by choosing to look at objective data first, one can use these parameters in the second selection rather than the first, ensuring that those with the necessary prerequisites will also be able to bring value back to the organization.
Evaluating employee value is difficult but important in ensuring a high return on investment for your recruitment. Putting a number on something as vague as value can seem daunting, but through the utilization of the ELTV curve, we can begin to have look closer at this crucial part of our bottom line.
When investigating employee contribution value, we need to look at parameters stretching from the recruitment process, the employee’s development and growth, all the way to the end of the employment period.
The most crucial step in ensuring a high return on investment is to be efficient and smart during the recruitment process. By increasing the efficiency of the recruitment process, utilizing valid performance prediction, and minimizing the initial cost of a new hire, we can increase our chances of hiring high performing individuals who will contribute a lot more to the company.
To summarize: Companies need to keep employee value in mind when hiring and use methods that have been proven most valid in predicting high performance. Companies also need to aim for the continuous development of their employees and retain their services for as long as possible, in order to yield a high return on investment for their recruitment.
Alva combines established psychology with the latest technology like machine learning and AI. Our tests are automated, validated, easy to complete, and can assess personality and logical abilities in minutes.
You can also see how a candidate fits into your current team, consolidate candidate evaluations from multiple interviewers, continue evaluating candidates even after they’re hired, and more.
Save time and effort, reduce unconscious bias, and build more dynamic and diverse teams with Alva.
Find out more at www.alvalabs.io
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