Executives need to take a fresh look at their businesses and realize that in the parts that are people intensive, capital-based measures may not provide the insights they need. The risks of not understanding employee performance and failing to set up differentiated rewards based on value creation are substantial. Executives can avoid such problems by asking some basic questions:
- What kinds of business environments are we competing in? How important are people (as opposed to capital investment) to our success?
- If people make a significant difference, do we have people-oriented metrics in place to help us understand productivity and manage the business?
- In which parts of the company are employees most productive, and where do we receive the highest return from our investments in them? Do our current reward structures recognize employees who create value? Are these structures aligned with our business strategy?
- Are our employees focused on generating short-term or long-term business value? In business units that have a long-term orientation, do we need separate metrics to measure and reward employee performance?
- Is the performance of our business units interdependent? Do we have assessment mechanisms in place to measure managers’ contributions that depend on coordination with other business units? Do managers trust us to reward them fairly?
- Which companies compete with us for talent? Are our current compensation and benefit systems fully competitive? Do they adequately reward the people who generate the most value?
Workonomics: Measuring the Importance of People
by Felix Barber
Boston Consulting Group, March 21, 2001