The ROI of Human Capital: Measuring the Economic Value of Employee Performance, Second Edition

HOW TO MEASURE HUMAN CAPITAL’S CONTRIBUTION TO ENTERPRISE GOALS 53

fluctuation represent an increase in intellectual capital at

Goldman Sachs since the opening? Tobin’s Q would argue

that it does. I leave it to you. Does Goldman Sachs’s intellec-

tual capital fluctuate on a daily basis, or are we really look-

ing at the needs of investors (read gamblers)?

The H in H um an C ap ita l

We’ve discussed a set of financial-based human capital met-

rics. Now we have to balance it with a set of human-based

human capital metrics. Most monitoring of employee met-

rics is basically a body count. How many employees do we

have? What is the gender, racial, and ethnic mix? How many

affected class personnel are in managerial positions? All

that is fine, and it needs to be monitored for equal employ-

ment opportunity purposes, if nothing else. However, no

one has yet shown that a given mix of people correlates with

high performance. Before the diversity gods get me, I want

you to know that I am married to a Latina so I wholeheart-

edly believe that all people, regardless of any demographic

label, need to be cherished, supported, and helped to grow.

And I believe that a diverse workforce is better than a homo-

geneous one. My interest here is to look for metrics that will

tell us something about the effectiveness of certain human-

financial ratios in our operating systems.

Workforce Demographics

It is useful to know things like how many exempt versus

nonexempt people you have and what percentage of the

work is being done with regular versus contingent personnel

or is being outsourced.

Exempt Percent

The exempt percent is the number of exempt FTEs as a per-

centage of total FTEs. The proportion of your workforce

54 THE ROI OF HUMAN CAPITAL

that is exempt versus nonexempt tells you something about

the nature of your organization. If your employees are pre-

dominantly nonexempt, you are probably in the processing

business—building products, processing paper transac-

tions, or running some type of logistics center. If your em-

ployees are predominantly exempt, you are probably more

of a financial service, technology, or marketing business.

There are well-known examples of marketing companies.

Nike enjoys a major share of the sneaker market and a sig-

nificant piece of the sports apparel market. Yet it does not

manufacture its products. It is principally a marketing com-

pany. Fidelity Investments has a mix of exempts and nonex-

empts. It offers both a variety of financial services, such as

mutual fund management, and transaction processing

through its benefits and payroll businesses. Predominantly

professionals populate the investment advisory functions,

whereas the transaction processing services have a higher

percentage of nonexempts. Automobile manufacturers are

heavily weighted toward production workers, who are

mostly nonexempt. If one of them decided to sell its manu-

facturing facilities and focus on design and marketing, its

mix would flip.

In conclusion, knowing your mix is useful because you

can see it begin to move outside of acceptable levels. This is

what happened to many U.S. businesses up through the

early 1980s. The proportion of exempt to nonexempt staff

in manufacturing firms got out of balance and created a

breakeven point that made some companies noncompeti-

tive. This led to the downsizing tsunami. If we had been

watching the mix all along, we probably would not have ex-

perienced that pain.

Contingent Percentage

The contingent percentage is the number of contingent

FTEs as a percentage of total FTEs. The growth of the con-