The Forum for People Performance Management and Measurement at Northwestern University and the Incentive Marketing Association’s Performance Improvement Council conducted research and wrote a whitepaper about ELTV (Employee Lifetime Value). They argue that just as companies build their efforts around CLTV (Customer Lifetime Value), e.g., the amount a car-buyer will spend on a particular nameplate over the course of his/her lifetime, they should seriously consider calculating an ELTV. They wrote:
The reasons are obvious – in the prevailing mindset, products and brands and, to a lesser extent, customers, have been regarded as the source of profit and value while employees have been treated as a cost. When a workforce is regarded as a cost, an organization seeks to minimize it.
Calculating an ELTV brings attention to the value that people contribute to the performance equation. No longer can employees be considered an expendable resource simply based on their cost. With ELTV, executives must consider the value that the knowledge and actions of employees contribute to a company’s bottom-line. The report goes on to present issues and concerns with actually calculating that value and coming up with a number, e.g., the high degree of fluctuation in work hours and job assignments over the course of employment.
I am intrigued by the concept of ELV, not so much the computation but more the way of thinking that it provokes. It’s like determining the ROI for training. Calculating the dollar amount saved or increased because of training requires consideration of so many variables and assumptions that, in many cases, it’s probably not worth the time and effort. However, the concept that training adds value in excess of its cost is extremely important to making decisions about that training investment. ELV is a similar kind of notion. That is, all of the caveats to calculating ELV make it no more than a rough estimate, but the fact that there is an ELV should be considered when hiring and firing people and when estimating the value of a business.