1. If you were to estimate the revenue that this employee helped generate in the past year, would it be greater than her salary?
2. If this employee was to voluntarily leave tomorrow, would you replace her?
In this particular case, my client answered both questions “No.” Those replies are loud signals that a change needs to be made.
If you look at many company mission statements, odds are pretty good that you’ll see some phrase like, “People are our greatest asset.”
The truth of the matter is, your people are your greatest liability. In financial terms, the amount you spend in salary, benefits, equipment, training and other employee-related costs probably dwarfs other costs of doing business.
Employees can be liabilities in non-financial ways. How many of your people need hand-holding, coaching, training, reassurance, corrective action? How many of your people have work habits that interfere with overall productivity? How many of your people are chatter boxes who waste not only their own productive hours, but also the productive hours of anyone they’re able to rope into a good gossip fest? How many refuse to follow process, no matter how many times you ask-tell-demand?
Now it’s also true that each employee adds at least some value, and is therefore an asset. Even the least skilled and motivated might handle tasks or help get work done in a pinch. Those with moderate competence are steady, reliable and useful. And of course there are all-stars who seem to rise to every challenge you throw at them.
So the question a manager has to assess for each employee is: net asset, or net liability? Think of it as placing the employee on a balance scale, or teeter-totter. If the cost of maintaining them about equals the value they contribute, this employee “breaks even” and at least is not draining the enterprise. This might be especially true for newer employees who have to learn subject matter, processes, how things get done around here before they add maximum value.
With sales people, assessing the asset-liability question is easier than with some other roles. Although there are exceptions, in most sales organizations it is clear how much a sales rep contributes in terms of revenue, and their salary and other costs are also pretty easy to roll together. Operational roles are relatively easy to assess when metrics exist to demonstrate output and productivity.
Other roles are more difficult to measure. What is the contribution in terms of revenue or profitability of someone in finance, marketing or HR? What is the contribution of a manager or executive who does not sell or make, but rather leads, coaches and directs? But even these “squishy” roles can be rendered into financial terms with good assumptions and by evaluating alternative costs. For example, if you outsourced HR functions, what would that cost you? If you don’t know, get some bids from HR consultants. And let your HR department be part of that value assessment.
Going back to the mission statement, my editorial tweak would be as follows:
“Great people are our number one asset.”
With great people work gets done on time with extraordinary quality. With great people you spend little time coaching performance and inflicting consequences. Instead you provide fuel, ammunition and direction and then sit back and watch them make things happen. With great people there is a strong sense of teamwork, of being part of something special. With great people the company develops a reputation that attracts customers, as well as other great people who want to work there. With great people you are delighted to incur the liability of salary, benefits, etc. because they pay that back in multiples.
In your company, or your department, if you place each employee on the scale, which way does the scale tip?
For employees who are net assets, you may want to think about retention strategies – more money, faster promotion, more visibility.
For employees who are net liabilities, and before you terminate them, look at the context. Are they clear about what’s expected? Do they have the training and resources to succeed? Are you evaluating them fairly? Are there short-term obstacles they could overcome to eventually become net assets? If they refuse to improve with time, then reassignment or termination are in order.
I know that firing and hiring are among the least enjoyable tasks for many managers. The client referred to at the beginning of this post knows he should terminate the employee in question, but will probably not take that action for some time. It is always tempting to rationalize keeping a mediocre performer: “As bad as they are, we could get somebody worse.” But a powerful leader will continually strive to upgrade the talent on the team. And if the economic downturn has one silver lining it is that more and more strong performers are now looking for jobs!
One final thought: while you are assessing your employees, it might be worthwhile to put yourself on the scale. Are you a net asset or net liability?