On a course recently, the trainer repeatedly used the example of you giving him a pound or a dollar and receiving 5 back. He confirmed that you would happily keep giving him money as long you received the same return. He pointed out that it was an investment, and that if you begrudged the 'cost' of the pound or dollar you were under no obligation to give it to him, but you would have to forego the return.
Of course this was very simplistic, but it illustrated the point very well. Thinking about it afterwards, it struck me that no sane businessman spends money without expecting more back for it than he outlays. This applies to ALL expenditure in any for-profit business, including people costs.
Thus it follows that, when it comes to salaries and wages, your payroll costs are effectively an investment in your people and you naturally expect more in return than what you outlay. This has two significant implications.
- The outlay being less than the true value of your people creates an inherent source of conflict, because individuals not only intuitively recognises that they are being paid less than their value, but are also likely to value themselves at more than you are paying them.
- Dispensing with people may be analogous to withholding your pound or dollar in the earlier example. It is your choice, but it takes value out of your business that diminishes your short-term earnings potential and that could have an even greater impact on your long-term prospects.
Unfortunately current accounting practice assesses people only as a cost and so does not directly recognise the investment aspect. This exposes you to a significant, and often unrecognised, risk when making decisions about people. People are truly your greatest asset and it is no longer good enough to "fly by the seat of your pants" on these matters. It is essential that you start managing them more effectively and that starts with formally valuing them as assets and treating them as such.
For starters valuing people openly would:
- Introduce an element of consistency and objectivity that is currently missing
- Eliminate much of the latent dissatisfaction with present 'hidden' valuation and the jealousy and dissatisfaction it causes
- Provide a more realistic basis for valuing people contribution and thus for assessing rewards
- Perhaps remove some of the disparity of earnings that adds to the general dissatisfaction and disengagement of your workers
- Facilitate greater organisational teamwork.
What benefits do you see from this approach? And what drawbacks?