Volume 16, Number 2 Article by Sundararaman Ramesh June, 2004
Award Winning Student Essay : How Much Value Does an Employee Create? Rethinking Firing Techniques :
In today's world, there is an ever-increasing need for firms to reduce their costs by eliminating their non-profitable assets. Firms that view their employees as assets employ techniques that help them in identifying and firing their non-performing employees.
Sundararaman Ramesh looks at the elimination approach currently employed by organisations to identify those employees to be fired. Vitality Curve, Up or Out Policy and Rank and Yank are some techniques that leading organisations use to rank the performance of their employees relative to a peer group. All these techniques rank the performance and potential of their employees along the bell and aim at identifying a certain percentage of employees who need to be eliminated. The application of statistical measures to employees' performance has several disadvantages. Efficient employees in super-efficient teams could get rated as poor, while average employees in inefficient teams could get rated as outstanding, thereby defeating the purpose of rating.
Ramesh suggests a new approach based on financial accounting of assets, which can be used to more objectively identify the 'chosen ones' within an organisation. The similarities between human resources and financial assets are first examined to verify the applicability of financial asset valuation techniques to human resources. However, using the compensation of an employee as a surrogate for the value created by the employee may not give the correct picture. Associated with each employee is a certain set of skills and expertise that compensates for the costs associated with that employee. An employee can thus be compared to and evaluated as Intellectual Property, a bond, common (income) stock, common (growth) stock, or an investment project. Unlike the forced ranking technique, these new techniques ensure that employees who are profitable to the organisation are not eliminated.
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