Traditional business performance measurements that are widely in use continue to reflect the capital-driven industrial styles of the last century. While there’s nothing inherently wrong with these metrics, they may not fully capture the performance picture of companies that are organized around a 21st century knowledge workforce.

Today’s standards of generally accepted accounting principles (GAAP) are unquestionably the primary metrics for evaluating performance. Moreover, they contain some stipulations that require strict adherence. And so for the majority of companies, GAAP drives organizational behavior and decision-making. Capital investments are amortized, while many intangible investments are expensed.

But is there room for other methods that also measure the wealth generated by employee contributions? Can a people-oriented organization or service company measure the value of its human capital? 

Success in an ever-challenging marketplace requires a stronger focus on talent-centric performance. As such, measuring the financial performance of today’s modern organization requires new thinking – and perhaps some new metrics.

The people-performance link

Focusing on the growing importance of talent and accounting for such intangible assets can cause uncertainty and unease for many companies. After all, employees represent both the major cost and the major driver of value creation. Likewise, measuring performance based on employees requires collecting and using more people-specific information.

Yet even without detailed data, there are several basic metrics related to a return on employees that organizations can consider adopting right alongside their ROS, ROA, and ROI measurements. Instead of calculating economic profit using a capital factor, these formulas use people as a denominator.

• Revenue per employee. A company’s total billings divided by the total number of employees. It indicates how much revenue staff produce, and gives some measure of whether the business is generating adequate sales relative to its assets and people. Improving productivity may increase this number.
  
  
• Cost per employee. Total expenses divided by the total number of employees. Improving productivity may decrease this number.
  
  
• Profit per employee. The difference between billings and expenses equals profit. Companies with a high valuation of intangibles can create wealth by increasing profit per employee, or increasing the number of employees earning profits, or both.

Modern metrics

Employees are critical resources for every organization. Measuring and managing business performance based on their contributions can involve an intricate set of newly developed metrics or simply a straightforward look at the numbers right in an organization’s accounting statements. Either way, competing in the 21st century requires that companies assess the value of their talent and address performance and productivity relative to people assets.