Human capital's measure for measure

Journal for Quality and Participation, The, Sep/Oct 1999 by Brown, Mark Graham

Each of these four factors needs to be given a weight, based on its relative importance. For example, you could make them each worth 25 percent, or weigh them as follows:

Level in the company: 35 percent Performance rating: 25 percent Variety of positions: 25 percent Years in field/business: 15 percent Each individual would then be given a score once a year based on these four factors. Three of the four metrics are hard objective measures, and performance rating is a subjective rating that comes from a performance review and might be based on peer evaluation, superior evaluation, and measurable performance on key objectives, such as sales and profits.

Using such a system, a marketing vice president that has been with the company for 18 years, has worked in manufacturing and HR, and is consistently rated as superior in performance might receive an overall score of 88/100.

The new worker that takes phone calls in the customer service center, who is two years out of high school and an average performer, might receive a score of 7/100.

Using such an index will tell a company about the strength of its team and give it a way of calculating the true loss of a key person to turnover. When a person quits the company, each one is counted based on his or her human capital score. Similarly, when a new person is hired, that person's score goes into the index. One would have to guess on the performance rating or take the word of previous employers. Another alternative would be to rate performance as a zero until the person has been on the job a year.

What this approach does not measure is the knowledge or competencies of your employees. It also does not measure values, ethics, or managerial expertise. Hence, it does not really provide data on the overall brain power of your employee base. If, however, that brain power is not translated into value for the organization, it is of little use to track it. The advantage of this approach is that it is incredibly simple, easy to understand, and fair because most of the index is based upon hard, objective measures.

A more complicated human capital index

An organization interested in measuring the level of competency or skill mix of its workforce might want to create a human capital index that looks at experience and competencies. The previous example simply looked at experience and job performance ratings. To construct a more complete index, you would first decide how to weigh the two dimensions of skills/competencies versus experience/performance. A good model might be:

60 percent experience/performance,

40 percent competencies/skills.

The weights might be reversed in an organization that needs to work on acquiring many new skills or competencies and is not as concerned with having seasoned employees. Once you've decided on the weights of the two factors, you can compute the experience/ performance side of the metric using the approach previously outlined. In other words, you measure factors such as years of experience, variety of experience, performance ratings, and job level. The competency side of the equation is a little more challenging.