Human Capital Measurement

OVERVIEW: Most knowledge-intensive organizations recognize that their source of competitive advantage comes from human capital. Yet few reliable metrics exist for measuring its value. A new metric draws on actuarial principles and replacement cost to estimate the expected economic contribution of individuals to an organization. The metric begins with an employee's wages plus benefits and then incorporates a series of additional costs: separation and sourcing costs; job vacancy costs; learning curve opportunity costs; and new hire risk costs. Factors such as employee tenure and age are also considered. The metric has many potential applications, from sizing retention bonuses for individuals to estimating a minimum return on people for an entire business segment.