yes, your employees.
by steven e. sacks
the new fundamentals
skills, abilities and experience are the elements recruiters use to assess candidates who come before them. but what is interesting is despite a skill set playing a dominant role in the value that an employee brings to the organization, it may not be recognized as such. this is not a new concept. i came across research conducted in 1918 by harvard university, the carnegie foundation and stanford research center.
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the study discovered that almost 95% of job success comes from having well-developed soft skills (better referred to as life skills ) and people skills, while only 5% of job success comes from technical skills and knowledge — hard skills.
these statistics were extrapolated from the 1918 report a study of engineering education, published in 1918 by the carnegie foundation.
fast forwarding one hundred years plus, are the percentages at similar levels? then there is the issue of engagement. are employees as engaged as they have been? in other words, do they feel a connection to their colleagues, enjoy their roles and feel they contribute to their organization’s goals?
on the other hand, disengaged employees think negatively of their organization; have no relationship with the mission, goals and future strategies of the organization; and are not committed to their jobs. studies have discovered disengaged employees cost businesses $450 to $550 billion annually in lost productivity.
another study, this one by villanova university, has shown that disengaged employees can be the downfall of a new or established company, and this affliction does not discriminate as it relates to the age or size of the business. to ensure that the value contained in those skill sets does not go out the door, employees must be given “meaningful” work. it is widely known that younger workers want meaning and purpose from their jobs. otherwise, the loss of skill sets means lost productivity, among other matters.
what and how to measure?
what inputs would there be to measure human value? the traditional theory treats employees as just another type of raw material (though indirect in nature). in the distribution industry, value is measured by productivity metrics of speed and efficiency. however, human-facing occupations will have their own set of metrics. consider that each employee brings their own uniqueness, which when combined with institutional knowledge, should have its own measurement of value.
what if an employee leaves the organization? what is the actual loss to the company (and forget about the savings to the company in salary)? the longer it takes to onboard a replacement, the longer it will take for the new value to be created (as other costs increase). the cost of replacement and subsequent investment in a new employee to regain some stability will supersede the savings in salary, even if the starting salary is adjusted to break even in the first year or so. here is when the penny-wise and pound-foolish mindset should not make a cameo appearance.
after all, who would benefit from this misguided thinking? there is not currently an infinite pool of workers giving employers an advantage. what your business offers in terms of non-salary benefits, such as a flexible work arrangement, interesting work and professional and personal development opportunities, may very well become the deciding factors and the drivers of optimal employee performance and therefore, increased value.
engaging the team
one of the most important (and early) steps is to increase engagement. leaders should publicize the firm’s vision and values and goals with every staff member—at all levels—to serve as a career roadmap; and for some, a refresher. the organization’s strategic plan should also be shared with the employees so they can determine if and how to contribute to the overall goals. this ensures that an individual’s efforts are geared toward a desired result. how its value is measured is dependent on the nature of the work.
this is where it all gets murky in trying to quantify something that either has never been considered or that is really qualitative in nature.
who defines value?
the concept of value of a human takes on some guesswork as discussed during an npr podcast titled how government agencies determine the dollar value of human life. this was during the covid pandemic, and, while it is a bit unnerving, there had to be a starting point.
aside from that let’s direct this discussion to cpa firms. consider a senior partner who is looked upon as a great mentor and coach and has a strong empath gene. he is a role model to the younger staff and a confidant to those under stress. however, as far as bringing in new business, uh, not so much.
compare this with a senior manager whose engaging personality and insight has positioned him as the firm’s top rainmaker. however, as for running profitable engagements (not the case) or training/mentoring his direct reports (“i don’t have the time”), he’s not your guy.
this is one example of the many issues to be considered when trying to establish some baseline measurement of value as a starting point for creating a sensible compensation program.
if employees are an organization’s most valuable asset, does this mean they can be measured? the old adage “if you can measure it, you can manage it” means leaders will now have a greater challenge to value, nurture and reward these assets using a sensible, logical and rational approach.
each employee is an intangible asset. in contrast to physical assets like property, plant and equipment, employees don’t depreciate (i am not factoring sports figures in this). in fact, with accumulated experience and knowledge, employees increase in value. of course, if an employee becomes disengaged (think of a valuable piece of equipment that needs a major fix), how will leadership respond when the employee’s value needs maintenance?
i wonder what will happen when those robotic-driven industries of the future experience breakdowns. who’ll be around to repair them? will humans then become part of the balance sheet and be labeled as intangible assets?
perhaps.
but it sounds better than being referred to as raw materials.
more takeaways from steve sacks
- the common claim that employees are an organization’s most valuable asset is not always demonstrated in daily practice. how to define value and then measure employee value considers intangible value (e.g., mentoring training, campus recruitment, community-based events) as well as tangible value (e.g., billable hours). when you consider the expansion of private equity into the accounting profession, perhaps the definition of employee value over time may come into sharper focus.
- qualifiable metrics cannot easily be identified, let alone measured.
- value goes beyond the time-worn metric of billable hours.
- what does the credo “our employees are our most valuable asset” mean? will they get a real place on the balance sheet?
- human intervention will still exist in an era of artificial intelligence.
- there are such simple ways (and benefits) to build trust with your employees even if at some point they leave your firm.
transcript
(transcripts are made available as soon as possible. they are not fully edited for grammar or spelling.)
steven sacks 00:01
hello, my name is steven sacks, cpa. i’m here with david bergstein cpa, in one of our semi-regular discussions on topics of interest to those in the accounting profession. welcome, david.
david bergstein 00:16
thank you for having me. i appreciate being here.
steven sacks 00:18
you know, leaders say that employees are the most valuable assets. is there such a time maybe in the future, when supposedly robots will take over for humans, but you still will need human interdiction to, or i should say, human intervention to fix any breakdowns? will employees then have a place for themselves on the balance sheet? just like property, plant, and equipment?
david bergstein 00:53
great question, steve. i think i read a book. i think it was the future of the profession. by sussman and sussman or susskind and susskind out of the uk a while ago, which talked about robots taking over. but there will always be a need for humans unless you give the — we’ll call it the robot enough thinking power to attack the the individuals or the humans, and then we’ll sort of get back to what will smith movie in those days, depending on artificial intelligence, etc. i think there’s always a need for humans. and humans want to keep the upper hand as they build machines that think for themselves, and that learn by doing.
steven sacks 01:43
why couldn’t humans be part of that balance sheet as well? which, which leads to much broader question of how do you value employees?
david bergstein 01:49
i guess you look at it, you’re hiring an employee. and it’s a revenue expenditure. it’s a revenue expenditure by what you’re writing off in the wages, but you’re also contributing to their 401-k. you’re also contributing to their education if you’re paying for their schooling or continuing education. so you do value your employees. but again, it’s a thing it’s a two-way street. the employer values the employee for as long as the employee can give value in most cases.
steven sacks 02:27
who’s to who’s to say what value is? i mean, because it’s so simple for leaders to put together quantitative metrics. yes, performance measurements, and, and and an example, let’s say productivity in terms of amazon, how they’re they’re measured per hour. but what about qualitative metrics?
david bergstein 02:51
well, i think it goes both ways. but i think the reality of the world here, and this is really, where we get into sometimes politics or sometimes beliefs. when you’re running a company, you have a mission statement. and a mission statement sets out the purpose. and then you have a strategy to accomplish what you’re going to do. and you run down to different levels of what you’re going to do. from high, from top to bottom, bottom to top. everyone has to fit into a mold to perform a function. do people change and adapt to new roles? the answer is yes. but there is a point where you part company. maybe that’s what’s happened with our society today as baby boomers used to stay on a job for a long period of time. now, people are doing jobs switching every two or three years. but technology is changing. rules are changing.
steven sacks 03:46
attitudes, attitudes are changing. yes, there’s no more 40-year career, get your rolex have a nice day. but you know what? it’s not so much technology. it’s, it does play a role. but there’s attitudes, there’s leadership techniques, there’s a whole multitude of factors of why people jump around from company to company, especially the younger people. but how do you — your upfront cost, the training, the professional development, these are expenses, and you’re saying, oh, i paid $10,000 for dave bergstein’s education so far. now, he’s on engagements, etc. and then a year later, he leaves me. now did i gain from david during his one year with me? or did i shell out $10,000 and sort of like underwater if you will, you know, with dave bergstein?
david bergstein 04:55
well, it depends, you know, if you invested in an employee in an accounting firm. they work in the accounting firm for three or four years. and then they decide they don’t like public accounting and go into industry. if they go there with a good feeling that you educated them, help them and train them, what comes back to you as the accounting firm is the recommendation that that business goes with you as a client. in a lot of cases, you’re building goodwill. i think you’re always got to look on the good side. if you’re an employer, you want to hire the best employees you can. you want to hope they stay with you, and you hope you provide them with guidance and a great work environment. but if they outgrow it or change, you hope to have goodwill towards you, and take that with them where they go. because then you get — you’re reaping the rewards, because they remember you as the one that helped them, educated and also told them to do what’s best for you in the long run.
steven sacks 05:52
as we talk about value, measuring and the qualitative and quantitative metrics, let’s address the issue now of private equity’s increasing role in the accounting profession. and how does one assess what the value is of an accounting firm measuring the value of each employee? what are they actually measuring?
david bergstein 06:20
interesting question. from my point of view, there’s two things to look at, if you’re going to make an investment in an accounting firm. and say, again, the purpose here is to divide it up. put the attest function on one side, which is the recurring revenue, and take advantage of the consulting revenue and advisory services on the other. so, if i were the private equity firm coming in, i’d have a pre-established set of metrics that i would have probably got from data analytics, of analyzing the profitability of the various services.
steven sacks 06:57
but do you think though, is going to happen when private equity comes in and assesses the viability of the firm as an investment? what are some areas within the existing operations of cpa firms that are vulnerable to cutbacks, reductions of some sort, reallocated resources between different service lines? what are some of the things that may occur?
david bergstein 07:31
not different than someone hiring a cpa firm to go value a business that the client wants to buy. you’re going to look at the business, you’re going to look at the different departments within that business. you’re going to say, hey, this department makes money. this department doesn’t. they’re manufacturing this, and that’s profitable. they’re selling this is not profitable. so you look at a cpa firm, what services does the cpa firm offer? what services are profitable? they always say payroll is not profitable at a cpa firm. and i know you’ve been with some cpa firms, that had their own payroll services and then shipped it out to somebody else to do to be more profitable. so you have to look at the service lines, and what are the profit margins for each service lines? what are the costs to the service lines? you know, cybersecurity? blockchain developers? should a cpa firm be investing heavily in developing software? or should they be outsourcing or buying somebody else’s prepackaged software somewhere else?
steven sacks 08:38
making the investment. excuse me, if i’m making the investment in the company, and i’m dealing with the managing partner and i may say, you know, you do have the intellectual capital inhouse, you need to maybe expend more resources to grow it. you may go to some other partner and say, nah, this is this is not working out. how will that work out? how can you at least retain some value within those areas and not completely dispense with one?
david bergstein 09:20
it’s a negotiation. you know, it comes to give and take. and people have to you know — everyone will give their own logic, they’ll give their own facts across the board, you gotta analyze them, and you make a decision based on what’s realistic. so, everything is dependent on this. i use the old irs saying: everything depends on the facts and circumstances of the individual firm.
steven sacks 09:44
it’s coming full circle. that’s why it’s — it’s kind of difficult to embrace all that you normally would in terms of valuing businesses because now you’re valuing employees as assets too.