The ROI of Human Capital: Measuring the Economic Value of Employee Performance

The ROI of Human Capital: Measuring the Economic Value of Employee Performance

The ROI of Human Capital: Measuring the Economic Value of Employee Performance

The ROI of Human Capital: Measuring the Economic Value of Employee Performance


"We all know that people--not cash, buildings, or equipment--are the lifeblood of any business enterprise. Yet, astonishingly, there has never been a reliable way to quantify the contribution of human capital to corporate profit...until now.

In The ROI of Human Capital, Jac Fitz-enz draws on years of quantitative and qualitative research by his prestigious Saratoga Institute to provide a breakthrough methodology for measuring the bottom-line effect of employee performance. A prolific author, whose previous work includes Human Value Management, named Book of the Year by the Society for Human Resource Management, Fitz-enz has also been called ""the father of human performance benchmarking.""

This new book offers a rare blend of management expertise and quantitative metrics, showing executives and HR professionals how to gauge human costs and productivity at three critical levels:

• Organizational (contributions to corporate goals)

• Functional (impact on process improvement)

• Human resources management (value added by five basic HR department activities).

With today's employee costs often exceeding 40 percent of corporate expense, measuring the value of this human capital is essential. Here, at last, is a resource that reveals how to do it and that helps managers determine how to invest most effectively in human productive potential."


The Missing Piece

The classic books of management have ignored, avoided, or thrown platitudes at the question of human value in the business environment. When and if the authors did give passing attention to valuing the human contribution, their comments were either gratuitous or simplistic. Nineteenth-century capital theory claimed that wealth was leveraged from investments in tangible assets such as plant and equipment. It held that workers were entitled to compensation only for their labor, since the incremental values of the business came from investment in capital equipment. This type of thinking lit the fire under people like Karl Marx and Samuel Gompers. From the early work of Fayol and Barnard, which supported this thinking, to the more enlightened insights of Drucker, Peters, Handy, and others, no one has successfully taken on the challenge of detailing how to demonstrate the relative value of the human element in the profit equation. Invariably, writers attempting to do so have opted out at the last minute with weakkneed excuses for not closing the loop with specific examples. The only exception has been some of the human resources accounting work, and that has not been accepted as a practical management tool.

The term human capital originated with Theodore Schultz, an economist interested in the plight of the world’s underdeveloped countries. He argued correctly that traditional economic concepts did not deal with this problem. His . . .

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