06/ 28/ 2007
by Jeffrey Moses
It's important for a small business to be constantly aware of what employees are worth in actual dollars. This information provides the basis for determining salary and whether the company should take on additional employees or let some go. The following two examples illustrate this principle.
A successful Midwest jewelry store had a manager with diverse responsibilities. He functioned as the store's bookkeeper, balancing the books as well as writing checks for salaries, utilities and suppliers. He took inventory and ordered supplies, including jewelry mountings and precious gems. He sorted and graded the gems when they arrived and coordinated the jewelers who assembled much of the store's inventory. And he was frequently called to the front counter of the store to wait on customers when the sales staff was overwhelmed.
When this manager gave two week's notice and left, the store's owner thought it would be easy to replace him. But it turned out that the individual, who had worked his way up from a sales position, was greatly underappreciated. Within a month, two people had to be hired to take over his job--and eventually a third person was hired just to handle the bookkeeping. In essence, the manager had been doing the work of three people. He started his own small business and, not surprisingly, has been highly successful.
As an example from the opposite extreme, an investment firm that worked with clients primarily by phone had a manager who oversaw 10 to 12 sales reps. The firm had three owners who spent most of their time working with high-end customers.
When the manager had to leave unexpectedly because of family concerns, the owners scrambled to replace him. A week went by, and the manager was hardly missed. Another two weeks passed, and the owners decided not to hire or promote someone to replace him. It turned out that in the day-to-day working structure of the firm, one or more of the owners was always available to answer questions for the sales staff. The manager had been an unnecessary cog in the machinery, and his absence made additional funds available for marketing and equipment upgrading. It also let the owners become more involved in day-to-day operations.
These two extreme examples--one in which a manager was highly undervalued and underpaid and the other in which a manager was hardly missed when gone--show how important it is for a company to understand the financial worth of each employee.
Steps to determine value
The most direct way to determine the financial value of an employee is to simply compare the salary of the employee with those who have comparable positions in similar firms. But this misses the point illustrated above. An employee may have distinct and unique value, based on his abilities and experience and the unique structure of the company. Consider the following methods to determine value.
- Perhaps the best way to determine an employee's financial value is to make a list of his responsibilities and tasks. Evaluate how well the employee carries these out and, based on this, determine if he could be easily replaced if he suddenly left. If the employee would be difficult to replace, you may want to consider increasing his salary. (In the case of the exceptionally efficient and experienced manager mentioned above, an increase in salary of only 25 percent or so might have kept him at the store.) If you determine that an employee would be practically impossible to replace or would require several people for replacement, you should consider an even greater salary hike. Of course, the opposite can occur, and you may determine that an employee may be easy to replace or even completely dispensable.
- If your company seems to be more profitable than expected, considering the business' size and type, the reason might be because you have one or more highly competent employees. If so, it's important to recognize them and do what's necessary to keep them. If it seems that your company should be more profitable than it is, you may have one or more employees not pulling their weight.
- Exceptionally effective employees are usually recognized by their associates. When you suspect that an employee is exceptional, ask about them. The suppliers, customers, coworkers and others who come in contact with the individual regularly will be able to point out strengths and weaknesses.
Each employee is worth a specific dollar amount to the company. In the case of sales staff on commission or partial commission, the amount works itself out automatically. But other employees in the company not directly connected with sales might be worth much more than you're paying them--or much less. By recognizing these individuals and adjusting their salaries, you can assure your company the greatest chance of ongoing profitability and growth.
