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Managing Your Human Capital Portfolio
Created by
Tim Rutledge
Content
<p>Managers overseeing the performance of others need to start thinking of themselves as investment managers. Few managers think of their employees as investments, but that's what they are, especially since employers will no longer have the luxury of treating employees like commodities or replaceable parts.</p>
<p>For as long as anyone can remember, the job market has been a buyer's market; that is, there have been more job seekers than jobs. We've been in a broadly based buyer's market for the past 50 years and that's long enough for people to behave as though this circumstance is permanent and to forget that it's actually a dynamic market.</p>
<p>But evidence is mounting fast that the job market is poised to flip over from a buyer's market to a seller's market and employees will soon have the upper-hand over employers. Replacing departed employees, especially good, top performing ones, will be expensive, because, as the real estate people say, there's not enough inventory on the market. The new priority for managers will be to identify the key employees that you have today and retain them.</p>
<p>All managers need to manage the investment that their company has made in its employees. As managers we're more inclined to <em>not</em> think of employees as investments, largely because they're jotted down as costs in the ledger. But managers have the responsibility to manage the investment their company has made in these human capital assets because if they resign, it's very possible that given the current climate of the job market, they may end up being irreplaceable.</p>
<p>Therefore, there are two things all managers have to do as "investment managers" of their talented employees:</p>
<ol type="1" start="1">
<li>Make the unproductive employee productive.</li>
<li>Extend that productivity over as long a time as possible - this is retention.</li>
</ol>
<p>Managers have often viewed their management responsibilities as being mostly confined to the task of making new employees productive, or, as we sometimes say, bringing the new person up to speed. This involves training, coaching, observing and giving feedback, including the feedback that declares the employee to be fully trained and productive.</p>
<p>At this point, managers often feel that their management responsibilities are over, or they should be. If an employee requires a management intervention of some sort after his or her initial training, managers may be resentful and label the employee as being "high maintenance."</p>
<p>But making an employee productive is merely the first phase of the manager's job. The next phase, the one that never comes to an end, is to take the productive employee and manage his performance so that he's productive over time, year after year. This constitutes managing employees as investments and ultimately retaining them.</p>
<p>Retention is more cost-effective than replacement. While estimates vary, it's safe to say that the cost of replacing management-level employees will cost you 150 per cent of their salary. So, if seven people depart your organization in a given year, and their average annual salary is $90,000, the cost of replacing them is almost a million dollars! Tell me, does your company budge for such an expense?</p>
<p>So, how does the need to retain employees make the manager an investment manager? Some investments, like certificates of deposit, are low risk and don't really have to be managed at all. The investor, therefore, trades peace of mind for a low return. But other riskier investments require more attention in order to ensure a higher return. Employees fall into this latter category of investment risk and this is why the manager's job doesn't end once the employee becomes productive. Employees are high risk investments capable of high rate returns; therefore, if you want your investments to deliver on their high returns then you need to continually manage them.</p>
<p>Traditionally, managers haven't been rewarded for having good people management skills, and they haven't been reprimanded for their lack of people management skills, either. This ambivalence suggests that people management doesn't matter, even though this is hardly the case. All managers need to sharpen their people management skills if they don't want to lose their top performers.</p>
<hr>
<p>Tim Rutledge, Partner, Retention Services, is a veteran Human Resources Development practitioner with a background in financial services, manufacturing and health care.</p>
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