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Employee Lifetime Value—The People Impact on Financial SuccessÂ
An Executive White Paper Developed By
Introduction
The global economy is in the midst of a radical change from a product-based economy to an information and service economy in which value creation is focused on people, and their intellect and institutional knowledge. In this new environment, workforces, not physical assets or technology, are the real value creator.
According to a Brookings Institute study, nearly 85 percent of a company's assets are related to intangible capital tied up in knowledge and human talent. Given the impact of people on a company's profit and overall financial performance, it is extremely important to find a way to measure the long-term financial contribution of employees.
Organizations need to be able to measure the value of people, and need to understand the value of people over extended periods of time in order to make intelligent decisions about how to invest in their employees and to ensure they are appropriately valuing their workforce. The concept of Employee Lifetime Value (ELTV) is a long-term metric with insights on measuring the financial value of an employee to an organization.
This white paper reviews the concepts, metrics, and applications of employee lifetime value so that employees can be viewed as contributors to the cash inflow of organizations. We consider issues such as recruiting, hiring and retention. We also show how ELTV links to qualitative measures such as employee satisfaction, engagement, and loyalty, as well as more traditional measures of employee performance. The overall goal is to demonstrate how ELTV, much like the parallel customer lifetime value (CLTV) framework, fits into a strategic approach to management that considers employees and their behaviors the primary drivers of success.
