Are you treating your employees as expenses, or investing in them as you would an asset?
This past week while I was traveling, I was reviewing posts from several of the industry Facebook groups that I belong to. Although most of them were pretty mundane, one particular post got my attention. In an effort to create conversation, one of our recruiting industry pundits made the following statement:
“If you want to align recruiting with the business & the bottom line, let’s remember that people are, in fact, never your greatest asset. They’re your greatest expense, by a pretty wide margin.”
As a business owner my largest monthly cash outlay is related to my people. Salaries, commission, and other payments made to our employees for the value they bring is something I take seriously and always view from a business perspective. Since the author of this post brings up “business & the bottom line,” let’s take a people from that perspective.
People as an Expense
First we will review the concept of expenses. In the daily course of doing business, there are many expenses we all incur. Buying a pencil, paper, airline ticket, or even a Facebook ad are common expenses. We spend the money, hopefully derive some level of return from the expense, and move on to additional expenses.
One accounting related website classified an expense in this way:
An expense is the reduction in value of an asset as it is used to generate revenue. When the underlying asset is to be used over a long period of time, the expense takes the form of depreciation, and is charged over the useful life of the asset. If the expense is for an immediately consumed item, such as a salary, then it is usually charged to expense as incurred. Common expenses are:
- Cost of goods sold
- Rent expense
- Utilities expense
When we consider expenses in business or even in our personal lives, how do we generally treat them? Its common to constantly try and decrease expenses to in increase profitability or available cash. We might make a decision to cut an expense like eating out, we might purchase cheaper flight options by flying a red-eye, or we might even try and re-negotiate a contract for a lower rate.
How do we address this from the people perspective? Wages are in fact an expense, but are people? If we treat employees as expenses, what could happen? Have you tried re-negotiating someone’s salary lower? What would happen if you cut people just to save dollars, negatively impacting your customers?
The idea that PEOPLE are an expense just doesn’t fit the definition of an expense from a business or any other perspective.
People as an Asset.
How do we traditionally view an asset? For those fortunate enough to own a home, you have undoubtedly realized that you need to invest time and money into the asset to maintain and in many instances, increase the value of the asset. Currently my wife and I are remodeling the kitchen in our 13-year-old home to improve its functionality and increase the value of the home itself. Since our home is a significant asset, it only makes sense to continue investing in it with hopes the value continues to increase. If we were renting the home, we obviously would not be investing many thousands of dollars to improve it, as the monthly payment would be an expense.
In similar fashion, a business may acquire a building or even equipment. To improve the value of the building, a smart business would invest in needed improvements, maintenance, and maybe even a simple paint job to increase the value of the building and create an environment conducive to operating their business.
One definition online indicates that “an asset can also mean anything that is of use to a business or individual.”
Let’s think about this from the perspective of employees. If we view our people as an asset to the organization, we will have a natural tendency to invest into our people to improve their value to the company. Leadership training, functional training, and other investments would not be made in an expense – only in an asset.
The Leadership Shift
The real challenge is that many leaders actually subscribe to the quote I began this blog with – “people…..are your greatest expense.” This mindset causes short term thinking and often views investments in people as discretionary or ancillary to the operations of the company.
Leaders that have created sustainable success in their organizations tend to have a consistent view of their people. They view that although they do not actually own people, they are the assets that drive the greatest return.
Investing in your people is more than just a financial investment. It includes investing time to train and develop them. Investing in opportunities to allow them to make mistakes. Investing in them by trusting them to perform. Investing in them by aligning them with the right individual position. Investing in them by creating an environment that rewards innovation and honest communication.
If you are responsible for contributing to the success of your organization (And we all are), the shift from viewing employees from an expense to an asset is key. Your view ultimately effects your actions and their performance!
As a leader of people, processes, or individual functions, its time to shift. We need to move from an employees as expenses mindset to an asset mindset in order to achive sustained success. Leaders at all levels need to embrace this and other incredibly important LeaderShifts including:
- Perks to Price
- Goals to Growth
- Profits as a Purpose to Purpose that Drives Profits
- And many others.
An investment in your people will create a significant return on investment for your business. Part of that investment should be in developing all leaders in your organization and at all levels. Developing and expanding the minds of leaders creates value for the entire organization through its ripple affect across the people they lead.
How are you investing in your organization’s most valuable asset?