Formulas For HRs Effect on Business Results

No need for calculus. Here are five different -- and not too complicated -- mathematical formulas that calculate the effects of human capital on financial performance.

he formulas below offer a set of quantitative macro metrics linking human and

financial variables. 1. Human Capital ROI This measures the return on capital invested in pay and benefits. The formula is: Revenue - Nonhuman Expenses Pay and Benefits Pay includes all money spent on regular and contingent labor. 2. Human Capital Value Added This uses a similar formula to Human Capital ROI but divides by the number of full-time equivalent employees (FTEs). The formula is: Revenue - Nonhuman Expenses Full-Time Equivalents This yields a profit per FTE. These two measures are views of the profitability attributable to human effort. 3. Human Capital Cost This is simply the average pay per regular employee. The formula is: Pay + Benefits + Contingent Labor Cost Full-Time Equivalents It can be augmented by added in contingent labor. In that case, we would take total labor expenses, including benefits costs, and divide by FTEs, including contingents. 4. Human Economic Value Added This is net operating profit after tax, minus the cost of capital divided by FTEs, including contingent labor. The formula is: Net operating profit after tax - Cost of capital

FTEs

5. Human Market Value Added This divides market capitalization by FTEs, including contingents. The formula is: Market Capitalization FTEs