Employees impact the financial success of organizations. Decades of data have been collected from thousands of organizations across virtually every industry, and the results are clear: The average value that an employee adds to their organization varies by about 40% of their salary.
In practical terms, this means that high-performing employees add more value to an organization than the typical person in their field.
How much more? Given that this value is about 40% of salary we can estimate the average value of high performance as a dollar amount. For example, a high-performing employee in a $50,000/year job on average creates an additional value of:
$50,000 × 40% = $20,000/year
The value added by the highest-performing employees in a given field is even greater than this.
A recent analysis of over 600,000 workers across a wide variety of occupations and industries estimates that the value added by the top 15% of performers in a given field can be 3.5 times greater, and the value added by the elite “best of the best” top 1% of performers can be 12.5 times greater. If you are able to snag a top 1% employee for a $50,000 a year job, he or she might add up to $250,000 of value to your organization each year.
Now might be a good time to mention that high-performing employees continue to pay off over time. Consider the total number of high-performing employees that can be placed in an ideally-staffed organization and the amount of time that each works there—the potential value added can be staggering!
How can we find the people that will add this value? There is no perfect solution, but some criteria out there are clearly better than others. Check out this page on our website for a critical comparison, and a list of further references.
Of course, not all employees stay with an organization as long as others. The ability to select high-performing employees that stick with an organization reduces costs of turnover (re-staffing and training, losses in revenue and productivity). These costs can range from 50% to 400% of annual salary for a given position, but also vary considerably by industry and type of position. Positions with repeated turnover can face these costs repeatedly over time. The Society for Human Resource Management (SHRM) provides a nice primer on turnover here, along with a worksheet here (from the US Department of Labor) for estimating costs more specifically within a given organization or industry.
The risks of a bad decision are well known. Your best bet is to use the right criteria in the first place when making hiring decisions. I would also suggest this article for some interesting thoughts.