Employee Development: How to Invest in People and Boost Your ROI

To say the pandemic significantly changed the way we work and live would be an understatement. Its impact is apparent in the middle of a dysfunctional labor market, with a profound shortage making it difficult for businesses to grow. 

This means employee retention has never been so critical to your bottom line. As billionaire Richard Branson once said, “Train people well enough so they can leave; treat them well enough so they don’t want to.”

This takes time, resources, and effort, but if you do it right, the returns will be more than worth it.  

An analogy: If you put a powerful new engine in your car, that engine will generate more power when you drive. If you ever sell the car, the new engine will increase the car’s market value. In the meantime, the car’s current performance improves. As a business owner, you don’t have a literal engine for generating value — you have employees. Always look for ways to improve their work power in ways that pay off now and when you decide to sell your business.

A Bird in the Hand

Did you know: every time a business replaces a salaried employee, it costs six to nine months of salary to recruit and retrain a new employee? For an employee making less than $30,000 per year, turnover can cost over $3,300. For an employee making $50,000 per year, the cost can exceed $8,000. And for an executive making more than $100,000? The cost can be double their annual salary.

Turnover has a greater impact on your business than recruitment costs. It forces current employees to take on extra work to make up for the loss in manpower, leading to burnout and poorer results. It causes current employees to question their own job security or disengage from their work. Recruiting and onboarding also take time and focus away from meeting other business objectives.

Career development is often cited as a reason that people leave their jobs. Employees want to grow, learn and continue to feel valuable to a company. It is much more effective and financially sustainable to provide additional development opportunities to current employees than it is to frequently rehire and start from the beginning. Training those who already have an understanding of the job will cost thousands of dollars less in comparison.

Ways to Invest in Your Employees

The classic way to invest in your employees is through additional training. This is still very important today, but businesses can now accomplish this more cheaply and more efficiently than before. Strong and innovative companies leverage technology, knowledge, and creativity in their training programs. Some examples of steps you can take include:

• Use Online Courses: Many companies offer affordable online courses in areas such as Marketing, IT, Human Resources, and Excel.
• Develop Your Own E-Guides: Rather than complex manuals or web pages, focus knowledge into customized company e-guides that are always accessible.
• Highlight Good Employees: Your best performers are often the best trainers, even if new employees only observe. If possible, offer incentives to good employees for training others.
• Encourage Self-Training: Not all employees love to learn. Try to create a culture of learning and innovation. Reward new skills and try to identify employee interests.
• Use Networking: Help you talent invest in the right relationships by providing support, insight, information and feedback to reinforce that you care about who works with you.

Cultivating a Culture of Pride

Your investments are more likely to stick—and more likely to keep growing stronger—if you can cultivate a culture of pride among your employees. This is directly related to the concept of worker empowerment, which means trusting your staff with enough power to make them feel like they have some skin in the game. You want them to have a sense of ownership, control, and personal investment in the company.

These aren’t just HR tricks. Studies consistently show that motivated and confident employees are more productive. Businesses that engage their employees quadruple their earnings-per-share growth compared to competitors. They improve productivity, have better retention, and have 21% higher profitability. 

Investments in employee capital should grow business equity. If you combine a trained, motivated workforce with good networking systems, you should be able to sell your business at a higher premium.

Employees with enough pride and empowerment might be willing to “buy” the company through an Employee Stock Ownership Plan (ESOP), which offers shares of the company to its workforce. This motivates employees to have and own an interest in the company, thereby motivating them and ensuring your company’s continued growth even after a sale.

When Investing in People Makes Sense

Workforce investments are not a panacea. Avoid making decisions without considering their prospects for success, as well as the opportunity costs involved. To take an extreme example, you wouldn’t commit 100% of next quarter’s revenue to new training programs. Instead, you want a good return on investment (ROI) from your employee investments.

Measuring ROI of Employee Development and Training

With training programs, you can utilize work logs or other qualitative assessments. Programs that don’t generate enough improvement should be adjusted or shuttled in favor of better ones. These are probably the easiest investments to identify cause-and-effect relationships.

With networking, a culture of pride, and empowerment investments, measurement is trickier. You may have to rely on observations, self-assessments, team reviews, etc. Emphasize communication between coworkers, managers, and executives. Each employee has very specific and localized knowledge about what makes their job better or worse, and they should know if an investment shows promise.

Fortunately, industry associations and other peer network groups probably include owners or managers who have already tried these techniques. Use your professional network (or even the internet) to search out investments with proven track records.

Considerations for Employee Retention

Pay attention to workforce demographics. Succession planning means, in part, making sure that all the key people aren’t lost or growing old at the same time. Much like an apprenticeship system, more experienced workers should impart knowledge to greener workers. Your investment in people gets re-invested this way.

Workers with higher skills command higher wages, on average, than workers with lower skills. Ideally, an investment in an employee means more revenue for the business. This leaves room for higher wages down the road. It doesn’t always work this smoothly, however, and you shouldn’t encourage development that will ultimately push your talent to higher-paying competitors.

When the Current Approach is Not Working

Training is often expensive, especially in traditional formats. It can take months for a new employee to possess the skills to break even on their salary. Indeed, a potential buyer may be extremely reluctant to acquire your business if they fear having to train all new staff.

If your business (or industry) experiences a very high turnover rate — think retail, restaurants, or construction — new investments in people may quickly be lost for some other employer to capitalize on. These types of businesses should be very selective about their workforce investments.

Even if you identify the best employee development systems, whether networking or training or any other, you still need the capacity and skill to implement them. If there is a good chance that nobody in your business has the necessary prowess, look to a third party. Otherwise, it might be best to find another system.

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This is an updated version of an article from 2021. © 2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.