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Does Your Appraisal System Consider Employee Profitability?

November 21, 2017
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4 minutes read
Does Your Appraisal System Consider Employee Profitability?

“Research indicates that workers have three prime needs: Interesting work, recognition for doing a good job, and being let in on things that are going on in the company.” – Zig Ziglar

As the quotation mentioned above by Zig Ziglar states, employees need to be recognized for performing well at their core efficiencies. This recognition includes adequate remuneration, financial awards or bonuses for going beyond what is required of them, and promotion to a higher position.

According to the Small Business section of Chron.com website, a successful employee appraisal system’s end goal is to help “managers evaluate employee job performance and develop a fair system of pay increases and promotions.

However, the question that is often argued over is what constitutes a fair evaluation of employee job performance. The second issue that needs to be addressed is whether the appraisal system should consider employee profitability or not. It makes sound business sense that the core performance indicator should be whether employees are generating income for the business, and what that income value is, in comparison to what it should be.

What is employee profitability and how can it be measured?

Before we look at the specifics of employee profitability, it’s important to understand that a company’s profitability is defined as the firm’s ability to generate income compared to its overall expenses incurred during a specific time frame such as a financial year.

Because a company is made up of employees, it is logical to assume that each employee has to contribute to this profitability ratio for the company to maintain (or increase) its profitability ratio. Therefore, simply stated, employee profitability is the percentage of the total profitability ratio that each employee adds to the overall total.

Furthermore, it stands to reason that one of the ways to increase a business’s profitability is to measure each employee’s potential to contribute to the company’s total profitability levels.

It is also important to note that not all employees contribute to business’s profitability ratio in the same way. For example, a salesperson will make a direct contribution by selling products and services to the brand’s target audience.

On the other hand, a customer support employee contributes indirectly to the total profitability ratio because he does not sell products directly to the customer. However, he is an essential part of the company structure. Reduced or bad customer service will give the brand a bad name, which could affect profits.

Final words

As a result, it is vital that management and employers understand the difference between the two types of employee contributions, and that they find a way of accurately measuring employee profitability for all the different types of employees. It goes without saying that it is easier to measure profitability for employees who are directly involved in selling products or services.

However, it is just as (or even more) important to estimate profitability ratios for employees that contribute indirectly to the company’s overall profitability ratio. Try an appraisal system like the AssessTEAM employee productivity analysis system that accurately measures employee profitability across multiple projects and project types.