Employees are a core driver of value—and risk—for any business. Every company relies on its workforce to achieve business objectives, serve customers, and drive innovation. As such, workforce metrics should be treated as an essential indicator of both financial performance and operational risk. For many companies, labor and related expenses are the top costs on their financial statements, yet people management often falls short in critical areas. By tracking and managing workforce metrics with a financial lens, companies and investors can unlock value-creation opportunities and inform priorities.
At Novata, our approach to value creation focuses on two human capital levers that are proven to drive enterprise value:
- Reducing employee turnover to lower replacement costs and preserve productivity
- Improving worker safety to reduce lost time and compensation costs
As part of our value-creation offering, we calculate the costs of Turnover and Days Lost Due to Injury using a combination of wage data across roles and industry insights. But most importantly, we use Novata Benchmarks to provide the context that makes these figures meaningful and actionable. We compare costs to peers and help clients set targets that are directly linked to financial outcomes.
Understanding financial implications starts with high-quality data. In this article, we explore two key metrics used to manage these human capital levers, which most companies already track.
Reducing Employee Turnover
Turnover Number measures the number of employees who leave an organization in a given time period. High turnover costs a company money through replacement expenses and lost productivity, as employees leave and need to be replaced.
We calculate using a combination of wage, role, and industry data to capture both the direct and indirect costs of workforce churn over time.
By quantifying the costs of turnover, companies can then take steps to reduce these costs by addressing the root causes. And by aligning those steps with financial targets that link to Novata Benchmarks, they can turn their performance on turnover into a competitive advantage.
Improving Worker Safety
According to Liberty Mutual’s 2024 Workplace Safety Index, US companies spend over $58 billion per year on workplace injuries.
The Days Lost Due to Injury metric measures the total number of workdays an employee misses due to a job-related injury. Companies calculate days lost by counting the number of calendar days of missed work across all employees. In the US, this is often done using OSHA logs.
Workplace injuries can result in direct and indirect costs for the company: direct costs include the worker’s wages, compensation, and medical expenses, while indirect costs include lost productivity, replacement labor, and training. High numbers of work-related injuries and days lost carry reputational and operational risks. Companies may also face hidden costs, such as lost customers, reduced revenue, and costs associated with higher insurance premiums tied to worker’s compensation payouts.
Our methodology for calculating the cost of Days Lost Due to Injury is similar to our methodology for Turnover. We combine data on wages, roles, and industries to capture the direct and indirect costs of a company’s performance on this metric. And we make it all meaningful and actionable with Novata Benchmarks, because understanding costs is just the first step. Contextualizing those costs within the relevant industry and market allows for informed performance-improvement plans that yield measurable financial benefits. Because Novata’s methodology uses industry-specific insights to assign costs across roles, we can help our clients pinpoint roles, teams, and functions that require targeted support to maximize cost savings.
Tracking Workforce Metrics Across the Investment Lifecycle
Understanding these human capital levers across the investment lifecycle is an important consideration for investors when crafting their value-creation plan. Novata’s methodology allows investors to integrate financial implications of human capital data into all stages:
- Due Diligence: request turnover and injury data to forecast company costs and benchmark against peers to understand performance, either as a risk or competitive advantage.
- Ownership: present turnover and injury data with financial implications at quarterly board meetings to inform priority areas for efficiency initiatives that can drive value and save money.
- Exit: demonstrate the value-add of strong human capital management practices and initiatives that have cut organizational costs related to turnover and safety.
Overlooking the financial impact of human capital metrics in a firm’s investment practices might leave money on the table, especially for labor-intensive industries such as healthcare and manufacturing. Addressing turnover and safety issues at the core of a company’s operations also helps build a more resilient, stable organization, which can help protect the business from human capital-related disruptions and costs.
Getting Started
The Novata Advisory team works with investors and companies to understand how human capital drives financial performance. We recommend the following steps to get started:
- Assess data availability. What human capital metrics does the company track, and how many years of data are available?
- Generate buy-in. Who within the company regularly reviews human capital data? Who would benefit from understanding the monetization of this data for value creation and cost reduction purposes?
- Consider human capital risks. How do employee turnover and worker safety show up in the company’s business model? Are there potential or existing risks that the company is not addressing?
- Start conversations with stakeholders. How does the company discuss the monetization of sustainability data, and where should these conversations occur, if not already, such as board meetings?
- Build your value creation system. How does the company calculate the financial impact of human capital metrics with operational data available, and how is that information used?
This article is the second in a series on financial value creation through sustainability. Read the other articles here:
