A business owner was singing the praises of his star employee to me. In the process he made the comment, “You can’t put a value on this kind of talent.” My response caught him off guard when I asked, “But, could you put a value on what it would cost your business if you lost that talent?”
When business owners think about the dollars and cents associated with key employees, they usually think about salary and benefits. What is the employee worth to the business; what do we have to pay him or her to stay around? These are important issues; employers constantly need to consider how to recruit, retain and reward. Equally important, however, is to assess the value of a key employee if he or she were to leave. What if the employee gets a better offer elsewhere, or dies, or becomes permanently disabled? What would the dollar and cents cost to the company be?
I recently visited with a business owner who lamented how he has a key employee that has become the lifeblood of the business. He was happy this employee has contributed so much to the financial well-being of both the owner and his company, but was worried about what would happen to the business if something happened to the key employee.
The answer is you first have to put a monetary price to the business value of that employee: a key person valuation. While it may be easier to say, “You can’t put a value on this kind of talent,” a business would be well-advised to run the numbers and assess a value. This will allow the business to determine how to indemnify itself and minimize its exposure. My recent Forbes column, offers some ideas for how to put a number to this tough, but important, question. If you own a business, you will benefit by knowing what your key person is worth.
Steve Parrish is a regular contributor on Forbes.com, discussing issues and trends that impact business owners.