In today’s world, human capital has become a very important and challenging term. Companies face a lot of problems with managing their human capital. Most of them understand that the nature of human capital has changed. Every potential employee develops and improves his or her skills and abilities every day. This happens so fast that even professional managers sometimes can’t decide what to do.
If any company wants to manage its human capital effectively, that company has to understand the importance of focusing on the “value” factor. Like any asset, human capital is an investment which brings future economic returns. When these returns are positive, it means that the company succeeded in managing its human resources effectively. That’s why every company must have the ability to manage this kind of intangible asset as effectively as possible.
The problem is that some companies look at human capital as a cost rather than a value-producing asset. And these companies simply lay off employees when companies are having financial problems. But they have never thought of value factor in this case, which is more important than labor cost reduction.
Every year, CEOs earn millions of dollars, but in case the company has financial problems, they fire the company employees. One would wonder why CEO needs so much money. The answer is clear why a CEO would care about the employees: he just cares about his profits. And any reduction in his profits causes reduction in the company’s human capital. As we see, a company’s bottom-level employees are always the first victims of company’s failure in its operations. As a matter of fact, the strategic final decisions about the future of the company are made not by the employees, but by the CEOs. Maybe instead of firing them, the top-level executives could negotiate with them and find some compromise.
If we analyze human resource issues in different countries we can see huge differences among American, Western European and Japanese companies. For example, when Japanese companies decide to cut pay, the cutting starts at the top then goes down hierarchically. In this case, executives are expected to make sacrifices before they ask their employees to do so. In France it is very difficult to simply lay off employees. These companies can get really badly hurt as a result of the employee layoff. There are a lot of laws that protect employees.
Most times companies just care about their profits and forget to take care of their employees. And as a result this causes employee morale loss. That’s why a lot of employees are not even satisfied with their current jobs. They are always looking for better job openings in other companies. But finding a better job is not that easy. First, it is difficult for them to explain the reason why they want to leave their job in the interviews with another company’s representative. Second, they don’t know if they will be able to get a comparable position at the new company. Third, they don’t know if they will be able to get paid exactly the same or even more in the new company. Fourth, they don’t know if they will find the new working environment more comfortable. Fifth, they don’t know if the new company will be successful in the long run so that they can be confident about their future.
As we see, each of these decisions requires a lot analysis and effort. Besides, we have to take into consideration time and opportunity costs involved with them. Employees should think twice before leaving their current job and moving to another one. Also, top-level corporate executives should make strategic decisions in case of financial problems rather than simply laying off employees, because human capital is the most valuable asset of every company.
Emin Teymurovsky is a master’s student in Kogod School of Business.