How Much Are Key Employees Worth?

Kris Dunn Compensation/Cash Money, Kris Dunn

Three answers, and this one is pretty simple.  Key employees, or any employee for that matter, can be valued as follows, and thus are worth:

1.  As much as they can command in the open market.Mo money

2.  As much as you are willing to pay them.

3.  The sliding scale between #1 and #2 (what you pay them vs. what they can command) determines your retention risk.

In other words – it's a market economy, baby. Nothing more, nothing less.  You can pay X.  They can get Y elsewhere.   Questions?

Oops – forgot two very important factors, that are definitely part of the market economy in this discussion, listed below:

4.  The employee's willingness to execute the gap, and leave your company for another opportunity.

5.  Your willingness to allow the gap outlined in #3 to exist, and to allow your talent to walk away if they have the motivation in #4.

What's the gap?  Are you willing to live with that? Are you sure?

What got me thinking about defining the worth of employees?  An article in Forbes that tries to make hiring more scientific than it is at times. From Forbes:

"With the economy tanking and unemployment nearing 7%, it's a buyer's market for firms lucky enough to be hiring. The challenge: landing loyal talent without going broke in the process–either by losing valuable hours rooting through piles of résumés or dangling profit-sapping salaries.

"A buyers' market doesn't mean that it's any easier," says John Younger, chief executive of Accolo, a Larkspur, Calif., staffing company for the software industry. "Hiring tends to consume more resources than it did before. You place an ad on Craigslist and get people bugging you for weeks."

So what are key decision-makers really worth? Unfortunately, there is no one formula that transcends industries and business cycles. Tackle the problem in logical steps, though, and you can increase your odds of earning a solid return on that important player. Potential applicants can learn a thing or two from this process, too."
The article goes on to list the usual things related to creating accurate job descriptions, doing comp surveys, factoring in total comp with items like benefits, etc.  All important factors you should be on top of.  In addition, you need to proactively make sure that people doing the same work, with the same level of experience and performance over time, are compensated in equitable ways, lest you be served with legislation suggesting the government can do it better than you like the Paycheck Fairness Act.
My point? At the end of the day, you're going to do that research and come in with a salary range that has a BIG spread when comparing the minimum vs. the maximum for the range.  So, the question remains – within that range, what is a key employee worth?
Answer – what the market bears, which is the salary you can provide, and the salary they will accept. 
It's where art meets science in this game we call talent.