Over the last several years we've seen the "workplace" as we know it change, transform, change again and continue its continuous transformation at a pace we've never seen before. Organizations are constantly looking for ways to ensure their teams are adaptable and able to out perform their competitors. We measure performance primarily through performance reviews, and this method of evaluation not only–often–misses the mark on accurately reflecting employee performance, but it also leaves out important context: understanding the cumulative value each employee contributes over their entire tenure.
Employee Lifetime Value (ELTV), a concept inspired by a critical commerical side metric, Customer Lifetime Value (CLTV), and helps us assess and maximize the impact of employees on a company’s success.
Employee Lifetime Value (ELTV) is the total value an employee created for an organization from the day they start until their last working day. Like CLTV, which measures the total revenue a customer brings to a business over their relationship, ELTV considers revenue per employee over their tenure, making it a relevant metric to capture each employee’s sustained contribution, as well as company health and performance.
At its core, ELTV is calculated as:
ELTV = Revenue per Employee × Average Tenure
This simple formula reveals the lasting financial impact of an employee on the company. By using ELTV, organizations can go beyond annual performance snapshots, gaining insight into how an employee’s value compounds over time.
Traditional performance metrics, often focused on annual or biannual reviews, capture only momentary snapshots of an employee’s productivity. ELTV, however, looks at long-term employee contributions and emphasizes continuous growth, career progression, and skill development. By increasing an employee’s lifetime value, companies can optimize talent retention, accelerate skill development, and ultimately achieve better business outcomes. As Jessica Zwaan, points out:
"In People, we have a bad habit of asking for things without using the words 'so that'. And when we do, we often say things which don’t sound clear to CEOs, 'so that we can improve engagement' or 'so that we can offer management training'... These don’t sound so good juxtaposed against Sales coming with a, 'so that we can increase revenue by 5%.'"
By adopting ELTV, People leaders can align their initiatives with tangible business outcomes, speaking the same language as their CEO and other departments focused on initiatives with a direct line to revenue growth.
Despite decades of effort to improve performance management, the tools and frameworks commonly used today—like the bell curve and the 9-box grid—often fail to address the complexities of modern workplaces and the nuance of employee performance. These systems may have been effective in a different era, but they now pose significant limitations that hinder employee development and organizational growth.
The bell curve, or forced ranking system, assumes that a small number of employees are top performers, most are average, and a small number underperform. While this approach might work for grading in a classroom, it falters in workplace settings where collaboration, innovation, and individual strengths are key. By forcing employees into predetermined categories, the bell curve can:
The 9-box grid, often used in talent reviews, evaluates employees based on their current performance and perceived potential. While it provides a structured way to discuss talent, it has its own challenges:
Both the bell curve and the 9-box fail to align the continuous, objective and real-time performance calibration. They focus more on categorization than accelerating growth, and both are dependent on qualitative performance data which is often already quite subjective. These tools for evaluating talent also:
Maximizing ELTV requires a shift from static performance reviews to a continuous, just-in-time evaluation approach. Here are three critical strategies for enhancing ELTV:
Employee Lifetime Value represents more than just a performance metric; it’s the foundation for a philosophy that prioritizes continuous improvement, growth, and equitable progression. By focusing on ELTV, organizations can unlock compounding benefits, enabling each employee to reach their fullest potential and drive lasting impact within the organization. Measuring against a metric like ELTV is the key to sustained growth.
