President: “We need to invest more in developing our employees.”
Controller: “We can’t invest in them, what if they leave?”
President: “What if we don’t invest in them and they stay?”
The largest expense line item on most company’s income statement is their payroll. Studies and corporate bottom lines show that companies reap many benefits from investing in training for employees. Why is it then that leaders are reluctant to invest in developing their talent?
Based on the training investments of 575 companies during a three-year period, researchers found that firms investing the most in training and development (measured by total investment per employee and percentage of total gross payroll) yielded a 36.9 percent total shareholder return as compared with a 25.5 percent weighted return for the S&P 500 index for the same period. That’s a return 45 percent higher than the market average. These same firms also enjoyed higher profit margins, higher income per employee, and higher price-to-book ratios.
Firms that invest $1,500 per employee in training compared with those that spend $125 experience an average of 24 percent higher gross profit margins and 218 percent higher revenue per employee (source: Laurie J. Bassi et al., “Profiting From Learning: Do Firms’ Investments in Education and Training Pay Off?” American Society for Training and Development, 2000).
For example, The Cheesecake Factory, one of the most successful restaurant chains in the nation, spends about $2,000 per employee for training each year and reaps sales of $1,000 per square foot—more than twice the industry average.
Empowered leaders invest in talent development and experience more success than their competition.