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What can Netflix, HubSpot, Zappos and Google teach you about the future of performance management?

At last count, the Netflix culture document had been viewed almost 11 million times. It’s been a viral sensation and has challenged the way that millions of people think about the future of performance management, work and HR.

Since the Netflix culture presentation appeared online in 2009, many other technology companies’ culture docs have attracted similar attention.

What excites me is that performance management plays such a big part in these documents. It’s clear that rethinking the way goals are set and feedback is given is hugely important to these companies and their employees.

In this article we’re going to take a quick look at four particularly popular culture docs and how they’re approaching performance management.

Netflix

What they do: Provide on-demand internet streaming media
Founded: 1997
Number of employees: 2000+
Glassdoor rating: 3.7
Culture doc views: 10,720,425

Read the Netflix culture doc

Netflix Culture

Netflix on setting goals

Netflix’s performance management is built on the core idea of ‘context, not control’. This means that managers must give employees an understanding of context to enable autonomy and sound decisions.

So rather than setting goals in isolation, managers should make their employees aware of: the link to the organisation’s goals, the relative priority of the goal, the level of refinement required, key stakeholders and the definition of success.

The onus here is clearly on the manager to provide the best environment for employees to excel. Speaking directly to managers, the Netflix culture doc says: “When one of your talented people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set.”

Netflix on feedback and performance reviews

Netflix has also moved away from annual reviews to a more frequent feedback process. In an article for Harvard Business Review, co-author of the Netflix culture doc Patty McCord explains: “If you talk simply and honestly about performance on a regular basis, you can get good results—probably better ones than a company that grades everyone on a five-point scale.”

I couldn’t agree more with Patty on this point. High frequency feedback is something I’m a huge advocate for. And it’s one of the key elements of Agile Performance Management.

HubSpot

What they do: Inbound marketing software
Founded: 2006
Number of employees: 500+
Glassdoor rating: 4.5
Culture doc views: 1,571,813

Read the HubSpot culture doc

HubSpot on feedback

Hubspot on feedback

Like Netflix, HubSpot have moved away from annual performance reviews. Instead they’ve implemented social performance management software to facilitate year-round feedback in real time. As the company put it here:

“If you want to hire and retain great young employees, you have to work the way they live… using social networks to facilitate interactions on a regular basis and to solicit feedback.”

Zappos

What they do: Sell shoes and clothing online
Founded: 1999 (acquired by Amazon in 2009)
Number of employees: 1500+
Glassdoor rating: 3.8
Culture doc views: 53,000

Read the Zappos culture doc

Zappos on feedback and reviews

Zappos has long been recognised as an innovator in performance management. They’ve done this through heavy emphasis on the importance of values and culture. As Zappos’ culture doc states: “Interviews and performance reviews at Zappos are 50% based on values and culture fit.” 

This introduction of behavioural competencies into performance management does tend to be a characteristic of more forward-thinking companies.

I’ve talked about the difference between behavioural and functional competencies before. My opinion (which I share with Zappos) is that a combination of both is almost always required to be effective.

Zappos Core values

Google

What they do: Run the internet (amongst other things)
Founded: 1998
Number of employees: 53,000+
Glassdoor rating: 4.4
Culture doc views: 1,220,625

Read a presentation from Eric Schmidt on how Google works

Google on goals

Google often gives employees responsibility for setting their own goals. As the following slide makes clear, goal setting at Google is somewhat unconventional in other ways…

Google goals

 

In fact, scoring too high on completed goals at Google is frowned upon – it means the goals weren’t ambitious enough!

It’s an interesting technique (but one you might want to test carefully before implementing in your business).

Google on feedback and reviews

Google places great emphasis on peer feedback, which is sensible given the approach to goal setting. As an anonymous employee stated on Glassdoor:

“Promotion and work performance is entirely reliant on peer reviews. In other words, to get ahead at Google and to get a positive performance review, you must get positive reviews from your fellow co-workers. Your manager might love you, but if your co-workers don’t like you, you have some work to do.” 

While many companies have adopted 360-degree feedback it’s uncommon to see peer reviews that can actively block an individual’s chance of promotion.

My top performance management takeaway from each #culturecode

Netflix: High-performance people will do better work if they understand context.

Hubspot: If you want to hire and retain great young employees, let them work the way that they live

Zappos: Rather than just measure people on their ability to do their job, also measure their performance against company culture and values.

Google: Let your employees set ambitious (and sometimes unachievable) goals. But hold them accountable with an emphasis on peer reviews.

Have you seen other #culturecode docs with particularly innovative approaches to performance management? Let me know via Twitter (@Cognology). I’d love to keep adding to this list.

Are Millennials really changing the way we work?

Part 1 of our data driven investigation into the talent trends of 2014

Introducing a four part investigation into 2014’s key talent trends, thanks to our friends at Indeed

We’ve spent the past few weeks searching for a data driven way to investigate the top HR and talent trends of 2014. The real question that I wanted to ask here was: “are these real trends affecting business, or just a big media/blogger beat-up”?

Luckily, we found Indeed’s awesome job trends tool. If you’re not familiar with Indeed, it’s one of the world’s biggest job post aggregators. Indeed collects millions of job ads from sites across the web. This approach has quickly seen them become a recruiting powerhouse.

Each week, the team at Indeed make data from millions of job ads publically available and searchable. So we can look at how frequently key words (or phrases) are occurring in job ads, going back ten years.

It’s an incredibly powerful way to look at whether these HR trends are really changing the way that companies are hiring.

What do millions of job posts tell us about the real talent trends?

We picked out four trends that we’ve seen come up time and time again in the business press over 2014. These four trends are:

  1. Millennials are changing the way we work (part 1, today)
  2. HR is about to be taken over by data/finance (part 2, coming tomorrow)
  3. Technology is reshaping the way we work (part 3, coming this Thursday)
  4. Holacracy is set to make managers obsolete (part 4, coming this Friday)

We wanted to understand if these are real trends shaping the way companies are hiring, or if they just make great stories in the press. We’re going to dive into one of these topics per day over the next four days. So make sure you check back frequently!

Without further ado, let’s jump into Millennials and find out if they’re really reshaping the workplace…

Are Millennials really changing the way we work?

There has been a lot written about Millennials in the workplace over the past year. Here’s a couple of the more influential pieces that you might have seen

I’m going to highlight some of key attributes of a “Millennial friendly workplace” that just keep coming up throughout these articles:

  • Flexibility
  • Feedback
  • Collaboration
  • Friendly
  • Work from home

To see if workplaces are really becoming more Millennial friendly, let’s have a look at these five terms in job advertisements:

Flexible

We know that Millennials want more flexibility and better work life integration. And this chart provides pretty strong evidence that workplaces are heading in this direction. Over the past 10 years, you can see the frequency that “flexibility” comes up in job adverts has nearly doubled. This is the most frequent of the Millennial related terms, appearing in nearly 15% of all job posts.

Flexible

Feedback

Feedback has shown similar growth, albeit from a lower base. It’s interesting that the term has plateaued in job advertising since mid 2012.

Feedback

Collaboration

Collaborative and friendly workplaces are commonly cited characteristics of a Millennial workplace. There’s an interesting relationship here between the “collaborative” and “friendly” workplace. Collaboration showed very strong growth over the period of 2005 to late 2011. It has plateaued since and fell significantly in 2014.

Collaboration

Friendly

In an interesting takeaway for your recruiting efforts, it seems that the “collaborative” workplace is out, and the “friendly” workplace is in. This was probably one of the bigger surprises in cutting the data. Over the past ten years there’s a real trend towards more friendly workplaces. I certainly didn’t expect to see such growth over the past 2-3 years.

Friendly

Work from home

We’ve saved the most interesting for last! Because in identifying the real Millennial trends of 2014, “Work From Home” is the big growth story. Since early 2014, the term has shown accelerating growth with no end in sight (have a close look at the explosive growth from mid 2014).

Work from home

Millennials really are reshaping the workplace

The data does show that out that these Millennial demands really are reshaping the workplace. More and more workplaces are offering what Millennials are ‘demanding.’

But there’s also a deeper trend here. It does appear that we’re moving to “Phase 2” of the Millennial friendly workplace.

  • Phase 1 includes the trends of “Feedback”, “Flexibility” and “Collaboration”. These were trends that showed strong growth through to early 2012, and have now plateaued.
  • Phase 2 includes the trends of “Friendly” workplaces, and “Work from home”. These two trends in particular have shown significant acceleration over the past three years – whilst some of these earlier trends have stagnated.

Where to next? I’d love to hear your thoughts on what else is could be included in phase two of the Millennial friendly workplace trend.

Interested in the real talent management trends of 2014? Don’t miss the other parts of this series….

If you loved these talent insights, there’s plenty more in this series:

  1. Millennials are changing the way we work (part 1, today)
  2. HR is about to be taken over by data/finance (part 2, coming tomorrow)
  3. Technology is reshaping the way we work (part 3, coming Thursday)
  4. Holacracy is set to make managers obsolete (part 4, coming Friday)

I’d always love to continue the conversation and discuss this article on Twitter. Tweet @cognology with your view on this research and any other key trends you’d like to see investigated.

Span of control: What’s really happening to average team size [New Cognology research]

Cognology data is a rich source of information about what’s really happening in the workplace

We have over 250 companies in Australia and New Zealand using Cognology talent management software. This gives us a rich source of data on the underlying trends in talent and performance management across the Australian workforce.

Whilst there’s a lot of great opinion pieces and blogs about the changing workforce (we highlighted some of the best here), the discussion is often missing hard data about what’s really changing in the workforce. We’re aiming to change all that by jumping deep into our anonymised dataset on performance management.

I want to make it clear that we’re looking at this data on a completely anonymous basis. No clients or employees are ever identified by our research team. And we’ll only use sample sizes where there’s no potential for any company or individual to be identified.

We’re starting with span of control

In this article, we’re looking at the average span of control. From a personal perspective, managing a team has been one of the most complex and rewarding experiences of my working career. There’s no better feeling than being able to coordinate a team of people towards a shared goal, and seeing all that time and effort pay off. It’s immensely fulfilling, but it’s also an incredibly demanding task that’s hard to do well. And it gets harder the more employees you try and manage.

Since the GFC we’ve seen multiple large cuts to middle management. So I wanted to understand what impact these cuts have had on the average span of control. Are we seeing managers stretched further and further? Here’s what we found by analysing the data in a number of ways.

Span of control image

It’s clear that average team size is increasing

Teams are getting bigger. Over the past two years we’ve moved from the average manager being responsible for about 4.4 employees to 4.9. This increase of half an employee per manager (on average) is a pretty substantial increase.

The interesting question to ponder is how is this increase is affecting managers and their employees. The good news is that we’ve looked hard and we’re not seeing any decrease in the quality or quantity of performance reviews as a result of this increase in responsibilities. This poses an interesting question: Is it just that managers are working harder, or are we also getting more effective at the same time?

What I think is a strong possibility here is that managers are becoming more efficient through better technology and collaboration.  Social technology makes communication with employees easier than ever before. Feedback loops become tighter, employees can share feedback with each other, and knowledge has now become a shared resource. Combine this together and it becomes easier to measure the performance of each individual, making management more effective.

However we know that the capacity to manage well isn’t unlimited. And clearly this average hides some big variation in team size under the surface. There’s a bunch of managers with 1-2 direct reports. And then there’s also many with 10+ team sizes. And whilst we do see the occasional manager with 20+ employees in our dataset, thankfully they’re not that common.

Any one with direct management responsibility knows just how much time and effort it takes to manage employees well. Could you really expect a manager to properly measure the output of 30 employees? And I mean properly manage them; having the ongoing conversation, knowing the career aspirations, strengths, weaknesses, and driving the growth of 30 employees. You just don’t have enough time in the week to properly manage that many employees.

We know what’s happening to the average span of control, but what’s the right span of control?

I’ve always said that you should be able to make 45 minutes every day for each team member that you manage. It takes a lot of time to do people management well. You have to allow for this time commitment (as well as all your other responsibilities) when setting appropriate team sizes.

Here’s some other perspectives to take into consideration when thinking about the right span of control:

Jeff Bezos – “if a team can’t be fed by two pizzas alone that team is too large”

A nice interactive tool from Strategy& to determine your ideal span of control

HBR on the average span of control for the C-level in the Fortune 500

What other workforce trends would you like us to explore?

We’re keen to dig into anonymised performance data in as many ways as we can. If you’ve got questions about the Australian workforce that you’d like to see us explore on this blog, please comment below or tweet to us via twitter @cognology.

In the case that we publish research based on your idea, we’ll look after you with some great prize packs featuring our selection of the best Management and HR books of 2014.

Why is Australia ignoring talent management and recruitment risks?

Why does employee attraction and retention matter? And what should we do?

In my previous article on people risks in the ASX 100, I stressed the point that people are one of the biggest risks that all companies need to consider. This means the attraction and retention of critical staff should be a key priority for all boards and executives.

Recap: Only 20% of the ASX 100 recognise that talent retention and attraction is a key business risk

In case you missed part 1, here’s the quick recap. Only 50% of ASX 100 companies declare any people related risks to investors in their annual report. This falls to just one in five companies declaring the importance of attracting and retaining top talent. You can see the quick summary on key people risks as declared by the ASX 100 below.

Chart of talent and share price

 

Today we’re looking at which industries (and companies) are best practice in understanding their talent attraction and retention risks

Chart of talent attraction and retention

You can see the breakdown by sector above. What we found really interesting here is how the healthcare and science sector makes no mention of attraction and retention. It’s common knowledge we don’t have enough science and technology graduates, so why do none of the top health and science companies declare attraction and retention as a risk? It seems that everyone is proclaiming a STEM shortage (apart from the companies who actually work in the industry).

And what about best practice at a company level?

Top 5 talent awarness companies
What are the best companies saying about talent risk and mitigation? We wanted to highlight some of the statements that we thought were best practice. So here’s five of the best:

  • ”People capability: Brambles is subject to the risk of not attracting, developing and retaining high-performing individuals. Furthermore, succession planning may not be managed effectively, so that talented individuals are able to be developed and promoted within the Group, rather than sourced externally. This could result in Brambles not having sufficient quality and quantity of people to meet its growth and business objectives.” – Brambles 2014 Annual Report
  • “Myer supports the development of all our team through regular performance feedback, goal setting and career development sessions. Further skill and capability development opportunities are offered through on the job training, instructor-led training and online learning modules.” – Myer 2013 Annual Report
  • “The attraction of high calibre employees, particularly for business critical roles is an ongoing challenge and despite a weakening resources sector, there continues to be a very competitive employment market for skilled professionals. Along with the focus on people-related productivity improvements, Monadelphous will continue to invest in the development and retention of its key talent to enable the Company to successfully achieve its vision and maintain its competitive advantage.” – Monadelphous 2013 Annual Report
  • “Through the enhanced Performance and Talent process we have identified critical talent, including critical female talent, and have adopted a targeted retention approach for these employees. Our focus on retaining female employees has been supported in specific development programs including Career Conversations for Top Talent female managers, ATP, and provided industry networking opportunities such as Glass Elevator luncheons.” – Coca-Cola Amatil 2013 Annual Report
  • “Retention – focus on retaining talent in APA –– Continue to offer flexible work arrangements through part time hours, job sharing, flexible start and finish times and purchase of additional annual leave. Over 90% of all flexible work arrangement requests have been approved during the Reporting Period. This includes a job share arrangement approved for two senior women in leadership roles. APA will continue to support such requests, where possible and appropriate.” – APA 2013 Annual report

Talent risk is only set to increase: So what should boards and executives do?

As I’ve written about previously, we’re going to have more positions than people very soon.  Companies of all sizes need to be thinking about how to attract and retain top performers now, before the talent crunch hits. As our economy continues to grow faster than our population, we’ll have more jobs than we have people to fill them.

And as we touched on recently in our investigation into average employee value, companies have more invested in each individual employee than ever before. As that research showed, the future of work is likely to feature increasingly smaller companies with larger valuations. In this future, each individual employee is worth more to their organization than ever before. And as we all know, the smaller the organization, the larger the talent risk.

We know that the talent crunch is going to make quality employees harder to find and more expensive. For the majority of companies, there’s simply no excuse for not being upfront about the attraction and retention risk that they are facing. Here’s my two key recommendations for Australian boards and executives:

Recommendation 1: The risks around retention and attraction need to extend to more employees than executives and board members.

Most of the mentions of attraction and retention risks we found pertain to board members and executives. There’s no doubt that these people are key single point sensitivities. And they should be recognized as such in the annual report.

But there’s almost certainly other roles that are just as hard to recruit for (and are just as sensitive in terms of performance of the organization. There are sections in every annual report on the bonuses paid to board members as retention incentives.  But there’s almost no mention of how to attract and retain top employees in any other part of the company. The recent underperformance of 2dayFM in Sydney following Kyle Sanderlands departure provides a very practical example of why key roles don’t always have to sit in the c-suite.

You need to have strategies in place to retain all your top performers regardless of what they do. Of course you want the best board members and executives, but talent risks and seniority aren’t always one and the same. Investors care about the risks to company performance, not the risks to the most senior staff. There’s a big difference here that is missed in just about all annual reports.

Recommendation 2: Organisations need a retention and attraction strategy (not just awareness)

A lot of annual reports mentioned the importance of attracting and retaining top talent, without explaining how. You can talk retention all you want, but it’s critical to have a strategy to back it up. In the same way, an annual report wouldn’t say the organization was planning to double business output without explaining how. Clear disclosure about the attraction and retention strategy is key information for investors in understanding how likely a business is to succeed in the near future.

In the examples above, Coke and APA do the best job of not just setting out the importance of talent to the business, but also clearly stating key strategies for retention and attraction. With Coca Cola, it’s about targeted networking and career conversations. At APA, it’s all about flexibility. It’s very easy to understand that they were written by a manager at the front line with actual experience in retaining staff. Whilst I love Brambles statement on the importance of their staff and talent – it’s very hard to understand what that actually means in terms of actions that managers are expected to take day-to-day.

Have you got another board level talent recommendation you’d like to see implemented across Australia’s largest companies?

If so, I’d love you to join me on Twitter @Cognology and let me know your thoughts. I’ll publish and retweet any great suggestions over the coming week.

50% of Australia’s largest companies ignore people as a key business risk: New Cognology research

Through my work at Cognology I spend most of my life thinking about talent management and employee risk. But I wanted to understand how much time other Australian CEOs and CFOs spend thinking about their key employee and people risks. So with my team of helpers here at Cognology HQ we’ve spent the past few weeks investigating how the largest companies in Australia recognise people risks.

To do this, we compiled the most recent annual reports for each of the ASX 100 (the largest 100 companies in Australia). We were looking at the section where each of these companies declare key business and investment risks. Broadly, this section is meant to describe all the critical risks that investors need to think about when choosing whether to invest money into the company or not.

We wanted to see which companies recognised people as a key business risk – and which didn’t. I suspected we’d get some variance, and that we’d find some outliers who ignored their people all together. But the truth was more astounding. It’s worth remembering here that we’re dealing with the 100 largest, most sophisticated companies in Australia. And when documenting their key business risks, just half declare ANY key business risk that’s related to their employees.

Just 50% of ASX Top 100 listed companies mention ANY employee related risk in the key business risks section of their latest annual report.

Remember that companies are required to disclose all key business risks to investors. And we’re talking about Australia’s largest and most sophisticated organisations. Yet people risks receive no mention at all for half of these companies.

Graph of people related risks in Australia's largest companies annual report

I’d argue that for just about all of these companies, people are the most complex and unpredictable single part of the business. Which is exactly why I believe that people are the most valuable resource, and the biggest risk, to any organization. We’ll get back to my talent rant in a minute – but first some more context around the data.

The key employee risks that we were looking for

In working through these 100 or so annual reports, we classified employee and people risk into 5 common categories:

  • Employee injury or safety. Here’s a good example from Dulux’s 2013 Report ”A death or major injury in the workplace would be devastating for employees and families and could jeopardise the group’s reputation as a first-choice employer.” 
  • Industrial relations risks. Risks like this one from Asciano’s 2013 report: ”[The risk of] Industrial relations activity that impacts the Company’s ability to meet its contractual and customer expectations”
  • Retention and attraction of key personnel. For example from Brambles 2014 Annual Report: ”Brambles is subject to the risk of not attracting, developing and retaining high-performing individuals. Furthermore, succession planning may not be managed effectively, so that talented individuals are able to be developed and promoted within the Group, rather than sourced externally. This could result in Brambles not having sufficient quality and quantity of people to meet its growth and business objectives.”
  • Inability to execute strategy or innovate. Here’s an example from Worley Parsons 2013 Annual Report: ”The risk of failing to develop and implement an effective business strategy. Failure to do so may over time lead to a loss of market share, damage to our reputation and negatively impact our financial performance.”
  • Non-compliance with regulation or unethical practice. For example from Woolworths 2013 Annual Report: “There is a risk of non-compliance with, or additional obligations relating to, legal and regulatory obligations and expectations which may have a negative impact on Woolworths’ performance”.

Of these risks, employee injury was the most commonly cited

Just under a third of the largest companies in Australia mention employee safety and injury as a key business risk. It’s quite incredible just how many companies (especially in the resources sector) open up the annual report by stating: “safety is our #1 priority”, but then completely ignore safety in the key investment/business risks.

Chart of employee injury

Of the other people risks, “non-compliance” was the second most common, followed by “retention and attraction of key personnel” and “Inability to execute strategy or innovate”. “Industrial relations risks” were least commonly cited, with just over 1 in 10 companies describing this risk in their annual report.

Only one in five companies makes the connection between talent and the share price!

I was shocked that “retention and attraction of key personnel” is cited by just one in five companies. I simply can’t believe this – based on the HR departments I’m talking to, this is a key concern for nearly 100% of large Australian companies. As these CHRO’s know, there’s a real war for top talent (whether that means building it or buying it).

But clearly the CFO is struggling to make the connection to the impact on the share price. So maybe the alternative way we should present this stat is: “only one in five Australian CFOs recognizes the risk of poor talent management on the future share price”.

Chart of talent and share price

People are the most valuable resource (and the biggest risk) to any company.

I’m still astounded by these results. Based on the large number of Australian companies who ignore people risk, I’m left wondering if some of these companies are secretly run by robots?
That said, I can understand how this happens. The CFO and the lawyers sit around in a room brainstorming investment risks. And they probably copy and paste from last year’s report most of the time.
But, why I’m so concerned is failure to recognize a risk is failure to plan for the risk. Because for most of these companies – talent and people are by far the biggest risk to the future share price. And perpetuating the illusion to shareholders that people are “all under control” is a massive mistake.
Personally, I’m looking forward to the day when the ASX makes it mandatory to report on your talent management strategy. I think it will be a great win for investors, and force CFOs to confront the talent challenge from a dollars and cents perspective. And I have no doubt that over the next 15 years we’ll see it happen. But we’ve got a long way to go yet. And getting more than one in five of the largest, most sophisticated companies in Australia to recognize the direct connection between attracting and retaining key people and the future share price is the first step.
When I look through the ASX 100 annual reports next year I hope to see more declarations of people risks. I’m also looking forward to monitoring the 50% of companies that don’t declare people risks. You can bet they’ll struggle in the coming years if the perspective in the c-suite doesn’t change.

And finally, make sure you stay tuned to the Cognology blog – we’ll release more detail from this research including an industry-by-industry breakdown over the coming weeks. Any guesses on how your industry shapes up?

About the data

This data uses the latest annual report publically available on the company website as at late September 2014.

Who are Australia’s most valuable employees?

I love thinking about the future of work. And recently there’s been a lot of discussion that the future of work means bigger companies employing less people. It’s hard to draw any other conclusion when you look at deals like the Facebook acquisition of WhatsApp, a US$19 billion dollar acquisition with just 55 employees. I’ll save you pulling out the calculator – Facebook are paying an incredible $350m or so per employee!

I wanted to understand the Australian perspective on whether we’re seeing the start of a major disconnect between employees and firm value. To do this we’ve spent some time running the numbers on the ASX 100. And the results might surprise you!

The average Australian employee is worth just over $1m

I’m just looking at the ASX 100 here. But that’s a pretty good representative sample, given that these 100 largest companies in Australia employ between them about 1.4m people.
At an aggregate level, these 100 companies are worth just over 1.4 trillion dollars (yes, with a T!). So at an individual level, that means that the market values each Australian employee at just over $1m ($1,002,617 to be exact).

Chart of the market value of Australian employees

Roughly that means that a company worth $100m will on average have about 100 employees. A company worth $10b will have about 10,000 employees (and so on).

Before you go asking your boss for a pay rise, it’s worth considering that this average masks some big differences. So of course I put together a top 10. And my vox-pop around the office shows that pretty much no one can guess which large Australian company has the most valuable employees.

I’ll save the suspense. Australia’s most valuable employees work at Transurban – the tollway giant that operates some of Australia’s most important highways.

Australia’s most valuable employees (market cap per employee)

Chart of market capitalisation

A single employee at Transurban is worth nearly A$32 million dollars. The startling fact here is that depending on which day you look at the exchange rate, that’s more per employee than Facebook! (Their average employee value is a measly US$28 million). It’s also significantly more than Apple, Google, Amazon and Microsoft.

The rest of the Australian top 10 comprises APA Group (pipelines), Seek, Sydney Airport, Dexus (property), Duet (infrastructure), GPT (property), ASX (the stock exchange), Oil Search, Beach Petroleum and Woodside Petroleum.

Surprisingly, Seek is the only technology company to make the top 10. In Australia, it’s not technology, but tollways that win out in this list.

The big earners in the US work in the cloud. Here in Australia the big money is still in the ground.

On a sector-by-sector basis, it’s not surprising that the most valuable employees sit in property and infrastructure. Long term monopoly contracts and regulation mean that there’s simply less employees required to generate earnings. But what’s startling is just how significant the difference is between industries, with property and infrastructure employees worth nearly 3x more than the next most valuable sector.

Average market capitalization per employee (by sector):

Chart of average market capitalisation

The difference between Australia’s most valuable and least valuable employees is HUGE!

The great thing about the stock market is it doesn’t mess about with niceties. Between Australia’s most valuable employees (Transurban) and least valuable employees (Downer) there’s a difference of 367 times!

Chart of the difference between a Transurban and Downer employee

As well as this astoundingly large multiple, what’s interesting here is that the bottom 10 companies in this list are all subject to market and technological disruption. We’ve got a collection of steel makers (Bluescope and Arrium), retailers (JBHifi and Myer), logistics companies (Qantas and Toll) and engineering firms (ALS, Leighton, Worley and Downer).

The bottom 10

Chart of the bottom 10

What does this all mean?

There’s a large number of conclusions that you can draw out of this data. And I’m sure others will have insights to share in the comments. But let me start with a couple:

  • Given the dominance of infrastructure players in the top 10, do Australia’s most valuable companies rely on regulation, rather than innovation?
  • Where are the technology companies? There’s a lot of talk get’s thrown around in the press about how Australian investors just don’t understand and value technology. This research provides some hard evidence in support of this claim.
  • Many people have predicted that the future of work means larger companies employing fewer people. On the basis of this data I think we can say that the future of work will also be more and more unequal (with the gap between the most and least valuable continuing to increase).

I’m also looking forward to tracking these stats over time to see if the average Australian employee is getting more or less valuable. We’ll update this on a semi-regular basis to keep track.

There’s so many other insights to be had here, so make sure you stay tuned to the Cognology blog over coming weeks as we look in more depth at key industries and companies. But I’d also love to hear from you. What does this data tell you about the Australian workforce and the future of work?

About the data

These numbers are based on Google Finance data as at late September 2014. This was supplemented with WGEA data where necessary (some companies are quite tricky about hiding how many employees they have).