How to Determine the True Cost of Employees – Ask Clay Anything

Show Notes

Have you ever wondered what it truly costs to hire an employee? On today’s show, business coach Clay Clark and Paul Hood (CPA) teach the important variables that you must consider as you are determining the true costs of hiring an employee.

NOTABLE QUOTABLE – “I noticed that the dynamic range between what an average person could accomplish and what the best person could accomplish was 50 or 100 to 1.Given that, you’re well advised to go after the cream of the cream … A small team of A+ players can run circles around a giant team of B and C players.” – Steve Jobs

ACTION STEP – List out the following:

  1. Salary or hourly cost
  2. Insurance Cost
  3. Social Security Cost
  4. Workmen’s Compensation (1-2%)
  5. Office Space
  6. Management Layer Costs
  7. C-Player Costs (Repelling Business)

Jack Welch Excerpt Explaining “Differentiation”

  1. When people differentiation is real, the top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the “stars” at a company that differentiates. They are the best and are treated that way.  
  2. The middle 70 percent are managed differently. This group of people is enormously valuable to any company; you simply cannot function without their skills, energy, and commitment. After all, they are the majority of your employees. And that’s the major challenge, and risk, in 20-70-10 — keeping the “middle 70” engaged and motivated.
  3. That’s why so much of managing the middle 70 is about training, positive feedback, and thoughtful goal setting. If individuals in this group have particular promise, they should be moved around between businesses and functions to increase their experience and knowledge and to test their leadership skills.
  4. To be clear, managing the middle 70 is not about keeping people out of the bottom 10. It is not about “saving” poor performers. That would be a bad investment decision. Rather, differentiation is about managers looking at the middle 70, identifying people with the potential to move up, and cultivating them. But everyone in the middle 70 needs to be motivated and made to feel as if they truly belong. You do not want to lose the vast majority of your middle 70 — you want to improve them.
  5. As for the bottom 10 percent in differentiation, there is no sugarcoating this — they have to go. That’s more easily said than done, of course. It’s awful to “fire” people – I even hate that word. But if you have a candid organization with clear performance expectations and a performance evaluation process – a big IF, obviously, but that should be everyone’s goal – then people in the bottom 10 percent generally know who they are. When you tell them, they usually leave before you ask them to. No one wants to be in an organization where they aren’t wanted. One of the best things about differentiation is that people in the bottom 10 percent of organizations very often go on to successful careers at companies and in pursuits where they truly belong and where they can excel.

 

Business Coach | Ask Clay & Z Anything

Audio Transcription

You have questions. America’s number one business coach has answers. It’s your brought up from Minnesota. Here’s another edition of ask clay, anything on the thrive time business coach radio show,

Aright nation, on today’s edition of ask me anything. We’re talking about how to determine the true cost of employees and so to a tee off this other show and get us started off in the right direction in the right way. I’m gonna read a notable quotable this just in from Mr Steve Jobs. Steve Jobs is the cofounder of Apple. He is the former CEO of Pixar. What people don’t know that, but he actually took over Pixar from his friend to George Lucas who was going through a divorce and the company was floundering and Steve Jobs was leading the company at the time that they released the movie Toy Story and the company was basically headed to what looked like bankruptcy before he took over the company. He also founded a company called next, which was later sold to apple, so steve jobs was three for three in leadership positions, but he writes, I noticed that the dynamic range between an average between what an average person could accomplish and what the best person could accomplish was 50 or 100 to one given that you’re will advise to go after the cream of the cream is small team of a plus.

Players can run circles around a giant team of B and c players, so what Steve Jobs is talking about is that again, the difference between an a player and a c player is a massive and he’s arguing that as an a player can usually get two to three times as much work done as a c player. Think about that in a player can usually get two times or three times as much done during a typical workday than the average c player. Business coach Paul, I want to get your take on that. Dee, do you agree? Have you. Do you do agree that a players and c players are that different and their work ethic and results?

I absolutely do. Clay, I think that may be an understatement. You know, we, we, uh, we tried it, hood Cpas, we try to help our clients create wealth and, and you create wealth by leveraging, leveraging time, leveraging people, leveraging money and, but you have to have, you have to know the cost, you know, if you’re leveraging money, then you got to know what interest rates you’re paying. If you’re leveraging time, typically that’s with software and things like that. You gotta know what it costs you in. The biggest hidden costs area is, is when you leverage people, when you’re, when you’re creating income off of other people’s efforts instead of just your own efforts. But you got to know that costs and the all, they’re not all created the same clay. I mean it’s, it’s, there’s a massive, massive difference and if you’ve got any employees at all, I guarantee you there’s, there’s a percentage of them, a pretty good percentage of them that are b and c players and you’ve got to take the time to measure the costs and resident results to, to

make sure I had to trade out to get a players. Chuck, what do you mind if I share a c player story with you on today’s show? I liked to hear these things. They’re fun. It isn’t about me first. No, no, fire away. Well, let me start off with a notable quotable from a Jerry Seinfeld. Jerry Seinfeld, the, the wise, a comedian slash TV, a star. He says this, he said he wrote, looking at cleavage is like looking at the sun. You don’t stare at it. It’s too risky. You get a sense of it and then you look away. Cleavage poke. No, he’s talking about cleavage and one of his shows and talking about how again, looking at cleavage is like looking at the sun. You don’t stare at it, it’s, it’s too risky. You get a sense of it and then you look away. Now why am I mentioning this?

Because it has to do with accounting and measuring. Well, we hired, we hired an employee and she came to work for one of our businesses. This is years ago, and during the interview she dressed very appropriately, very appropriately and uh, so you would have no idea what she was planning on day one of work. So after the group interview, after verifying her best, she, she shadowed after going through. She first, it’s the group interview, then there’s the shadow process, then it’s calling what we thought was her former employer, uh, ended up being that she paid somebody to pretend like they were her former boss. But the point is she comes to work and I, I’m, I’m, I mean this, she’s dressed almost like she’s dressed more scandalously than if she was either a stripper or a prostitute. It was rough. And Sharita who is my business coach assistant at the time, comes up to the bar and she says clay to see what she’s wearing and I’m going, uh, what, because I’m not aware of this.

He goes, look at that. And there is just a, just a, a, a buffet of cleavage. It was like, almost like risky for her to wear it, like stuff might fall out, not risque, like risky. I mean it was like, I’m not kidding. She was going to have a costume malfunction at any moment. It was dangerous. So workers’ comp claim. Wait, no. Oh my God. So sharita talk to her, pulls her aside. She said, do you want to talk to? I said, no, I can’t even look at her. No, that’s too in my blindfold Gretzky. So go in. So sharita goes over there to talk to her and I’m sure I don’t know how women process cleavage there, but she’s probably looking away and she’s like, you need to go home and change a. you’ve obviously seen the business coach handbook. You can’t wear this. You’re going to have to go home and change.

Not a good start. You’re not fired, but don’t ever let it happen again. Right. Will this person comes home. Four hours later she comes back to the office, comes home to work. Four hours later she goes to her house and back. It takes her four hours to come back to our Home Office for hours. So now she has a task that John gave her that is supposed to take about an hour and a half, 90 minutes. It’s Paula. She was doing a dream, 100 dropoff for somebody. He says, you need to go to these three businesses in a vehicle and dropoff these Gore made desserts to these office. I’m pretty sure he even printed out the map and the routes and the stops along the way first. First he printed off the map. The routes tells her where to go. Now she comes back almost five hours later. That’s a full day and says she only was able to find one of them and so I’m over there by the printer Kinda Haydn so John doesn’t know it can hear this and so John says, so you took five hours to go to one place?

And she says, well I just, I didn’t know where to go. I’m not from around here. And he’s like, how did you get to Oklahoma? Because she moved to Oklahoma. Well, I use my gps. Oh, okay. Well, did you not use, you use your gps for work? I didn’t know if I was supposed to have my own phone or if I needed to use my phone for work is do I get reimbursed for using my phone for work or data pack until she starts talking about her dad? No, seriously. She’s talking about her data package she’s talking about. I didn’t. I didn’t know when I was hired. I hadn’t used my. I didn’t have to. I didn’t. I didn’t know he had to use my personal phone for work and I put a lot of mileage on my car today and he’s like, how far did you drive?

And I’m not kidding. She claimed it was only maybe Paul, maybe 25 miles of total driving. She claimed she did over a hundred miles of driving, so on her first day of work she’d worked a total of like nine or 10 hours in. Hadn’t knocked out a single action item. Three percent have one action item. Oh, it gets better. I’ve got c player stories for days. We have a swipe card system to get into our offices. A swipe card. You have a sweat, Paul, if you were seeing those swipe cards, they let you know building, okay, we have on ourselves to get into the building after hours and so you’ll go hire a company and they’ll install the system and then you walk up to it and you swipe the card and it lets you in your, in your office. That’s how you do it and our office is not a walk in friendly business and so we have swipe cards.

So John Talks to a guy who is a smart man you would think and he says, I need an ID card, and the guy says, absolutely, I’ll get to you tomorrow and I am not exaggerating guys. This went on for like four weeks and finally again in John is a manager. So I, I love watching him have this, these conflicts because it’s not really essential to me at that particular time that I get involved because John’s got a lot of things to deal with and this particular thing was where he was in a business coach situation with the other person. He could fire her in this particular situation. He could not fire this person because of the org chart, but I was on the verge of doing it myself. And uh, long story short, he said, he says, I need the ID card. And the guy goes, listen, you ask me every day.

This has been like four weeks mine within earshot and I. and so John’s, I know, and if you would just get it to me, I wouldn’t have to ask you. And the guys like, you don’t have to raise your voice at me and Josie, I will lose my voice at you. Apparently I do. It was awesome. It was awesome. It was awesome. And so the guy immediately after getting yelled at a, rightfully so from John beelines over to my, uh, at work workstation here, and he says, you going to let him talk to me that way in the office? And I was like, yeah, that’s his job. But that hit this person was sort of an employee that we inherited. And so I had to phase them out. Paul, you know how that works. If you buy a business, sometimes you have. So the business coach employees that come with it when you buy it and you’ve figured out quickly who the incompetent people are, but the point is the dynamic range between the c player in the a players massive.

Now today I needed an ID card probably two weeks ago and because all the people are being managed by John and we haven’t all a player staff. I’m not kidding. I asked for a card. I got a card like within an hour. Um, I’ve currently, whenever I asked I said, hey guys, if we’re out of paper, which we never are because John proactively orders it, but if I ever need it when people come back with a quick. I mean we have a team now. We’re operates with a sense of urgency in it is awesome, but by default Paul c players are going to creep their way into the organization and they’re going to, they’re going to spread like a weed and choke off all productivity. Paul, what is it? Why is it so dangerous to hire c players?

What? Clay people have their own business for their, for their benefit, you know, and you’re wanting to create a, an environment where that other people can succeed, but the reality is is you have to think about your business like a professional football team and if you’re, you’re only as good as your weakest team player and you have to constantly be looking for a players to replace c players like Jack Welsh and his book winning, he talks about it. It’s, it’s not nice. It’s not nice. You have to rank play your teammates between a, B and c players in a players you edify and you reward and you high five them, b players you trained to try to get them to, to be a players and c players you just got to get rid of because you can’t, you know the old adage, you can’t. You can lead a horse to water, but you can’t make them drink. Most c players are working harder at doing nothing or doing less than they could. Then it would take him to be a beer and a player.

That’s what I was just going to bring up, Paul, is that what I’ve seen through running my parents concrete company and working with so many clients is that c players are literally looking for any excuse to not work. That’s right. They’re looking for any reason to not get something done. Any reason to say there was a miscommunication and so that’s why you have to be recruiting. You have to get them out the door because you’re not going to be able to push them to an a level status.

No, no. A players applauded me to cut you off where we were going to say.

I was just going to say you got it. You have to try to step back and and have an impersonal look at that people, because the reality is is you’re hurting that c player by enabling them to be a c player. They’re just not in the right environment, but if you had a copy machine that worked about 10 percent of the time or or a fax machine, I guess people still have fax machines, fax machines that didn’t work or computer that. That didn’t work. You would get rid of it to get a new computer. You have to do that with your staff as well. It’s it’s unkind and and not right for you to enable that person to be that way.

What I’m going to do is I’m going to read the definition of an a player, a b player, and a c player as written by Jack Welch. Jack Welch was the former CEO of Ge who famously grew the company by 4,002 percent. He’s also the guy who wrote the book called winning, where he developed a that explains the system that he used to manage people at ge called differentiation. Now, the way differentiation works is step one, you make a list of all of your employees, all of them, and you put a letter grade next to them, a, b, or c, and you grade your employees based upon their ability to get the following. Four things done. There’s four variables with which you rank your employees. Okay, so first is their energy. Do they bring good energy to work more bad energy, negative energy, but do they bring good energy?

Next, can they energize the people around them? It’s the four e’s, energy energize. Can they energize the people around them? The next eat, execute? Can they actually get their job done? They might have great energy, they might be positive, but if they can’t get the job done, that’s not good, and then the final, the final e is edge. Will they make the tough call when it’s not fun? Those are the four e’s that you should use to rank your employees. This is how Jack Welch describes an a player. He says, when people differentiation is real in the organization, the top 20 percent of employees are showered with bonuses, stock options, praise, love training, and a variety of rewards and their pocket books and souls. There can be no mistaking the stars that accompany, that differentiates. They are the best and are treated that way. The middle 70 percent b players, again, the top 20 percent are a players, the middle, 70 percent or b players, but clay, what if I’m in a company where everyone’s awesome.

You have to determine who are the top 20 percent. You have to. You have to draw a line and the figurative sand to somewhere been saying, this is what makes an a player. If you have 10 people on your team, somebody has to be the a player. Somebody has to be the b player. Somebody has to be the c player and again, follow his system. The top 20 percent can be a. The middle 70 can be bees, and this is how he describes the players. The middle 70 percent are managed differently. This group of people is enormously valuable to any company. You simply can’t function without their skills, energy and commitment. After all, they’re the majority of your employees and that’s the major challenge and risk and the 20, 70 10, keeping the middle 70, engaged and motivated. That’s why so much of managing the.

That’s why it’s so much of managing is managing the middle 70 percent. It’s all about training, positive feedback and thoughtful goal setting. If individuals in this group have f a, if individuals in this group have particular promise, they should be moved around among businesses and functions to increase their experience and knowledge and to test their leadership skills. To be clear, managing the middle, 70 is not about keeping people out of the bottom 10 percent. It is not about saving poor performers. That would be a bad investment decision. Rather differentiation is about managers looking at the middle 70, identifying people with potential to move up and cultivating them, but everyone in the middle 70 needs to be motivated and made to feel as if they truly belong. You do not want to lose the vast majority of your middle 70. You want to improve them. And now the bottom 10, the bottom 10 before the one in the bottom 10.

I want to get your take on this here Paul. I think Ilana, people feel like they’re a players. So let me just give an example. If you said to me play, we have a praise and worship service this weekend and it’s going down. I said, what’s going down? It’s going down. So Paul, what do you mean it’s good? So here’s the deal, the lead singer, the lead worship guy, he cannot perform this week. He cannot be there. And the plan B option, she is given birth to a baby. And the plan c option is out of town for the holidays and now we don’t have a plan d and You, my friend are planned dig. So get that cowbell and get ready to lead that praise and worship service. Well, the good news is is that I would be aware that I definitely am a plan d praise and worship leader. There’s a certain swag that comes with them. So if I got up there, I’d say, all right folks, here’s the deal. Hey, player couldn’t be here to be. Couldn’t be here either the c couldn’t be here, but we do believe that the presence of the Lord is here, right? Right here, we’re going to need miracles and supernatural intervention to make this. So we’re going to sing songs from the eighties because that’s all the songs I know I’m getting my cowbell and sing louder than me. Or it’s going to get

weird. Here we go. What am I at it? God, what am I had a god. We’re serve donuts after church. Ready about that old man out at over there. There were God. We serve all the white people. Now what am I got? Oh, the black people. What about here? God, we’re so put your hands up. Here we go and we’re going. This is terrible and horrible. Do to.

Well, just for your ears. We’ve canceled the rest of the praise and worship service, but hopefully enjoyed it, but. But knowing that you’re a d player, it makes it funny for everybody. They go, you know what? You are a d player. We appreciate the attempt. Thank you for. But if you will accept that, but if you’re up there as a deep layer and you’re not good, it’s not good, and you’re like trying to sing the national anthem which happens at every high school game every time or a wedding and they’ll go, yeah, weddings.

Oh, have

you heard of the Carl Lewis National Anthem?

This is. This is big because this is what happens when when you have a c player or a deep player and they’re not. They’re not real. They’re not being honest with themselves. You see Carl Lewis was asked, he’s a gold medal winning track star and he got asked to sing the national anthem at an NBA game. That’s, that’s the legend. Now, many have said that he actually said that he was really good and he wanted to sing. He said that people asked him to do it, but this is how it sounded. Either way here, just a few highlights of Carl Lewis singing the national anthem. Oh, oh.

Can you see free?

That was Carl Lewis. Lewis is definitely an a player and track Paul, but he’s definitely a plan d for the national anthem and it’s so important that you don’t put people in a situation where they are an a player, but you’re putting them in a position where they can’t succeed. Paul preached the good news of a, B and c player

absolutely clean. You know, the fun thing or the exciting thing for me that, that, that I try to teach clients is because we all want to be sweet and loving term employees is you. Like when I bought a lot of businesses and the first thing I do is I go in and I asked the staff to tell me to write down what they do every day and what they enjoy doing, what gives them pleasure and what they don’t like to do because what I’ve found is a lot of times it’s the manager or the owner’s fault that they have a c player because that, that man or that woman could be an a player in another role. I’ve got staff on at my office right now that absolutely their traditional accountants, they want to sit in the back room. They want to talk to anybody, but they will blow out the work and if I ask them to be on the front line and be in the marketing side of things and the people side of things, they would be a c player but, but no in the right role. It’s just like you and, and you know, you were talking about being the worship leader at church. I could be an a player and a worship leader. Oh Wow. Yeah. If as long as we were lip singing

we had to actually sing, I would. Is there something below a c player and that’s what I would be. But if I can. Let’s see. Sharp shot. Yeah, that’s right. But the point is is like Carl Lewis, he’s an a player in the right role, but he was not an a player in that role. It was a good song. They, yeah. You know, so. So you know, people, a players want to perform, they want to excel, they want to do a good job, a c players try a lot of times to do, find ways of not doing a job. True. But if you them in a role to where they feel fulfilled and they like what they’re doing, they like who they’re around. You can take a c player and make them an a player. Now what I do is I don’t spend a lot of time with them. I say, what do you like to do? And then I put them in a role doing that and if they’re still not an a player, then they got to go.

And I would say, this is something that I, I agree with Paul. I want to make sure that we’re somebody out there is getting this idea. If somebody has a c or a c player, according to Jack Welch, it means they have no energy, no edge, they can’t execute and they can’t energize the people around them. If that is the case, you just have to fire the person. But what Paul’s talking about is if you had somebody who has an a level character and your. Let’s just say you needed somewhere to do bookkeeping and this person’s specialty was marketing and you put them in accounting, they might just do a horrible job over there because. So what Paul is talking about is if they’re doing a c level job in terms of the area of executing, I do believe you can move them to a different position and coach them up to an a. But I don’t believe if somebody has low character, low energy, low drive, that that person cannot be. You think

take a bad apple and make a good apple pie, basically what you’re saying. Yeah. Yeah. I mean, if they’re a bad apple, they got to go.

Oh, one attribute that I’ve seen a players, they all share is that they enjoy accountability. C level players, they repel accountability. They never want to be held to hate it. Oh, I, I couldn’t come in today because there was that review meeting or whatever. So they, a players like accountability, they get to brag. Now, the bottom 10 percent here,

well rights as for the bottom 10 percent in differentiation. There’s no sugarcoating this. They have to go. That’s more easily said than done. It’s awful to fire people. I even hate the word, but if you have a candid organization with clear performance expectations and a performance evaluation process, a big if obviously, but that should be everyone’s goal than people at the bottom 10 percent generally know who they are. When you tell them they usually leave before you ask them to. I could not agree with that more so now back to the real question is how much does it cost to really have an employee? How much do employees really costs you? Once you’ve figured out a, B and c players and where they are, you’ll understand that a c player costs you almost two times as much as an a player. Absolutely. Here’s the line item list of all the things you need to factor in one salary, the salary or the hourly cost.

You must write down and determine what are you gonna. Pay Them salary via salary or hourly to insurance costs. You have to write that down. What are you gonna spend on insurance for this person? Three, social security costs. What will, what is your percentage of their social security that you have to pay workman’s comp, what percentage of their salary has to be paid out in workman’s comp premiums, office space costs. What does it cost? If you have an office that’s $10,000 a month and you have 10 employees, then it costs you a thousand per month per employee. That’s a huge cost. Big One. That’s a big cost. Or the other day I was thinking about the costs of the riverwalk and it comes down to about $600 a month per employee up there. It’s a lot. Well, it’s, I can get everybody, get everybody a really, uh, affordable apartment, really nice car.

Can we just go no office and just all have really awesome cars. I’ve thought about it. Okay, so now a management layer costs. You’ve got to factor in every single employee. And again, if you have 10 employees, you need to have one manager. If you pay that manager 60 grand a year, that’s $600 a month, or sorry, $6,000 a month, it’s going out. It would be, let me see her. So 60,000 divided by 25,000 a month, so $5,000 a month. And you divide that by your 10 employees, right? So you’re talking about just to manage your people, another 500 bucks going out there per employee on management cost. And then c players, what are they costing you in terms of refunds, upset customers, reduce, reduce refunds, breakage, theft, all of the things that c players do, how much is it costing you? And if you do the math, you will determine it’s simply too much. They’ve got to go fo sho now call or for anybody out there who says, you know what, I want to get a free copy of the book snowball. The only authorized a biography that Warren Buffet has ever produced, a book called snowball, the only authorized biography of Warren Buffet to be produced. It’s called snowball. If I want to get a free copy of that book, how can I do it, Paul?

Well, you have to to actually go on our website or [inaudible] dot com, or you have to call my office and make an appointment with us. You have to. The bottom line is you have to be an a player with respect to your own future. You have to take your future seriously enough to pick up the phone or to turn on your computer and type in Hood Cpas.com and then come visit with us or do it over the phone. We have clients and about every state in the United States. And more and more we’re doing these meetings, uh, electronically take your, your future seriously and then come visit with us. And then, uh, you know, it’s a free hour of our time. We’re investing in you. We’re planting seeds, we’re counting, you know, we, we want to work with a players as our clients as well. And we’ll give you that book. It’s a great book. It’s an eye opening book. You’ll, you’ll see the principles have been deliberate, intentional towards your life and every aspect of your life. And, uh, it’s, it’s not what we’re taught out there and you just got to be serious enough about your future. Come on and we’ll, we’ll match your efforts.

Step one, go to [inaudible] dot com. Step two, fill out the form and schedule your free one hour consultation. And step three, they’re gonna. Give you a free copy of Warren Buffett’s only authorized biography, a book called snowball my friends. That wraps up how much it really does cost you to hire and employee. And Chuck, are you ready to conclude today? Show? I think I’m going. I think we covered a lot of stuff. So now without any further ado, free.

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