Employees are vital to an organization and when job vacancies occur, it is in the best interest for the company to rehire as quickly as possible in order to avoid a disruption in team cohesiveness and the adverse financial impact on profitability and shareholder wealth. Open positions are a cost detriment when not filled in a timely manner and to measure the lost economic opportunity, the following methodologies can be utilized:
Multiple of Compensation Method
The Multiple of Compensation Method values an employee based on their annual salary and is what the insurance industry utilizes to underwrite “key man” insurance policies. In this method, a multiple between 3-7 times is typically applied to the annual salary of the individual. The multiple applied depends on the type of business, the estimated difficulty in finding a qualified replacement and the responsibilities the job position entails.