The CEO wants numbers that prove it’s worthwhile investing in HR? How about this:
By making significant improvements in total rewards and accountability programs companies could potentially increase market value by 16.5 per cent. By creating a more collegial, flexible workplace they could improve shareholder value by nine per cent. By improving recruitment and retention, the organization could improve its performance by 7.9 per cent.
This according to a new study by global consulting firm Watson Wyatt which claims to prove conclusively that good human resources practices can potentially raise company market value by as much as 47 per cent. The Human Capital Index was created by examining the correlation between HR practices and financial performance at 750 of North America and Europe’s largest companies. It was a followup to a 1999 study that proved there was at least a correlation between the quality of a company’s HR programs and its financial results. This year the authors wanted to see if good HR drove financial performance or whether successful companies simply had more resources to put into HR.
“Evidence from this new research clearly favours superior human capital management as a leading — rather than lagging — indicator of improved financial performance outcomes,” said Bruce Pfau, head of organization effectiveness at Watson Wyatt.
By examining the 1999 HR practices at subject organizations and then their 2001 financial performance, researchers were able to see how HR affected performance. Conversely by studying financial performance in 1999 and then comparing that to HR practices in 2001 they were able to see how much good bottom line performance produced good HR programs.
“The bottom line is that effective human capital practices drive business outcomes more than business outcomes lead to good HR practices,” said Pfau.
The HCI identified 43 specific HR practices that create shareholder value. For example, companies where a high percentage of company stock is owned by employees could potentially increase shareholder value by 1.3 per cent. When employees are given input on hiring decisions, companies experienced a 0.5 per cent increase. And at companies that offer flexible work arrangements market value could increase by as much as 3.5 per cent.
In addition to identifying some of the best human capital practices, the research also discovered some popular HR programs that have a negative effect on the bottom line. Implementing HR technologies with soft goals like culture change, 360-degree review programs and developmental training were all associated with a decrease in financial performance but this is likely because they are often poorly implemented.
SIDEBAR
Where good HR drives performance
Five key areas of HR and the potential market value increases associated with a significant improvement.
Total rewards and accountability 16.5%
Collegial, flexible workplace 9.0%
Recruiting and retention excellence 7.9%
Communications integrity 7.1%
Focused HR service technologies 6.5%
By making significant improvements in total rewards and accountability programs companies could potentially increase market value by 16.5 per cent. By creating a more collegial, flexible workplace they could improve shareholder value by nine per cent. By improving recruitment and retention, the organization could improve its performance by 7.9 per cent.
This according to a new study by global consulting firm Watson Wyatt which claims to prove conclusively that good human resources practices can potentially raise company market value by as much as 47 per cent. The Human Capital Index was created by examining the correlation between HR practices and financial performance at 750 of North America and Europe’s largest companies. It was a followup to a 1999 study that proved there was at least a correlation between the quality of a company’s HR programs and its financial results. This year the authors wanted to see if good HR drove financial performance or whether successful companies simply had more resources to put into HR.
“Evidence from this new research clearly favours superior human capital management as a leading — rather than lagging — indicator of improved financial performance outcomes,” said Bruce Pfau, head of organization effectiveness at Watson Wyatt.
By examining the 1999 HR practices at subject organizations and then their 2001 financial performance, researchers were able to see how HR affected performance. Conversely by studying financial performance in 1999 and then comparing that to HR practices in 2001 they were able to see how much good bottom line performance produced good HR programs.
“The bottom line is that effective human capital practices drive business outcomes more than business outcomes lead to good HR practices,” said Pfau.
The HCI identified 43 specific HR practices that create shareholder value. For example, companies where a high percentage of company stock is owned by employees could potentially increase shareholder value by 1.3 per cent. When employees are given input on hiring decisions, companies experienced a 0.5 per cent increase. And at companies that offer flexible work arrangements market value could increase by as much as 3.5 per cent.
In addition to identifying some of the best human capital practices, the research also discovered some popular HR programs that have a negative effect on the bottom line. Implementing HR technologies with soft goals like culture change, 360-degree review programs and developmental training were all associated with a decrease in financial performance but this is likely because they are often poorly implemented.
SIDEBAR
Where good HR drives performance
Five key areas of HR and the potential market value increases associated with a significant improvement.
Total rewards and accountability 16.5%
Collegial, flexible workplace 9.0%
Recruiting and retention excellence 7.9%
Communications integrity 7.1%
Focused HR service technologies 6.5%
