REWARD MANAGEMENT
Good HR and reward practices can boost shareholder value by 26%
New European research suggests that businesses using a specific set of HR practices can achieve better financial performance. Companies reporting strong gains in shareholder value were more likely to use knowledge workers, offer stock options, and pay above-average salaries, says consultancy Watson Wyatt.
The report adds to the growing body of evidence that shows a clear link between progressive people management practices and bottom line performance.
The human capital index
Watson Wyatt’ s study draws on a sample of firms from 16 European economies. The researchers used a measure called the human capital index developed by Watson Wyatt in the USA to summarise the effectiveness of each company’ s HR practices. A score of zero represents extremely poor human capital management and a figure of 100 was awarded to those with the ideal set of practices. The study then looked at the links between the index and various measures of company financial performance, such as total shareholder return .
Identifying the practices that add shareholder value
The results were remarkable and conclusive: in short, financial performance soared in companies with a high human capital index. Watson Wyatt found that improvements in 19 key HR practices are associated with a 26% increases in market value.
From the raft of data, the researchers were able to breakdown the 19 HR practices into five key groups. They found that a significant improvement in resource management was associated with a potential 7.1% increase in market value. The next most important factor was integrated leadership practices, which could bring a 4.7% increase, followed by money (3.7%). But a paternalistic culture can lower shareholder value by up to 7.5%.
For Watson Wyatt, the index shows a clear relationship between the effectiveness of a company's human capital and the creation of superior shareholder returns. It is a single, simple set of measures that quantifies exactly which human resource practices and policies have the most effect on increasing, or decreasing shareholder value.
Links between HR practices and shareholder value
|
| Potential increase in market value |
| Resource management
| 7.1% |
| Integrated leadership practices
| 4.7% |
| Money still matters
| 3.7% |
| Focus on the employee
| 2.2% |
| Paternalistic environment
| -7.5% |
Source: Watson Wyatt.
Survey details
Title: The human capital index: European survey report 2000
Survey sample: The survey is based on information supplied by more than 250 companies in 16 European countries.
Business sectors: Participants were drawn from companies of all sizes and from all sectors of the economy .
Availability: For a full copy of the report email Katherine Woolf at Watson Wyatt Worldwidekatherine.woolf@eu.watsonwyatt.com
Want to know more? If you want to browse the Watson Wyatt’ s human capital index web site . . . www.watsonwyatt.com/homepage/services/hci