International study shows good HR practices boost shareholder value

REWARD MANAGEMENT

International study shows good HR practices boost shareholder value

Businesses using a specific set of "superior" HR and reward practices can create more than double the shareholder value than companies with average practices, according to a series of studies by Watson Wyatt in Europe, Asia-Pacific and North America.

The report adds to the growing body of evidence that shows a clear link between progressive people management practices and company financial performance. J P Orbeta, global director of Watson Wyatt's human capital practice, said: "While each regional study carries some cultural differences, the results demonstrate that great HR practices can be a true competitive advantage. Now we have seen that superior human capital practices prevail, regardless of economic conditions or geographic location."

The human capital index

Watson Wyatt's studies draw on a sample of companies in Europe, Asia-Pacific and North America. This database includes more than 2,000 major companies and tracks shareholder performance from 1994 to 2002. The researchers used a measure called the human capital index (HCI) to summarise the effectiveness of each company’ s HR practices.

Orbeta said: "The findings provide the first-ever documentation that the strong link between human capital practices and shareholder value creation stretches across several continents."

Watson Wyatt's "global truths"
The studies report that companies have better total returns to shareholders (TRS) or growth in shareholder value if they have the following "superior human capital practices":	Potential increase in market value
Clear rewards and accountability	16.5% to 21.5%
e.g. broad-based stock ownership, paying above the market and effective performance management
Excellence in recruitment and retention	5.4% to 14.6%
e.g. effective recruiting process, a positive employer brand and focus on key skills retention
A collegial, flexible workplace	9.0% to 21.5%
e.g. employee input into how the work gets done, higher trust in senior management and a lack of workplace hierarchy.
Communications integrity	2.6% to 7.1%
e.g. effective use of employee surveys, sharing of strategy and financial data with employees and employee input into decision-making.
Focused HR technology	4.2% to 6.5%
e.g. using technology to improve service and accuracy, or to cut costs. (Watson Wyatt found this consistently in North America and Europe, and among larger organisations in the Asia-Pacific study.)

 

A final word

Want to know more?

To read the press release online jump to www.watsonwyatt.com/news/press.asp?ID=10935

Watson Wyatt & Company is an international human capital consulting firm that provides services in the areas of employee benefits, human resources technologies and human capital strategies. The firm’ s headquarters are in Washington DC, and it has more than 4,200 associates in 62 offices in the Americas and Asia-Pacific. To find out more visit www.watsonwyatt.com

Posted 26 February 2003