HR Policy Leads to Higher Profits

February 4, 2003 ( - People policies linked to a human resources strategy lead to a more profitable business, a recent study found.

Research by PricewaterhouseCoopers noted a business with a documented HR strategy saw revenue per employee 35% higher than organizations where no such strategy exists. Further, organizations where the HR staff is very satisfied with their department’s influence on business strategy, report profit margins that are 46% higher than for those who are not satisfied with their contribution.

The increase in revenue per employee may be a contributing factor into the number of organizations now reporting on employee satisfaction, from 37% in 2000 to 43% in 2002.

HR Findings

Not surprisingly, PricewaterhouseCoopers found lower absenteeism also leads to better profit margins. Organizations with an average five days absence per employee per year have profit margins that are 60% higher than organizations with an average 10 days absence per employee per year.

With such policies and revenue reporting noted, HR leaders are gaining more prominence on the highest-ranking leadership team in their organization. A total of 67% of HR leaders are now members of these teams.   However, HR leaders must have the required competencies, such as the ability to influence, to justify their place at this level.

Additionally, outsourcing of HR activities is gaining acceptance, the 2000 survey showed that 48% outsourced at least one HR activity. In 2002, 72% outsourced at least one HR activity, with many organizations mixing work activity from outsourced and internal sources.

Measure Dearth

However, despite the results showing greater revenue per employee in businesses with a documented HR strategy, many organizations still do not measure or report on key people issues. While the HR community believes it makes the most important and measurable contribution to business performance through increasing employee satisfaction and controlling costs, few actually measure success in this area, with only 43% regularly reporting on employee satisfaction and just over half (55%) reporting on work force costs.

Additionally, a third of survey participants have all employees completing performance reviews, while 12% have no performance appraisal process at all.

PricewaterhouseCoopers surveyed HR leaders from more than 1,000 organizations in 47 countries to investigate the relationship between business performance, HR policy and strategy and financial measures such as profit margins and revenue per employee.