Return on Human Capital Investment Has Risen

The report also found that labor costs as a percentage of revenue increased 5% since 2003. Companies spend $28 on compensation and benefit expense for every $100 in revenue. Saratoga believes this indicates that companies need to re-evaluate the impact human capital has on a company’s bottom line.

Employers, recognizing the importance of human capital, say they have a strong desire to align pay with performance, but about 20% say their ability to do so is poor or very poor, while 13% say they don’t have a pay for performance system in place at all. According to the report, employers on average spend only $94 of every $1,000 on incentive based pay, and that number decreases when compensation related benefits are factored in.

On the other hand, Saratoga found that on average companies paid 82% of employee health care benefit costs and employees receive around 28 paid days off per year.

The report also said that 72% of eligible employees enroll in their company’s retirement plans, and the average employer contribution to employee 401(k) plans is $2,258.

Other findings of the study include:

• The average investment in HR is up 16% since 2001, while the average revenue per employee has increased 39% during the same time. The biggest increase was in the Telecommunications industry where HR investment is up 46% and revenue per employee 59%. The Health care industry has seen the largest four year decrease in HR spending (27%) and the smallest increase in revenue per employee (19%) for any of industries surveyed.
• The average organization devotes 35% of operating expenses to employee compensation and benefit costs.
• In 2004, the average organization spent 48 days and $3,270 to fill a position.

Saratoga , owned by PriceWaterhouseCoopers provides Human Capital Effectiveness reports to give HR departments a standard for helping them optimize their human capital investments. The 2005-2006 report is from 2004 data collected from 288 US organizations.