That was the primary message from a new Watson Wyatt study, which found that “superior” HR practices are an effective indicator of healthy financial returns and increased shareholder value.
The year-long study reported that companies with the best HR practices provided a 64 % total return to shareholders over a five-year period, more than three times the 21% for companies with the weakest HR practices.
The HCI study identifies HR practices that find their way to the bottom line, including 43 that play the greatest role in creating shareholder value.
According to the study, a significant improvement in all practices is associated with a 47% increase in market value.
The 43 practices are divided into five key areas, and the research quantifies exactly how much an improvement in each area is expected to increase a company’s market value.
HR practices and the amount of bottom-line improvement include:
- total rewards and accountability 16.5%
- collegial, flexible workplace 9.0%
- recruiting and retention excellence 7.9%
- communications integrity 7.1%
- focused HR services technologies, 6.5%
- making a stronger effort to link pay to performance, 6.3%
- capitalizing on basic communication technology, 4.2%
- flexible work arrangements, 3.5%.
Watson’s 2001 Human Capital Index (HCI) study is based on a survey of human resources practices at 750 North American and European companies with a track record of at least three years of total returns to shareholders (TRS), 1,000 or more employees and a minimum of $100 million in revenues or market value
Copies of the report are available for $20 on Watson Wyatt’s Web site .