U.S. Employers Lead in Pay ROI Measure

July 28, 2010 (PLANSPONSOR.com) – U.S. employers have done a better job of keeping a handle on salary dollars in recent years than have their Western European and U.K. counterparts, according to a new PricewaterhouseCoopers (PwC) report.

PwC’s “Trends in Human Capital” report found that the Human Capital Return on Investment (HC ROI) (pre-tax profit as a percentage of compensation paid) shot up 19.8% between 2002 and 2006 in the U.S. – far outpacing the 4.6% U.K. increase and 8.3% Western European hike for the same period. By 2008, as the economic downturn took hold around the globe, the HC ROI held steady in the U.S. but fell 2.8% in the U.K. and 1.7% in Western Europe.

Further, according to PwC, remuneration over revenue and remuneration over total cost measures indicate the United States’ ability to “quickly reduce costs when market conditions demand.”

“In the U.S., less prescriptive rules permit greater flexibility in adjusting the workforce to meet marketplace demand,” said John Caplan, partner, PricewaterhouseCoopers LLP (US), in the report. “Remaining agile has allowed successful business leaders in the U.S. to consider new approaches to workforce reduction while maintaining the ability to respond quickly. However, companies need to be careful that such adjustments do not leave employees disengaged. Strong employee engagement drives business performance and enhances the return on workforce investment.”

PwC said the regional differences are not due to varying levels of revenue growth but the ability of different economies to adjust the level of employment costs to market conditions. “The U.S. clearly kept employment numbers under tight control,” the report comment.

The report recognized the varying effects of government regulation in nations around the world, but contended regulations were only a contributing factor and should not be interpreted as the primary driving force behind the trend.

In other issues, PwC found that business process outsourcing (BPO) activity is now forecast to reach $55.9 billion by 2012, up from $10 billion in 2005. Forty-eight percent of customers said they continue to be held back from offshoring by challenging cost-benefit justifications and a lack of experience in the market.

Some 45% favored using in-house employees over outsourced staff, 37% of respondents said they lacked the skills to manage outsourcing, and 37% feel they need to ‘clean up’ operations before outsourcing them.

More information is at http://www.pwc.co.uk/eng/issues/managing_people_changing_world.html.