BETHESDA, MD, December 10, 1999 - Employee developmental training and 360-degree feedback programs, two widely applied corporate initiatives, do not add to a company's economic value and, in fact, are associated with a decrease in market value. That is one of the major conclusions of a study by Watson Wyatt Worldwide that measures the link between human capital practices and shareholder value.
Overall, the Watson Wyatt Human Capital Index(TM) study of 405 companies found that a significant improvement in 30 key areas of human capital management is associated with a 30 percent increase in market value. However, the study revealed that a handful of practices traditionally associated with added economic value, including training programs and 360-degree feedback programs, were associated with a 10 percent decrease in market value.
"This finding is somewhat counterintuitive, and, while there is nothing inherently wrong with training and employee feedback programs, companies must be very prudent in implementing them," says Bruce Pfau, Ph.D., national director of organization measurement at Watson Wyatt. "For example, when a company emphasizes training for the next higher-level job more than learning how to succeed in the current post, it makes investments that other organizations, including competitors, will recoup. In fact, we found that the practice is associated with a 1.9 percent drop in market value.
"Employee development depends on on-the-job learning and consistent encouragement from management, not just an abundance of formal training programs," says Pfau. "When training is formalized, companies need to take a very strategic approach to course offerings."
The study also suggested that companies exercise cautious planning when implementing employee feedback programs for both their managers and their peers. Companies that set up programs asking for employee input about their managers risk a 3.9 percent decline in their market value, the study noted.
"With 360 degree programs, the problem often lies in the implementation of what may be a good idea on paper. It's very much an issue of paying special attention to appropriate execution to get the desired results. Prudence is the key, " says Pfau.
Copies of the Study, The Human Capital Index-Linking Human Capital and Shareholder Value, are available for purchase at www.watsonwyatt.com. Watson Wyatt is a leading global consulting firm with more than 5,000 associates in 30 countries.
For more information, please contact Ed Emerman 609-452-5967 or Gretchen Ace at 301-581-4538.
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