Can the way a company manages its human capital significantly affect its financial performance?
Two years ago our Human Capital Index
(HCI) study confirmed that the two are
clearly linked. We developed a simple set of
measures quantifying exactly which HR practices
and policies have the greatest correlation
to shareholder value. Using those to assign a
single HCI “score” to each surveyed company allowed
us to deliver conclusive, groundbreaking
results: Where there are superior HR practices,
there is higher shareholder value.
Yet a crucial question remained: Do better
people management strategies actually create
higher market value? Or do financially successful
companies simply have more resources to
allocate to human capital initiatives?
We now have powerful insight into the
answer. Our second Human Capital Index
study allowed us to compare one set of companies
at two points in time to analyze the
correlation. The results are in and they are
dramatic. Superior human capital practices
are not only correlated with financial returns they are, in fact, a leading indicator of
increased shareholder value. Further, we
found that superior HR management leads
financial performance to a much greater
extent than financial outcomes lead good
HR. We were also able to identify certain
HR practices as value drivers and throw a
cautionary flag in front of some conventional
practices actually associated with a decrease
in financial performance.
The results of this study are more meaningful
now than ever before. While the state of
the economy is largely uncertain, demographic
trends are not. There is no doubt
that the labor shortage will continue well
into the next decade and that superior HR
practices are a key to attraction, retention
and more and more, business outcomes. It is
also a certainty that executives will now,
more than ever, look to HR to justify expenditures
and demonstrate the economic value
of an organization’s people practices.
The overriding message: If a company’s goal
is to improve shareholder value, a key priority
must be its approach to human capital.
