People Strategies: Company value linked to treatment of employees

Linda Bower is a speaker, executive coach and human performance improvement consultant in Rogersville.

Any company, large or small, can use Watson Wyatt's 2001/2002 Human Capital Index to consider how their treatment of employees may be driving their bottom line. This examines the Human Capital Index and its implications to business owners and managers.

According to the HCI, the most important human resource practices are achieved through "Total Rewards and Accountability."

"Rewarding employees for good work and refusing to accept sub-par performance has a dramatic impact on shareholder value. Companies can achieve a 16.5 percent increase in market value by excelling in this area," the report said.

Watson Wyatt included a special section of its survey to cover the unique health care system in the United States. The greatest individual impact, 2.8 percent, of all the human resources practices is in using health benefits to recruit and retain employees.

"Companies that improve their selection of health and retirement benefits as an important tool for recruiting and retention can increase shareholder value by a total of 4.3 percent," the report said.

In effect, the results underpin our nation's growing concern for what happens to Americans when they lose company medical benefits. However, Watson Wyatt cautions companies to look closely at how they should improve their services in this area.

"In the current climate, the emphasis is on using rewards to keep top talent in place. In doing so the role of benefits should not be underestimated: A company must not only offer an above-market benefits package, but must make sure employees understand its value." This is significant because many companies simply need to educate their employees about the benefits they are already receiving.

The other interesting statistic is that companies can gain a 1.1 percent increase in market value by linking pay to performance. Linking pay to performance and generally focus employees on the bottom line, and the result is a 6.3 percent increase in market value, according to Watson Wyatt.

What the report doesn't say is how to link pay to performance and how to focus employees on the bottom line. Companies have many alternatives to choose from. They can institute incentive programs or processes such as "Management By Objectives," or even go all the way with open book management as SRC Holding Corporation's Jack Stack recommends.

Hanging on to poor performers without helping them improve has always been considered to be a wrong, but common, decision. Now it appears that companies can accelerate their market value by dealing with poor performers.

It is significant that two years ago the most important index category was "Recruiting Excellence." The commonality between that index and the most recent one is that focusing on recruitment and retention, in whatever way, is a consistent driver of market value.

The Watson Wyatt 2001/2002 Human Capital Index is derived from 750 companies, some international, with at least three years of shareholder returns, 1,000 or more employees and a minimum of $100 million in revenues or market value. It has 49 specific human resource practices that play the greatest role in creating shareholder value.