How to Lift Human Capital Value

Evidence that companies with good people management practices substantially outperform the market comes from recent survey that rates New Zealand’s corporate efforts at around B-minus.

The Watson Wyatt Human Capital Index (HCI) survey involved more than 500 enterprises in 12 Asia-Pacific countries and included 20 publicly listed Kiwi companies.

It revealed that local companies had some real strengths and real weaknesses, according to Watson Wyatt New Zealand managing director Paul Loof.

But, he says, the overall message is that good HR practices pay dividends.

“By improving human capital management, New Zealand firms can improve their bottom line. And, from the HCI we now know which practices contribute most value.”

Using sophisticated methodology, the HCI identified 41 specific practices across five key HR dimensions that are sources of additional value.

1. HR function effectiveness. Having the right focus and capability in this area can increase the value of firms by 31.5 percent. Locally sampled companies rate fairly well here in terms of running very lean HR functions but, according to Watson Wyatt’s human capital head of practice Christian Dahmen, would probably benefit from further investment in the area.

2. collegial, flexible, customer-focused workplace. Get this right and, according to the HCI, you add 21.5 percent shareholder value, the bulk of which is linked to customer focus. New Zealand companies fall down bit on this score with low ranking behind Hong Kong, Taiwan, Australia and Singapore.

3. Clear total rewards and accountability. The HCI found that building the right mix of short, medium and long-term rewards, rejecting sub-standard performance and creating an “ownership” mentality adds around 17.7 percent to shareholder value. While Kiwi companies are pretty much up with the play on this, they could do better by doing more to link pay and business strategy, says Dahmen.
“We also need to become smarter in assembling the right mix of total rewards to attract and motivate employees.”

4. Recruiting and retention excellence. This is worth around 5.4 percent in terms of increased shareholder value and is not strong amongst the New Zealand companies. They need to be more aware of the cost of turnover and put more effort into helping talented people in career development, suggests Dahmen.

5. Communications integrity. Companies that share information in more consultative way with employees can generate an added 2.6 percent in shareholder value.

If firm could make significant improvement across all 41 practices that make up the above dimensions, it could add 78.7 percent to its shareholder value, says Loof. But such transformation would take lot of investment and effort.

“You can’t just take 41 pills and wake up next day as super company.”

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