Managers looking for new ways to make critical business decisions on salary and bonuses might find the results of a new Hewitt Associates study useful.
The research firm, which analyzed the HR data of more than 1,000 large companies and 20 million employees, says there is a direct link between the attraction and retention of pivotal employees and increasing shareholder value.
Hewitt suggests organizations prioritize human capital investments (i.e., compensation, training, benefits) to model shareholders’ return on investment, rather than use historic decision-making process based on competitive practices and benchmark surveys.
To quantify the financial impact that pivotal employees make on an organization’s business results, Hewitt uses what it calls Talent Quotient.
According to Hewitt’s research, a 10-point increase in TQ could add approximately $70 million to $160 million to the bottom line of the average Fortune 500 company over the next few years.
“Human capital continues to be the single-largest investment a company makes, and now management can quantify the return on investment of its human capital and connect it to business results,” said Mark Ubelhart, Hewitt practice leader, in a release.
“Companies need to make better, more informed decisions across the entire human capital spectrum. Just as an organization assesses its business conditions from a financial standpoint, it can now assess its human capital position — HR programs, practices, and workforce — through TQ,” he said.
Article Continues Below
According to the findings, TQ may help companies balance reward performance more appropriately.
Hewitt’s data by industry sectors shows a range of TQ performance, such as 86 to 138 for the financial services sector, 88 to 124 for energy, and 96 to 123 for information technology.
“The significance of industry ranges for managers is in understanding their firm’s TQ performance relative to talent competitors,” Hewitt economist Samir Raza said in the release.
“A firm’s track record in TQ directly reflects the effectiveness of its human capital investments, and also is a strong indicator of leadership bench strength and future success,” she added.