Investing in People Pays

03/05/07

Studies show that strong human resource practices result in more profitable companies. Recent studies from Watson Wyatt Worldwide and Price Waterhouse Coopers show that companies with superior human resource execution significantly outperform less efficient competitors.

It pays well to hire well. That’s the bottom line of the Human Capital Index^® Survey conducted by Watson Wyatt Worldwide. It found that organizations with superior recruiting and hiring practices significantly outperformed those with less effective practices.

The study surveyed human resource practices in 147 North American companies with 1,000 or more employees. Here are some of the best practices – easily adaptable to smaller firms – the survey found to be effective:

Fill openings quickly - Surveyed companies that filled open positions within two weeks outperformed companies that required seven weeks or more to fill a vacancy. In a separate survey, the Price Waterhouse Coopers Saratoga 2005-2006 U.S. Human Capital Effectiveness Report found that, despite the bonuses and incentives associated with filling a position quickly, the average organization spent 48 days and $3,270 to fill a vacancy.

Attract your best applicant - Companies that typically filled a position after making only one offer to the choice candidate were more profitable in the same time period than companies that typically made two or more offers before filling a position.

Employees are your best recruiters - Companies that generated a third of their new hires through employee referrals similarly outperformed companies that generated 10% or fewer of their hires through in-house referrals. Watson Wyatt Worldwide also found that companies that often promoted from within performed almost five times better than companies that tended to hire management from outside the firm.

Provide incentives - Companies that provided performance-based bonuses and other incentives generally outperformed those companies that did not. In fact, in contrast, many of those companies that did not provide incentive compensation actually lost money during the same period.

The Watson Wyatt Worldwide survey also determined that too little turnover may be as bad as too much turnover. On average, the optimum employee turnover seems to be about 15%. Companies at either end of the spectrum, with very high or very low turnover, did not perform so well.