The correlation between benefits policies and enterprise financial performance has been thoroughly studied, and the correlation is positive. The problem is that many investors have yet to grasp the significance of that correlation, and lack basic tools to assess the quality of the company from an HR and benefits perspective.
It is intuitive that companies that have sound human resources policies and invest in employee training will perform better, said Jon Lukomnik, executive director of the Investor Responsibility Research Center. It is no longer necessary for people to rely on their intuition on this topic, he added.
He expressed the hope that more investors will add a benefits-specific lens to their traditional financial criteria for assessing companies future performance prospects.
A new, comprehensive study-of-studies, conducted by the IRRC, connects the dots and perhaps offers some ammunition for executives seeking to justify the ROI and increase their companys overall investment in benefits initiatives.
The research paper, titled The Materiality of Human Capital to Corporate Financial Performance, analyzes 92 prior studies dealing with the topic. Its authors are associated with the Pensions and Capital Stewardship Project at Harvard Law Schools Labor and Worklife Program.
One reason companies have been less inclined to include benefits-focused criteria in their financial analyses, Lukomnik said, is the lack of standardized corporate reporting formats for HR and benefits data.
And that may be because there hasnt been an outcry from research providers of investors pressing companies to report publicly on their human capital policies and outcomes, he added.
The study encourages investors to look into the following HR/benefits-based evaluation criteria to round out their assessment of a corporations future prospects:
- A description of the company's training policy,
- How a firm's overall benefits policy relates to its business strategy,
- The kinds of employees trained and whether training is provided in or outside the company,
- Whether and how the company measures the direct and indirect costs of the training,
- Outcomes that characterize successful implementation of policies and how they are measured. (These might be immediate in terms of increased worker knowledge and skills resulting in improved productivity or customer satisfaction. Or, they might result in lower turnover with associated cost savings.) And:
- Measures of the impact that implementation has had on company profits and other measures of financial performance.
The analysis review of 92 human capital studies were divided into two basic categories: Those examining the impact of HR/benefits policy, and those focusing on training programs.
Of the 56 studies examining HR/benefits policy, 45 found a positive correlation between sound HR/benefits policies and financial performance; nine that were mixed and two that showed no correlation. None showed a negative correlation.
Of the 36 studies of the impact of corporate training programs, 22 showed a positive correlation with corporate profitability, 8 that were mixed, 5 showing no correlation and one showing a negative correlation.
With such comprehensive and conclusive research-based evidence of the positive correlation between sound benefits policies/programs and financial success now evident, Lukomnik believes investors will begin pressing companies to report publicly on their human capital policies and outcomes.
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