Worlds largest human capital study reveals key trends

Worldís largest human capital study reveals key trends across economic recovery, remuneration and investment in leadership

The worldís largest human capital survey has revealed that a potential mismatch is developing in Europe between pay and value and that there is little evidence of high investment in leadership training and development demonstrating a major return. The industry-wide study also finds that the US is able to move faster and more flexibly than Europe when responding to adverse economic conditions.

ëKey Trends in Human Capital: A Global Perspectiveí, launched today by PricewaterhouseCoopers, is the largest study of its kind ever undertaken and is based on data collected between 2001 and the first quarter of 2004, from over 10,000 organisations across Europe and the US.

Richard Phelps, partner, Saratoga said:
ìThe drive towards meaningful human capital measurement is gaining pace, with regulatory developments indicating that human capital reporting will be a standard requirement within years. HR practitioners must ensure that that they are ready to respond, with systems and thinking in place. People in organisations cannot be regarded as human capital in reality, until and unless their contribution to value can be measured with the same confidence as any other organisational asset.î

ëKey Trends in Human Capital: A Global Perspectiveí, represents a variety of industries and is the first ever benchmarking study from Saratoga, the former US-based Saratoga Institute and EP-First, a European-based provider of human capital metrics which now sits within the Human Resource Services practice of PricewaterhouseCoopers.


Key findings:
Financial performance: Between 2001 and 2003, the US recovered both revenue generation and bottom line profit growth faster than Europe. Since 2001, revenue per employee has increased by 18% in the US and by 11.3% in Europe. Over the same period, the US reported dramatic pre-tax profit growth of 156% per employee, (slowing to 25% growth in 2002), while Europe reported pre-tax profit per employee growth of 26% since 2001.

The different rates of recovery per employee between the US and Europe would seem to indicate that in times of economic transition, the US is able to move faster and more flexibly than Europe when responding to adverse economic conditions and subsequently implementing innovative propositions for growth.

Added value performance: Saratogaís Human Capital ROI metric takes pre-tax profit generated for each denomination of currency invested in compensation and benefit costs. The resultant ratio indicates how many Dollars or Euros are produced for every Dollar or Euro paid to an employee. Therefore, when pre-tax profits fall, the Human Capital ROI should also fall ñ unless compensation and benefits unravel at the same pace. This did not happen in either the US or Europe from 1999 to 2001. The study goes on to examine the link between pre-tax profits and the Human Capital ROI metric and discusses the different recovery rates for markets in the US and Europe.

The study also presents detailed European financial metrics, including Revenue per Full time equivalent (FTE), Remuneration, Costs and Profit per FTE. Percentage changes between 2001 and 2003 are also included. Saratoga concludes that in Europe a potential mismatch between pay and value is developing.

Leadership training and development: Investment in leadership training and development continues to be high, broadly estimated at Ä1.5 billion in 2003 across Europe. Saratogaís findings show little evidence that this investment is currently demonstrating any major return.

Female diversity: Between 2001 and 2003, the number of women in the total European workforce remained stable at approximately 39%. Between 2001 and 2003, the number of women in managerial posts declined by 1.9% to 24.6%. In professional posts, the figures fell from 33.6% in 2001 to 29.3% in 2003. The study examines the variations between different sectors.

Investment in learning: In Europe, there is evidence of a consistent decline in formal training investment since 2001. The figure stands at 23.9 hours in 2003, compared to 25.8 hours in 2001.

The HR Function: The size of the HR function in the US is increasing, with figures indicating a 3% growth in numbers since 2002, resulting in a ratio of 85 employees to every HR practitioner in 2003. In the US, investment in the HR function has grown by some 22% since 2000. The study also examines the ratio of employees to HR employees and discloses variations in HR department costs in Europe between 2001 and 2003.

In both Europe and the US, the HR function faces major change demands, with little evidence in Europe over the last 12 months that the HR function is playing a more significant role in organisational life. A number of studies indicate that in Europe the number of HR Directors operating at the most senior level in companies continues to decline.

Outsourcing and offshoring provision of labour and service: Outsourcing in Western Europe has grown overall by 50%. Approximately 80% of the organisations involved in the study cited cost reduction as their main objective in outsourcing and offshoring. The study discusses the growth in offshoring, the differences between industry sectors and the human capital issues raised.

Shared Services: Results show that the impact of shared services in Europe is mixed. There is little evidence to show that outsourcing services or centralising work has significantly reduced HR function costs, impacted on the size of the HR function or enabled remaining HR professionals to have greater business impact.

New human capital measurement metrics: Saratoga has developed new metrics in the following areas, in response to demand for human capital measurement data:

Talent Management: New metrics to enable organisations to benchmark themselves against others on the key ingredients of a disciplined Talent Management System, ie: the identification, attraction, retention, development and usage of talent.

Corporate social responsibility: New metrics which indicate definitive actions being taken by organisations to measure the real impact of their corporate social responsibility.

Innovation: Creating an innovative working environment has been seen as a critical factor for success and survival for some years. In response to increasing demand from clients to provide guidance on their competitive positioning in their innovation endeavours, Saratoga is now developing a range of measures.

Engagement and Commitment: based on work undertaken by the Lancaster Business School, Saratoga has developed an Engagement and Commitment Matrix to demonstrate the existing level of engagement and commitment of an organisationís human capital.

HR Shared Services: new metrics focusing on processes such as recruitment, training administration, performance management, salary and benefits planning, expatriate and absence management