Responses are matched
to objective financial measures, including market value, three- and
five-year total returns to shareholders (TRS), and Tobin’s Q, an economist’s
ratio that measures an organization’s ability to create value beyond its
physical assets. Publicly available data from Standard and Poor’s Compustat
database were used to access the financial information needed.
To investigate the
relationship between human capital practices and value creation, a series of
multiple regression analyses were conducted, identifying a clear
relationship between the effectiveness of a company’s human capital
practices and shareholder value creation. Thirty key HR practices were
associated with a 30 percent increase in market value. Summary Human
Capital Index (HCI) scores
were created for individual organizations so that results could be expressed
on a scale of 0 to 100. An HCI score of 0 represents the poorest human
capital management, while a score of 100 is ideal.
The Human Capital
Index (HCI) is a methodology of
Watson Wyatt used to calculate the correlation of human capital and
Watson Wyatt developed
a set of measures quantifying exactly which HR practices and policies have
the greatest correlation to shareholder value.
Using those to assign
a single Human Capital Index (HCI) “score” to each surveyed company allows them to deliver
conclusive, groundbreaking results: where there are superior HR practices,
there is higher shareholder value.
In other words: the Human Capital Index shows
better an organization is doing in managing its human capital, the better
its returns for shareholders.
More valuation methodologies
Human Capital Value
Kaplan, Norton, The Strategy- Focused
Fogg, Implementing Your Strategic Plan
Risher, Aligning Pay and Results
Edvinsson, Corporate Longitude
Standfield, Intangible Management
Lev, Intangibles: Management, Measurement, and
Smith, Valuation of Intellectual Property and
Kennedy, The End of Shareholder Value
Freeman, Corporate Strategy and the Search for