Workforce.com

Study Moderation in Hiring Practices Boosts Business Performance

August 19, 2005
Companies that hire and promote heavily--but not too heavily--from within tend to outperform other companies, according to a Watson Wyatt study. The same is true for companies that keep turnover low, though not dramatically low.

Companies that fill about half of their non-entry-level jobs internally had a total return to shareholders of 56 percent. This was far higher than those that filled very few jobs internally. Interestingly, it was also higher than those that filled a very large majority of their jobs--80 percent or more--from within. Those companies' shareholder return was 32 percent.

As for retention, the study found that companies with high turnover, at 43 percent including both voluntary and involuntary turnover, do worst. Very low turnover, 5 percent, also is associated with lagging companies. Firms with moderate turnover, around 15 percent, outperform both of the extremes.

Watson Wyatt's annual Human Capital Index study compares workforce management practices with total returns to shareholders. This total-return calculation includes both how much a company's stock has gone up as well as how much the firm has paid out in dividends.

Other highlights:

· Organizations that fill jobs in as little as two weeks outperform those that take seven weeks to hire employees.

· The more that organizations fill jobs using employee referrals, the better their shareholder results tend to be.

· Companies that have not cut training during tough times have outperformed those that did cut training. These companies also have higher "market premiums," meaning investors believe their human assets and brand are particularly valuable.

· Watson Wyatt says that its "research has shown time and time again that 360-degree performance evaluations do not translate into improved performance."

· Companies with better pay and benefits than the market average tend to outperform other organizations. Flatter organizations with fewer salary grades also outperform.

· While it's common for companies to pay more in bonuses to top performers, the most successful companies pay much more. When companies paid top performers more than 4.5 times the bonus payout of lower performers, they returned a lot more money to stockholders.

· Lean, efficient organizations with fewer human resources professionals per employee outperform those with more HR professionals on staff.

The 147 North American organizations surveyed by Watson Wyatt averaged $6.4 billion in revenue and 15,400 employees.

--Todd Raphael