Hewitt Associates’ Research Shows Impact That Pivotal Employees Have on Business Results

LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--In today’s competitive global economy, organizations cannot afford to make poor workforce decisions. According to research by Hewitt Associates, a global human resources services company, the attraction and retention of pivotal employees plays a critical role in increasing shareholder value. Now companies can use Hewitt’s data to optimize their human capital investments to impact business results.

In an effort to help organizations make important workforce decisions, Hewitt analyzed the HR data of more than 1,000 large companies and 20 million employees – a microcosm of the U.S. labor market – to determine the financial impact of human capital programs. Results showed that the flow of pivotal employees – defined as employees in the top quartile of their peers in pay progression – into and out of an organization is a strong predictor of changes in Cash Flow Return on Investment (CFROI¹) and shareholder value.

Hewitt captures this information in the form of “Talent Quotient” (TQ), the first human capital metric that quantifies the financial impact that pivotal employees make on an organization’s business results. According to Hewitt’s research, for the average Fortune 500 company, a 10 percent increase in a company’s TQ score adds approximately $70 million to $160 million to its bottom line over the next few years.²

“Human capital continues to be the single largest investment a company makes, and now management can quantify the return on investment of its human capital and connect it to business results,” said Mark Ubelhart, Hewitt practice leader, value-based management. “Companies need to make better, more informed decisions across the entire human capital spectrum. Just as an organization assesses its business conditions from a financial standpoint, it can now assess its human capital position – HR programs, practices and workforce – through TQ.”

“This is the first business solution that uses predictive analytics to measure how pivotal employees impact business results and explain how human capital investments impact future Cash Flow Return on Investment. The results give managers a new way to make critical business decisions,” said David F. Larcker, professor of accounting, Graduate School of Business, Stanford University.

Hewitt can assist companies in prioritizing human capital investments by modeling the financial impact of future workforce decisions. Organizations are able to evaluate a particular human capital investment in terms of its impact on pivotal employees and business results. For example, if a company needs to better differentiate in base pay and bonus decisions to reward performance more appropriately, TQ analysis can provide evidence-based support for the degree of change that will optimize cash flow.

Hewitt’s data by industry sectors shows a range of TQ performance. For example, the financial services sector has TQ scores ranging from 86 to 138, energy ranging from 88 to 124, and IT 96 to 123.

“The significance of industry ranges for managers is in understanding their firm’s TQ performance relative to talent competitors. A firm’s track record in TQ directly reflects the effectiveness of its human capital investments, and also is a strong indicator of leadership bench strength and future success,” said Samir Raza, an economist with Hewitt’s Talent and Organization Consulting practice.

Hewitt’s TQ also provides managers with the following insights on people management issues:

• Prioritization of investment dollars in people programs
• An objective ranking of the firm’s track record in attracting and retaining pivotal employees compared with other organizations
• An understanding of flight risk of pivotal employees based on demographics and diversity factors
• Fact-based evaluation of people programs to bolster information from employee opinion surveys

“Finally, organizations can prioritize human capital investments, such as compensation, training and benefits programs, because they can model the return on investment of shareholder value. This is much more effective than the historic decision-making process based on competitive practices and benchmark surveys,” said Ubelhart.

About Hewitt Associates

With more than 60 years of experience, Hewitt Associates (NYSE: HEW) is the world’s foremost provider of human resources outsourcing and consulting services. The company consults with more than 2,400 organizations and administers human resources, health care, payroll and retirement programs on behalf of more than 350 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 22,000 associates. For more information, please visit www.hewitt.com.

¹ CFROI® and HOLT are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse.

² Hewitt’s research found that for the average Fortune 500 company with about $10 billion in sales, a 10-point improvement in TQ Retain could improve a company’s CFROI by 0.7 to 1.6 percentage points on average over three years, or approximately $70 million to $160 million in cash flow. The results vary by industry and other factors.