Despite being subject to some of the least strict labour laws in Europe, UK workers generate a lower return on investment for their employers than those in either Western European or the US.
These are the findings of a study undertaken among 10,000 companies in 40 countries by PricewaterhouseCoopers (PwC). The report indicated that so-called ‘human capital return on investment’ (HC ROI) – or the pre-tax profit generated from every pound spent on staff renumeration – rose by only 4.6% in the UK during the boom years of 2002-2006. This compared with HC ROI increases of 8.3% in Western Europe and 19.8% in the US during the same period.
In 2007 and 2008 when economic conditions became more difficult, HC ROI growth fell by 2.8% in the UK, 1.7% in Western Europe and remained steady in the US.
Richard Phelps, a HR services partner at PwC, said: “US firms have proved better at flexing employment costs to market conditions. Less prescriptive rules have allowed them to adjust staff numbers and salaries where necessary.”
But the fact that the UK’s labour laws are much less stringent than those of most of their European neighbours would indicate the need for alternative ways of tackling the issue. To this end, the report entitled ‘Trends in Human Capital’ recommended increasing staff overtime levels, finding ways to reduce absenteeism, changing the balance between full-time, part-time staff and contractors, altering benefits structures and cutting facilities and overhead costs.
Whatever their approach, however, Phelps said that the downturn had highlighted the need for companies to clarify the contribution staff made to the bottom line.
“A fact-based approach can help ensure decisive and transparent decision-making. However, companies need to ensure employees remain engaged during any subsequent changes as their support is equally vital to return on workforce investment,” he added.
One way of not motivating staff, however, is to botch succession planning. While most respondent organisations had identified an average of one potential successor for each key role in the business, in general only one in three were filled by the candidate in question.
As a result, the report advised companies to improve their talent management programmes and to identify staff who could set high standards for other personnel to follow.
In vertical market terms, Phelps indicated that the highest performing sector in HC ROI terms during 2008 and 2009 was insurance, followed by chemicals, utilities and pharmaceuticals. The segment with the poorest HC ROI was technology, however, followed by retail and leisure.