UK employers lag behind US in maximising profit from their people

UK businesses are lagging behind their US counterparts at maximising profit from their investment in people, according to research by professional services firm PwC.

The PricewaterhouseCoopers Trends in Human Capital report analyses data from more than 10,000 companies in 40 countries to report the pre-tax profit produced for every pound, euro or dollar paid out in remuneration: the human capital return on investment (HC ROI).

The report shows that during the uninterrupted growth years of 2002 to 2006, HC ROI rose by a relatively modest 4.6% in the UK and 8.3% in Western Europe. Over the same period HC ROI leapt by 19.8% in the US.

In 2007, when the first signs of slowdown emerged in some economies and with markets suffering in 2008, the index fell in the UK by 2.8% and 1.7% for Western Europe, but held steady in the US.

Richard Phelps, 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. The impressive return on investment levels is starting to feed through to the dollar.

“In the UK and Western Europe the more regulated environment prevents such agility. Firms here will need to find other ways to improve staff returns to compete globally with their more aggressive competitors.”

The report suggests numerous possible avenues for increasing HC ROI. These include investigating the utilisation of overtime; reviewing absenteeism; adjusting the balance of full-time, part-time and contract workers; assessing benefits structures, and facilities and overheads costs.

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