HR works wonders on share price

Job security makes staff complacent and has a knock-on effect on the bottom line, research published today has found.

Drawing on its analysis of HR practices in 250 firms across Europe, consultants Watson Wyatt say the paternalistic culture in European firms is lowering shareholder value by up to 7.5 per cent.

“While there is nothing inherently wrong with retaining staff and providing job security, it can be damaging when it is unfocused,” say authors of The Human Capital Index European Survey Report 2000. “It may lead to passive learning and an environment of command and control where seniority, effort and activity are rewarded, rather than performance.” They recommend an optimum turnover rate of 12 to 26 per cent a year.

The report cites excessive employment protection legislation in Europe as a reason for a paternalistic working environment. Overall, the authors estimate that key HR practices can raise a firm’s market value by up to 26 per cent.

Jose Pottinger, HR director at Powergen Worldwide, said turnover of 12 to 26 per cent is extremely high. “It is about getting the balance right between fresh ideas and fresh blood, and stability, continuity and experience.”

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