Companies with the best people management practices deliver nearly twice as much value to their shareholders as their average competitors, according to a study of 600 employers in the UK and Europe.
The research by Watson Wyatt reveals that employers with good HR practices have increased shareholder value by more than 70 per cent since 1997, compared with less than 35 per cent among firms with average or poor HR.
The Human Capital Index (HCI) finds that companies with top-rated HR functions - that help align people with business aims, control costs and make use of focused HR technologies - can add to shareholder value by as much as 21 per cent.
Firms with competitive reward strategies and aligned performance management systems, which help create a sense of staff ownership, can generate shareholder gains of 21.5 per cent.
Steven Dicker, co-author of the report, said: "The perception that HR is a non-strategic business overhead still persists but this is wrong. Our research has again demonstrated the strong link between effective human capital management and shareholder value."
The report also claims that employers with high HCI ratings for recruitment and retention can boost shareholder return by more than 14 per cent.