Tuesday, January 30, 2007

Hewitt study quantifies value of high performers

In a recent press release, Hewitt Associates (a large HRO and consulting firm) reported results of a study that underlines the importance of attracting and retaining top talent.

Here's the key line from the press release:

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 (CFROI) and shareholder value.

Here's the CliffsNotes version: After analyzing data from more than 1,000 employers and 20 million employees, Hewitt found that for the average Fortune 500 company a 10-point increase in their "Talent Quotient" (TQ) adds approximately $70-160m to its bottom line over the next "few" years.

Sounds similar to some previous research you've seen, right? Like...oh...McKinsey or Watson Wyatt, or heck you might as well go back to Brogden.

So what exactly does this study tell us? Well, first we need to understand what a "Talent Quotient" is.

According to Hewitt, there are two forms of TQ:

"TQ Attract" is the proportion of pivotal employees joining an organization to the total number of new hires in a given period. So essentially the percentage of your new hires that turn out to be stars.

"TQ Retain" is the proportion of pivotal employees leaving an organization to the total number of employees leaving in that period. So pretty much the percentage of folks leaving that you don't want leaving.

Hewitt uses both of these concepts and links them statistically (along with employee satisfaction) to firm performance. I'm thinking this is another way of slicing utility analysis, and to the extent that it links sound HR practices to the bottom line, I'm all for it. As long as folks don't forget that fighting the "War for Talent" may lead to myopia.

FYI, Samir Raza and Mark Ubelhart of Hewitt discuss TQ in Chapter 3 of Workforce Wake-up Call. Wayne Cascio's book Costing Human Resources is a great source for information on demonstrating the value of HR.

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