Human Capital Index
(Watson Wyatt)

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Summary

Human Capital IndexThe Human Capital Index (HCI) is a methodology of Watson Wyatt used to calculate the correlation of human capital and shareholder value.


Watson Wyatt developed a set of measures quantifying exactly which Human Resources practices and policies have the greatest correlation to shareholder value.

Using those to assign a single Human Capital Index (HCI) "score" to each surveyed company allows them to deliver conclusive results. Where there are superior Human Resources practices, there is higher shareholder value.


In other words: the Human Capital Index shows that if an organization is doing better in managing its human capital, it will also be better in its returns for shareholders.

 

Human Capital Index Formula

Responses are matched to objective financial measures, including market value, three-year and five-year total returns to shareholders (TRS), and Tobin's Q, an economist's ratio that measures an organization's ability to create value beyond its physical assets. Public data from Standard and Poor's databases are used to access the financial information needed.


To investigate the relationship between Human Capital practices and value creation, a series of multiple regression analyses were conducted, which apparently identify a clear relationship between the effectiveness of a company's human capital practices and shareholder value creation. Thirty key Human Resources practices were associated with a 30 percent increase in market value. Total HCI scores were created for individual organizations so that results could be expressed on a scale of 0 to 100. An HCI score of 0 represents the poorest human capital management, while a score of 100 is ideal.



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Human Capital Does not Depreciate
HC is the only capital of an organization that has got no depreciation. Rather human capital becomes more valuable in th (...)
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5 comments
Shareholders and Human Capital
It's true that the human capital is amongst the most valuable assets that an organization acquires, I deem personnel the (...)
6
 
2 comments
Importance of Human Resources
Humans are real resources for any organization. This is an interesting point that both employee and employer claim to un (...)
4
 
1 comments
H2 Use Human Capital More Effectively?
Please raise any ideas / strategies through which human capital can be used more effectively? Thank you. (...)
3
 
🔥 NEW The Value of Human Capital
Is 'human capital' a dream or utopia?
It sounds wonderfully true - albeit only in theories. The practices are diffe (...)
2
 
1 comments
Human Resources Capacity Planning Tool
I'm searching for a tool for human resource planning for a period of 6 to 12 months. If possible as a excel-tool. Does a (...)
0
 
3 comments

 

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Approaches by Accenture and Deloitte

Measuring Human Capital
- Since 1999, WATSON WYATT’s Human Capital Index project has collected data on HR activities at nearly 150 large North A (...)

The Impact Areas of HR Practices on Market Value

Shareholder Value, Market Value
In addition to providing the evidence that good human capital management creates shareholder value, Watson Wyatt’s Human (...)
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Risk and Return of Human Capital

Human Capital
In this paper Charlotte Christiansen a.o. analyze investments in human capital assets in a way which is standard for fin (...)

The Role of Human Capital in Economic Growth

Human Capital, Organizational Growth
This study by Vladimir Kühl Teles presents stylized facts for economic growth for the second half of the 20th century, a (...)

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