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Study: Treatment of Workers Affects Bottom Line - 2002-01-15

The way a company treats its workers has a direct impact on both profit and corporate stock value, according to a study by Watson Wyatt International, a management consulting firm. Watson Wyatt surveyed human resources practices at 750 American and European companies.

The study examined everything from how a company rewards its employees to how it communicates with, recruits and trains them.

Next, says the study's author Bruce Pfau, Watson Wyatt matched the survey data to objective measures of corporate worth profit records and returns to shareholders.

The result, he says, showed a clear causal link between worker incentives and corporate performance.

"Companies that create more competitive rewards for performance do better than their cohort companies in the financial marketplace. Companies that have a collegial and flexible workplace do better than other companies in terms of their shareholder returns. Companies that are known as 'a great place to work,' are also better at returning value to their shareholders," he says.

Mr. Pfau's study underscores what many U.S. firms realized during the worker shortage of the 1990s: that a devoted, skilled workforce can be a company's most important asset.

With that in mind, many U.S. firms today are looking for ways to avoid layoffs as business has declined during the present recession.

TWA, for example, gave hundreds of ticket takers whose services were no longer needed a chance to work at other jobs until the airline's business picked up.

Spokesman Roy Morrow says Lincoln Electric, a Cleveland Ohio welding company, goes out of its way to keep employees on the payroll during slow economic times.

"We guarantee a certain hour work week, and when business is great, that also means mandatory overtime. When business is not great, that means reduction in pay or work hours. But we have not had a layoff and people here find the system to be to their liking," he says.

Mr. Morrow says Lincoln Electric shares everything with its workers the good times and the bad times, information about how the company is doing, and profits.

"We've had a bonus system in place for over six decades. This December we distributed to our Cleveland operations our 68th consecutive profit sharing bonus," he says.

For Lincoln Electric, he says, investments in human capital have paid off in low employee turn over, high morale, high productivity and profits to share.