Human Capital Index – HCI
Methodology of HCI was proposed by Watson Wyatt. It calculates the relation between shareholder value and human capital. In a company there is always an expectation from every investment made to give something in return. Investment which is made in technology, infrastructure etc gives return in the form of more productivity or reduction in costs and therefore increasing the value of shareholder. If an investment is made in human resource than the results which are provided by it are not easy to measure.
Various questions are asked from the organizations related to their management of human capital. These questions include all the questions related to compensation, development; training etc.A score in between 0 to 100 is given to the company on the basis of the received responses from them. 0 represents a weak score and 100 is the highest score. Comparison between human capital index and other financial indicators like return to shareholders, market value etc was made by a group of researchers. With the help of this comparison a clear link between human capital index and financial performance was found out. Those companies in which more emphasis and importance is given to human resources are more prone to be financially successful and they also add more value to shareholders.
Certain areas of human capital management are linked to shareholder value enhancement.
They are:
- Excellence in retention and recruitment.
- Creating comprehensive reward.
- Building a friendly and flexible workplace.
- No communication gap between employees and management.
- Focused HR technologies implementation.
This index focuses on the concept of ‘best practice’ that are adding value to the HR policies. The limitation of this index is that it does not help any organization in identification of policies that will be best to work with in particular contextual circumstance. It is also very much open to criticism it fails to demonstrate that these practices can lead to high performance of a company. We can also say that it fails to demonstrate causality and direction. Benefit of this index is that a support is provided for the concept that better management practices results in high performance.
Written by: Matt
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Tagged as capital index, circumstance, communication gap, expectation, financial indicators, financial performance, flexible workplace, high performance, highest score, hr policies, hr technologies, human capital management, human resource, return investment, shareholder value, shareholders, technology infrastructure, value enhancement, watson wyatt + Categorized as Economy articles, Human resources