There is now a lot of data available on the impact of an organizations people (Human resources) practices, such as employee recruitment and selection, performance management, reward and recognition, and development, on the bottom line. Investment in these practices is linked to lower employee turnover, greater productivity and financial performance.

Pfeffer offered a compelling case for this in his book The Human Equation. In a study of nearly 200 banks, Pfeffer found that ‘differences in the practices are associated with rather large differences in financial performance. Financial performance was estimated to be approximately 30% higher for banks over one standard deviation above the mean, than it was for
those banks of the mean (Source: Pfeffer, J 1998 ‘The Human Equation’, p30-63).

Huselid studied 1,000 publicly listed US firms and found that a one standard deviation increase in people practices resulted in:

• An increase of US$27,044 in sales per employee
• Almost US$4,000 in profit per employee
• US$18,641 in market value per employee
• 7.05% decrease in employee turnover

(Source: Huselid, Mark A, 1995, ‘The impact of human Resource Management Practices on Turnover, Productivity, and Corporate Finance Performance’, Academy of Management Journal, Volume 38, No. 3, p635-672)

A later study by Huselid found that a one standard deviation increase in these practices resulted in:

• US$41,000 increase in shareholder value per employee

(Source: Huselid, Mark: Becker, B 1997, ‘The Impact of High Performance Work Systems, Implementation Effectiveness and Alignment of Strategy on Shareholder Wealth’, p18-19)

Pfeffer studies a wide variety of US organisations and found that all of them reported impressive numbers after they adopted people practices.