Human Capital Index
(Watson Wyatt)

Calculation of the correlation of human capital and shareholder value. Explanation of Human Capital Index of Watson Wyatt.

The 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.

Human Capital Index Forum (6)

The Value of Human Capital
"Is 'human capital' a dream or utopia?
It sounds wonderfully true - albeit only in theories. The practices are different, sometimes a bit, sometimes totally..."

H2 Use Human Capital More Effectively?
"Please raise any ideas / strategies through which human capital can be used more effectively? Thank you."

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 the course of time and adds more value to the organization."

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 anybody have good experiences or tips? It doesn't have to be for free."

Importance of Human Resources
"Humans are real resources for any organization. This is an interesting point that both employee and employer claim to understand the importance of HR but do not carry out their responsibility respectively.
It is imperative that HR management should work for betterment of its human resource to make it human capital and human resources should work wholeheartedly to make the management realize about the real importance of HR.
Both should work for the betterment of each other. Growth of one is growth of another."

Physical Assets / Human Capital
"It's true that the human capital is amongst the most valuable assets that an organization acquires, I deem personnel the hidden power that contributes to the strength and success of any business.
Yet there is always a controverse in assessing the relationship between the shareholder or the owner and the employee as the workforce, where it is based on total mental and physical slavery and exploitation. This is the hidden explicit method by which most capitalists master rather than administer their human capital."

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