Deloitte’s recent research indicates that nearly 90% of executives want their compensation tied directly to human capital performance metrics. This isn’t just a reaction to market trends; it signifies a strategic acknowledgment of human capital’s essential role in driving economic value-creation. With a new administration potentially incentivizing short-term profit at the expense of sustainable people investments, this executive commitment highlights a critical truth: human capital remains the cornerstone of long-term profitability and competitive edge. This is especially true in the US, where 80% of our economy is driven by services, and people are critical in delivering services that drive revenue.
To realize this strategic focus, companies must elevate the sophistication of their human capital metrics to capture their true economic contribution to enterprise value. Moving beyond basic HR measures like headcount and cost-per-hire, firms should employ economic-driven metrics such as:
- Human Capital Return on Investment (HCROI), which evaluates gross profit per dollar spent on human capital, offering insights into workforce efficiency.
- Human Economic Value Added (HEVA), measuring the net economic value generated per employee while accounting for the cost of capital, thereby illuminating true value creation.
- Human Capital Value Add (HCVA), which assesses each employee’s contribution to operating profit.
- Employee productivity, expressed as revenues generated per employee.
Utilizing these metrics provides a comprehensive and quantitative view of how human capital investments drive financial performance. Further integrating measures that assess the effectiveness and efficiency of talent programs (i.e., learning and development, performance management, recruiting and on-boarding, succession management, diversity, pay equity, inclusion, worker health and safety, etc.) allows organizations to better align their human capital strategies with broader governance and financial outcomes.
This multifaceted approach not only enhances enterprise resilience and competitiveness but also ensures that human capital investments are strategically linked to sustainable growth and profitability—positioning human capital as a governance priority critical to organizational success.
The Competitive Edge from Human Capital Analytics
Adopting these metrics requires that organizations leverage Human Capital Analytics (HCA) to gain insights into human capital performance and its relationship to financial performance. Our research has shown that organizations that leverage human capital analytics to inform decisions achieve a significantly higher return on investment. In fact, companies that incorporate HCA into their decision-making processes report up to a 270% higher HCROI than those that do not. We also found that these companies have 14% higher profitability than their competitors. This data-driven approach allows leaders to measure, fine-tune, and optimize workforce programs, transforming employee experiences and driving innovation, productivity, and profitability. By tying executive pay to human capital performance, companies create incentives for strategies that enhance worker engagement and, by extension, enterprise value.
Governance and Accountability in Human Capital Management
Tying human capital metrics to executive compensation strengthens governance by embedding accountability for workforce outcomes into leadership roles and creates a direct incentive to focus on this critical driver of economic value-creation. This accountability ensures leaders prioritize long-term strategies that create resilient, engaged workforces. Effective governance practices, like those encouraged by global standards and regulations, hinge on transparent and impactful workforce management. Through the integration of HCA, organizations can better understand the link between human capital initiatives and enterprise-level performance. This holistic view helps them manage workforce experiences and demonstrate value to stakeholders, and create compelling narratives that support the business case for investments in human capital initiatives.
HR’s Strategic Role: Moving Beyond Compliance
HR professionals must move beyond viewing human capital as a process-driven function and instead adopt a journey-centric approach to employee experience. Organizations that successfully utilize HCA have shown marked improvements in productivity, engagement, and profitability, transforming HR from a cost center to a strategic partner in value creation. This approach aligns people strategies with broader financial objectives, enhancing enterprise performance and competitiveness.
Several organizations have successfully transitioned their Human Resources (HR) functions from traditional, process-driven roles to strategic partners in value creation by adopting human capital analytics (HCA). This shift has led to notable improvements in productivity, employee engagement, and profitability.
Google: embraced HCA, utilizing data analysis on employee behaviors and preferences to develop programs that enhance satisfaction and performance, reinforcing HR’s strategic role in achieving business goals.
IBM: employed HCA to predict turnover and address factors influencing job satisfaction, leading to better retention and engagement outcomes. Collectively, these examples highlight how HCA empowers HR to drive value creation, aligning human capital initiatives with enterprise-level objectives and fostering a culture of innovation and sustainable growth.
Microsoft: leveraged HCA to revamp its employee experience through the MyHub platform, a centralized access point that offers integrated HR and operational services. This initiative not only enhanced engagement and productivity but also solidified HR’s role in driving business performance and operational efficiency.
North Carolina-based Hospital: used HCA to gain deeper insights into recruitment, retention, and job design, identifying factors beyond compensation that impact employee engagement and satisfaction. This data-driven approach led to improved retention and productivity, directly contributing to financial success. In fact, their HCA competency was so valued, that their team began doing analytics for other areas of the hospital.
Finance: Measuring and Maximizing Human Capital Value
The finance function plays a pivotal role in quantifying the value of human capital. By incorporating metrics like HCROI and other advanced analytics, finance leaders ensure that investments in people yield measurable, sustained returns. Organizations that regularly use HCA outperform those that do not, with higher profit margins and greater efficiency. This data reinforces the idea that investing in people is not a cost but a pathway to increased financial performance and competitive differentiation.
Profits Through People Instead of at the Expense of People
In an anticipated climate of deregulation, it is tempting to prioritize short-term profits over people. However, the data is clear: sustainable profitability stems from strategic investments in human capital. By linking executive pay to human capital performance, organizations incentivize the right behaviors, ensuring that people come first—not at the expense of profit, but as its most reliable driver. Human Capital Analytics offers the insights necessary to optimize these investments, transforming workforce strategies into sustained business success.