Human Capital Study : Slides

1. Human Capital Study:Slides Dr. Nick Bontis McMaster University www.Bontis.com nbontis@mcmaster.ca These slides must be accompanied by a PDF document (HCStudy.pdf) entitled: “Human Capital ROI: Written Report”

2. List of Participating Organizations 1.0 ABN AMRO North America Inc. Allstate Insurance Company AMP Australia AMP UK Andersen Consulting Aon AXA Client Solutions Blue Cross Blue Shield of Florida Blue Cross Blue Shield of Illinois / Texas Blue Cross Blue Shield of North Carolina CNA Commercial Insurance Equitax Farmers Insurance Group Hartford Financial Services Hewitt Associates, LLC Intermountain Health Care International Monetary Fund Merrill Lynch National City Corp. Northwestern Mutual Life Penn National Insurance PNC Bank Savings Bank of Utica United Health Group Zurich U.S.

3. Quantitative Metric Model 2.0 Human Capital Depletion _ Human Capital Valuation Human Capital Effectiveness + Human Capital Investment +

4. Descriptive Statistics for HCV Sample - Means 2.1 Full-time regular employees 13,149 Part-time regular employees 676 Regular employees 13,795 Contingent employees 1,820 Total headcount 16,353 Total Full-time equivalents 21,006 Headcount: Executive 3.2% Headcount: Supervisor 12.7% Headcount: Professional 41.7% Headcount: Administrative 42.3% Average age: Executive 48 years Average age: Supervisor 42 years Average age: Professional 38 years Average age: Administrative 38 years Tenure: Executive 15 years Tenure: Supervisor: 11 years Tenure: Professional 8 years Tenure: Administrative 7 years Total compensation cost $ 998,173,818 Average year of incorporation 1902 Total workforce trained 12,823 Total training cost $ 45,582,889 Revenues $ 8,534,652,304 Operating expenses $ 7,510,438,534 Net profit after tax $ 659,560,770 Return on assets 4.86%

5. HC Effectiveness - Revenue Factor 2.2.1 Saratoga Institute HRFR 1998 Sample

6. HC Effectiveness - Expense Factor 2.2.2 Saratoga Institute HRFR 1998 Sample

7. HC Effectiveness - Income Factor 2.2.3 Saratoga Institute HRFR 1998 Sample

8. HC Effectiveness - Human Capital ROI 2.2.4 Saratoga Institute HRFR 1998 Sample

9. HC Valuation - Compensation Revenue Factor 2.3.1 Saratoga Institute HRFR 1998 Sample

10. HC Valuation - Compensation Expense Factor 2.3.2 Saratoga Institute HRFR 1998 Sample

11. HC Valuation - Compensation Factor 2.3.3 Saratoga Institute HRFR 1998 Sample

12. HC Valuation - Executive Compensation 2.3.4 Saratoga Institute HRFR 1998 Sample

13. HC Valuation - Supervisory Compensation 2.3.5 Saratoga Institute HRFR 1998 Sample

14. HC Investment - Development Rate 2.4.1 Saratoga Institute HRFR 1998 Sample

15. HC Investment - Training Investment 2.4.2 Saratoga Institute HRFR 1998 Sample

16. HC Investment - Training Cost Factor 2.4.3 Saratoga Institute HRFR 1998 Sample

17. HC Depletion - Voluntary Turnover 2.5.1 Saratoga Institute HRFR 1998 Sample

18. HC Depletion - Involuntary Turnover 2.5.2 Saratoga Institute HRFR 1998 Sample

19. HC Depletion - Total Separation Rate 2.5.3 Saratoga Institute HRFR 1998 Sample

20. Significant Pearson Correlations 2.6 1st measure and 2nd measure Pearson Human Capital Effectiveness Revenue Factor Average tenure at company of Supervisors 0.696** Revenue Factor Average tenure at company of Administrative 0.670** Expense Factor Average tenure at company of Executives 0.632** Expense Factor Average tenure at company of Supervisors 0.624** Expense Factor Average tenure at company of Administrative 0.647** Income Factor Average tenure at company of Supervisors 0.640** Human Capital Valuation Compensation Factor Headcount percentage breakdown of Executives 0.686** Human Capital Investment Training cost per trained employee Average age of Executives - 0.847** Training cost per trained employee Average age of Professionals - 0.942** Training cost per trained employee Average tenure of Professionals - 0.895** Human Capital Depletion Voluntary turnover Average tenure at company of Administrative - 0.705**

21. Areas of Concern 3.1

22. Perceptual Means: Lowest and Highest 10 3.2 LOWEST 10 P77 Information systems include employee knowledge. 3.24 P39 Our systems (e.g., files and databases) contain knowledge that is easily accessible. 3.47 P61 Our "time to market" for new products and services is better than our competitors. 3.49 P42 Our organization has methods for capturing and retaining the knowledge of its workforce. 3.51 P40 We have a system for continually refreshing our knowledge base. 3.52 P58 Our organization exploits new business opportunities quickly. 3.57 P76 Our organization has effective mechanisms for capturing individual employee knowledge an packaging so that it can be shared with others. 3.64 P44 Our organization captures and utilizes information from suppliers. 3.68 P75 Employees systematically document and pass on their knowledge. 3.68 P46 Our organization captures and utilizes information from trade associations. 3.71 HIGHEST 10 P36 Our employees generally have the intelligence and aptitude to succeed. 5.53 P47 We nourish our corporate relationship with the community. 5.44 P7 Employees commit to their assigned tasks to completion. 5.43 P33 Competitors target our key personnel for recruitment. 5.41 P80 Our company's reputation in the marketplace is favorable. 5.40 P38 Our systems (e.g., files and databases) contain useful knowledge. 5.24 P32 Recruits perceive that our employees are well respected within the industry. 5.19 P35 Employees have the necessary knowledge, skills, and competencies to succeed. 5.12 P81 We provide adequate value to our shareholders. 5.03 P11 Employees are highly qualified for their positions. 5.03 NOTE: Items based on Likert-type scales from 1 (strongly disagree) to 7 (strongly agree).

23. Sample Item Statistics - Satisfaction, Commitment and Education 3.3.1 Mean Std. Loading Item to Alpha if Dev. Construct deleted EMPLOYEE SATISFACTION (Alpha = 0.8509) P1 Employees are satisfied working here. 4.83 1.03 0.840 0.719 0.806 P2 The workplace environment/climate would be described as satisfactory. 4.88 1.13 0.806 0.671 0.818 P3 Employees are generally satisfied with their roles and responsibilities. 4.77 1.02 0.890 0.798 0.785 P4 Employees are satisfied with working conditions. 4.99 1.07 0.707 0.565 0.846 P5 Employees are satisfied with their opportunities for advancement. 4.36 1.02 0.716 0.571 0.843 EMPLOYEE COMMITMENT (Alpha = 0.8916) P6 Employees demonstrate commitment to the organization through high performance. 4.93 1.29 0.856 0.612 0.862 P7 Employees commit to their assigned tasks to completion. 5.43 1.12 0.815 0.613 0.877 P8 Employees are dedicated to achieving the overall strategy. 4.88 1.21 0.876 0.679 0.856 P9 Employees feel a sense of belonging to the organization. 4.71 1.40 0.807 0.606 0.878 P10 Employees would say they feel a sense of ownership regarding organization success/results. 4.42 1.28 0.828 0.638 0.867 EDUCATION (Alpha = 0.8641) P11 Employees are highly qualified for their positions. 5.03 1.08 0.683 0.534 0.869 P12 The general level of education in the organization is relatively high when compared to the industry. 4.81 1.06 0.776 0.649 0.846 P13 Employees receive the appropriate training for their jobs. 4.37 1.16 0.873 0.781 0.813 P14 Training and development is available to anyone who needs it. 4.43 1.38 0.866 0.772 0.813 P15 The company has established the mindset and systems necessary to support employees' continuing education needs. 4.23 1.40 0.826 0.714 0.830

24. Correlation Matrix of Constructs - Part 1 3.4.1 1 2 3 4 5 6 7 1 Employee Satisfaction 1.000 0.725 0.447 0.781 0.714 0.571 0.585 2 Employee Commitment 0.725 1.000 0.500 0.771 0.628 0.724 0.696 3 Education 0.447 0.500 1.000 0.459 0.600 0.507 0.691 4 Employee Motivation 0.781 0.771 0.459 1.000 0.649 0.673 0.734 5 Value Alignment 0.714 0.628 0.600 0.649 1.000 0.715 0.565 6 Retention of Key People 0.571 0.724 0.507 0.673 0.715 1.000 0.650 7 Human Capital 0.585 0.696 0.691 0.734 0.565 0.650 1.000 8 Structural Capital 0.419 0.357 0.317 0.420 0.429 0.339 0.335 9 Relational Capital 0.381 0.270 0.184 0.388 0.423 0.413 0.275 10 Management Leadership 0.599 0.553 0.502 0.678 0.771 0.722 0.526 11 Process Execution 0.535 0.436 0.339 0.481 0.428 0.382 0.421 12 Knowledge Generation 0.500 0.515 0.358 0.548 0.615 0.515 0.515 13 Knowledge Sharing 0.663 0.635 0.474 0.727 0.712 0.670 0.615 14 Knowledge Integration 0.438 0.424 0.524 0.464 0.547 0.583 0.609 15 Business Performance 0.394 0.560 0.307 0.566 0.379 0.401 0.501 NOTE: > 0.307 correlation is significant at the 0.01 level (2 tailed) > 0.270 correlation is significant at the 0.05 level (2 tailed)

25. Correlation Matrix of Constructs - Part 2 3.4.2 8 9 10 11 12 13 14 1 Employee Satisfaction 0.419 0.381 0.599 0.535 0.500 0.663 0.438 2 Employee Commitment 0.357 0.270 0.553 0.436 0.515 0.635 0.424 3 Education 0.317 0.184 0.502 0.339 0.358 0.474 0.524 4 Employee Motivation 0.420 0.388 0.678 0.481 0.548 0.727 0.464 5 Value Alignment 0.429 0.423 0.771 0.428 0.615 0.712 0.547 6 Retention of Key People 0.339 0.413 0.722 0.382 0.515 0.670 0.583 7 Human Capital 0.335 0.275 0.526 0.421 0.515 0.615 0.609 8 Structural Capital 1.000 0.288 0.526 0.574 0.625 0.470 0.356 9 Relational Capital 0.288 1.000 0.374 0.318 0.379 0.356 0.483 10 Management Leadership 0.526 0.374 1.000 0.399 0.615 0.709 0.515 11 Process Execution 0.574 0.318 0.399 1.000 0.704 0.506 0.450 12 Knowledge Generation 0.625 0.379 0.615 0.704 1.000 0.609 0.486 13 Knowledge Sharing 0.470 0.356 0.709 0.506 0.609 1.000 0.590 14 Knowledge Integration 0.356 0.483 0.515 0.450 0.486 0.590 1.000 15 Business Performance 0.483 0.321 0.396 0.523 0.536 0.497 0.290 NOTE: > 0.307 correlation is significant at the 0.01 level (2 tailed) > 0.270 correlation is significant at the 0.05 level (2 tailed)

26. HC Conceptual Model 4.0 0.506 ManagerialLeadership Retention of Key People 0.442 R2 = 68.2% 0.530 0.326 0.360 Education Human Capital Relational Capital Human Capital Effectiveness 0.307 R2 = 28.5% 0.358 - 0.337 0.475 Structural Capital 0.751 BusinessPerformance Knowledge Generation 0.491 0.734 Employee Satisfaction Employee Commitment 0.327 0.543 R2 = 44.1% 0.439 0.456 0.429 Knowledge Integration Process Execution - 0.372 Employee Motivation 0.394 0.262 0.430 ValueAlignment Knowledge Sharing Human CapitalDepletion 0.285 - 0.233 R2 = 28.5%