Research

Investing in People Pays

New Zealand Firms that adopt performance pay for most or all employees and firm-specific employee training perform more successfully than other firms according to an authoritative study by Richard Fabling and Arthur Grimes.

This conclusion was unequivocal and based on compulsory comprehensive survey data from Statistics New Zealand involved 3,000 New Zealand firms with at least six fulltime staff and that was statistically representative of our economy.

The econometric analysis was clear - firms that adopted a suite of high performance HR practices saw a lift in profitability, productivity and market share relative to their rivals.

This was very more evident in younger, large and high-tech firms and less evident in small, old, agricultural and manufacturing firms. The study authors analysing the data and compiling the report concluded that "a firm operating in a market in which individual flair drives both quality and output may find that choice of HR practices is central to performance."

The quality of management was also important to whether modern HR practices were adopted. "Old firms have a tendency to have poorer HR practices. Managers in some of these firms may be habituated in 'old school' practices that are no longer appropriate in a technological setting in which employees expect to be treated as self-reliant contributors to the firm."

It was also recognised that smaller firms might not have the breadth of expertise to draw on in designing effective HR systems and Management Focus sponsors want to help overcome that potential barrier.