Sorry, Catbert! Study Shows Cutting Employee Incentives Hurts

August 30, 2006

Contrary to the nefarious plots of Catbert, the ‘evil director of human resources’ character depicted in the popular Dilbert comic strip, a study of nearly 20,000 organizations shows that employee incentives really are good for business.

Data from 19,319 organizations reveal that when a company emphasizes human resource activities such as incentive pay and flextime, it can enjoy a 10 percent to 20 percent improvement in employee retention, employee productivity, profitability, and stock price, according to an upcoming study in Personnel Psychology. Meanwhile, companies that cut these programs can expect a 10 to 20 percent reduction in their bottom line.

“Over the last 25 years, corporate America has debated whether the human resources function adds value or if it is just a necessary evil,” noted Dave Ketchen, study co-author and Lowder Eminent Scholar at Auburn University. “Our results show that negative images of human resource managers miss the mark. Skilled HR managers can make the difference between a company making a profit or losing money.”

The study found that performance improvements are stronger when companies take a systematic approach to human resources rather than implementing one or two practices.

“A firm can’t view training or team-building as a magic bullet that will deliver profits,” said Ketchen. “Executives need to adopt a strategic view of the human resource function and create sets of practices that reinforce each other.”

The study also found that human resource activities make a bigger difference among manufacturing firms than among service firms. “Manufacturing jobs often involve complex and dangerous machinery,” said Ketchen. “In high performing companies, the services that the human resource function provides, such as safety and training, support other programs such as quality management and lean manufacturing systems to make sure that workers are safe, motivated, and productive.”

The study used a technique called meta-analysis to mathematically combine the findings of 92 previous studies published since the mid-1980s. Co-authors with Ketchen on the project were James Combs, Yongmei Liu, and Angela Hall, all of Florida State University.

Source: Auburn University’Newswise

Topics Human Resources Manufacturing

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