The Valuation Handbook: Valuation Techniques from Today's Top Practitioners

CHAPTER 19

An Economic View of the Impact of Human Capital on Firm Performance and Valuation

 

Mark C. Ubelhart

Practice Leader, Value-Based Management, and Architect, Human Capital Foresight, Hewitt Associates

 

 

Everyone knows that human capital and intellectual property form the core drivers of our global economic growth today. Consequently, how best to measure these driver effects become paramount to shareholder wealth creation. This chapter explains the measurement of the movement of pivotal employees between firms and their effect on shareholder value return.

In order to examine business valuation implications from a human capital standpoint, cross-company, longitudinal data becomes essential. While making use of such data forms the empirical underpinnings of modern corporate finance, that usage is new to human resources (HR) as a function; consequently, it is unavailable to investors in general.

Of course, investors can obtain a glimpse of the highest-level pay practices from proxy disclosures, but see virtually nothing below or beyond those disclosures. Hewitt possesses an exceptionally rich database. That database includes well over 1,000 companies and 20 million employees derived from compensation and benefit surveys. It also includes the out-sourced administration of many HR activities to Hewitt Associates as well. For our research, we gathered and used all the data possible, while carefully preserving company confidentiality and individual privacy. Our intent mirrored ...