When we hear how companies are doing in the market, we seldom hear anything about human resources. Wall Street analysts typically don’t talk about the human capital aspect of companies when evaluating market potentials or when giving advice. There are many examples of analysts giving advice to organizations as well as individuals on what to look for when deciding to purchase stocks, the website Marketwatch.com is one such case, (How to Choose a Stock 2011). According to Marketwatch.com, some of the items to consider when choosing stocks are;
- Buy what you know
- Consider price and valuation (stock's price-to-earnings ratio, or P/E)
- Evaluate financial health
- Look for revenue growth
- Check the bottom line
- Know how much debt the company has
- Find a dividend
A quick scan of this list, one can see there is no mention of human resources or any information at all about the human capital of a company.
There are many reasons why analysts stay away from talking about human capital and applying any kind of value to the people of an organization. As Robert Grossman (2005) points out, one of these reasons could easily be due to the legal problems which are often seen in the investment industry involving human capital, “In fact, critics say the investment industry is rife with HR problems” (Grossman 2005, pg 3, para 16). If Wall Street analysts start talking about how good the people of a company are, and how this will lead to the success of that company, they will also need to talk about the companies with poor human resources, which could very easily have adverse effects on the investment firm’s financial situations.
Another reason for avoiding the human resource aspect of companies is, how do we evaluate the human capital? It’s very easy to look at the financial condition a company as well as it strategic plans and gauge how well they will do. However, when it comes to the value of people, this requires more thought, research, and analyses. One of the problems with evaluating human capital is how much inconsistency there is between companies with how they themselves evaluate their people’s performance. When it comes to companies performing appraisals on their staff there are many different ways this is currently accomplished, as well as some of the things which need to be considered (Belcourt, Singh, Bohlander, & Snell 2014);
- Strategic Relevance
- Criterion Deficiency
- Criterion Contamination
- Reliability
This helps to demonstrate the need to consistency with the performance appraisal process. Many organizations conduct appraisals monthly, yearly, semi-annually, or not at all. This fact alone can make it is very difficult for analysts to discuss a company’s human capital with any degree of confidence as there can be little to no correlation between companies, “It's not official, not audited, not clearly comparable from company to company” (Grossman 2005, pg. 3, para 5). However, it has been demonstrated in which many people agree, “…80 percent of a company's worth is tied to human capital” (Grossman 2005, pg. 1, para 1). For this reason, there needs to be a standardized method for analyzing human capital. Organizations need to come together to develop clear global performance standards which will make it more feasible for Wall Street to add human capital to their analyses.
References
Belcourt, Singh, Bohlander, & Snell. (2014). Managing Human Resources, 7th Edition. ISBN-10: 017650690X; ISBN-13: 9780176506902
Grossman, R. J. (2005). Blind Investment. (cover story). HR Magazine, 50(1), 40-47.
How to Choose a Stock. (2011). Retrieved May 01, 2016, from http://www.marketwatch.com/story/how-to-choose-a-stock-1305567953708
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