European companies’ employee productivity levels are at a five-year low, according to new research
PwC’s Key Trends in Human Capital 2012 report says that productivity levels saw a sharp drop in 2011, following a period of relative stability between 2006 and 2010.
The report suggests this is driven by an increase in employee costs, which have jumped 16% from 2009 levels.
The survey suggests this increase in employee costs is largely down to companies cutting back on their recruitment of lower grade employees during the economic downturn. This has left companies with a higher proportion of experienced workers, compared to younger, less experienced workers.
The report concludes that human capital return on investment (HC ROI), an analysis of the pre-tax profit produced for every unit of investment per employee, has fallen to 1.11 in Western Europe. This means that employers are now only getting the equivalent of £1.11 back for every £1 they invest in human capital.
The report is based on data from over 2,400 organisations in over 50 countries.
Richard Phelps, human resource services partner at PwC, said, "Our analysis reveals that the percentage of employees with less than two years’ service has fallen sharply to 22%. Many organisations across Europe have chosen experience over youth to see them through the recession, but cutting the recruitment of younger workers means they are paying out much more for their workforce for less return.
"The difficult job market means many experienced workers are staying longer in jobs, leaving companies struggling with top heavy structures, little staff turnover and rising wage bills."
PwC calls for more companies to improve their performance management processes to ensure that people of all levels are delivering value, are differentiated between higher and weaker performances and are reward accordingly. For many companies, this may mean implementing a more vigorous performance management approach.