How Do You Manage For Profits?

By Michael Verespej Want to help your company create a better return for shareholders? New research data has rather convincing evidence about the benefits that accrue to investors when companies train employees, reward them through pay-for-performance incentives, and involve them in the business. "The companies that use these management practices have a significantly higher return to shareholders than companies that don't," says Edward E. Lawler III, director of the Center for Effective Organizations at the Marshall School of Business at the University of Southern California. Its study of the nation's largest companies -- released this month -- found that companies that use such management practices extensively had an average return to their shareholders of 12%. Those that didn't employ them or employed them sparingly had a negative 1% return to shareholders. And although the number of companies using work teams and providing performance-based incentives is beginning to level off, it is dramatically higher than 14 years ago. For example, the percentage of companies surveyed that use work teams with employees who have decision-making authority has increased from 28% to 72%. What's more, 64% of companies -- compared with 50% in 1987 -- train their employees in team building and how to understand the business of the corporation. Companies today also are more likely to tie financial incentives to spur those empowered employees. Almost two-thirds, or 65%, of the companies surveyed have individual incentive plans compared with 38% in 1987. And the percentage of companies that provide all employees with stock-option plans has almost doubled, from 13% to 25%. "Business success still revolves around getting people to understand business practices and involving them in the business," says Lawler, noting that the hottest trend uncovered by the survey was the drive to teach workers knowledge management and Internet skills. "As we move more to a knowledge economy where human capital is more important, the companies that succeed will be those that are able to adapt to knowledge management and improve human capital practices."

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