Employee productivity levels at a five year low in Europe

European companies’ employee productivity levels are at a five year low, research has found.

In its Key Trends in Human Capital 2012 report, PwC found that productivity levels had seen a sharp drop in 2011following a period of relative stability between 2006 and 2010.

The accountancy firm said that the findings suggested that the drop could be as a result of an increase in employee costs, which have grown from 16 percent in 2009 to around $55,000 in 2011.

The report, which is based on data from over 2,400 organisations in over 50 countries, also found that the increase in employee costs was largely down to companies cutting back on their recruitment of lower grade employees during the downturn.

It said this had left companies with a higher proportion of experienced workers who demanded a higher level of pay compared to younger, less experienced workers.

However, it was a catch 22 situation as the demands came at a time when companies were seeing little, or no, revenue growth.

PwC said this meant that Western European companies were getting a much lower return from their investment in their workforce. It said that human capital return on investment (HC ROI), had fallen to 1.11 in this region meaning that employers were now only getting the equivalent of $1.11 back for every $1 they invested in someone.

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 percent.

“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.”

Now the firm is recommending that companies “go back to basics” and improve their performance management processes to ensure that people of all levels are delivering value.

It said that for many companies, this would mean implementing more vigorous performance management which showed the difference between higher and weaker performers and rewarded them accordingly.

The report also found that UK and European companies still lagged behind their US and Asian counterparts when it came to maximising profit from their investment in people. It also showed that despite the US seeing a drop in its return on investment, for every dollar paid out in remuneration, US employers typically received 20 percent more pre-tax profit in return compared to UK companies.