Watson Wyatt’s

Human Capital Index®

Human Capital As a Lead Indicator ofShareholder Value

2001/2002 Survey Report

W W W . W A T S O N W Y A T T . C O M

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Can the way a company manages its human capital significantly affect its financial performance?

Two years ago our Human Capital Index(HCI) study confirmed that the two areclearly linked. We developed a simple set ofmeasures quantifying exactly which HR prac-tices and policies have the greatest correlationto shareholder value. Using those to assign asingle HCI “score” to each surveyed companyallowed us to deliver conclusive, ground-breaking results: Where there are superior HRpractices, there is higher shareholder value.

Yet a crucial question remained: Do betterpeople management strategies actually createhigher market value? Or do financially success-ful companies simply have more resources toallocate to human capital initiatives?

We now have powerful insight into theanswer. Our second Human Capital Indexstudy allowed us to compare one set of com-panies at two points in time to analyze thecorrelation. The results are in and they aredramatic. Superior human capital practicesare not only correlated with financial returns,

they are, in fact, a leading indicator ofincreased shareholder value. Further, wefound that superior HR management leadsfinancial performance to a much greaterextent than financial outcomes lead goodHR. We were also able to identify certainHR practices as value drivers and throw acautionary flag in front of some conventionalpractices actually associated with a decreasein financial performance.

The results of this study are more meaning-ful now than ever before. While the state ofthe economy is largely uncertain, companiescannot escape demographics. There is nodoubt that the labor shortage will continuewell into the next decade and that superiorHR practices are a key to attraction, retentionand, more and more, business outcomes. It’salso a certainty that executives will now, morethan ever, look to HR to justify expendituresand demonstrate the economic value of anorganization’s people practices.

The overriding message: If a company’s goal isto improve shareholder value, a key prioritymust be its approach to human capital.

INTRODUCTION

“Superior human capital management is a leading — rather than

lagging — indicator of improved financial success. This finding is more

important now, during times of economic uncertainty, than in boom

times. Why? Lead indicators help you get ahead of the curve.”

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In the first HCI study, conducted in 1999,Watson Wyatt surveyed more than 400 U.S.-and Canada-based companies that were publicly traded, had at least three years ofshareholder returns and had a minimum of$100 million in revenue or market value. We asked a wide range of questions abouthow the organizations carried out their humanresources practices, including pay, peopledevelopment, communications and staffing.

Responses were matched to objective financialmeasures, including market value, three- andfive-year total returns to shareholders (TRS),and Tobin’s Q, an economist’s ratio that mea-sures an organization’s ability to create valuebeyond its physical assets. Publicly availabledata from Standard and Poor’s Compustatdatabase were used to access the financialinformation needed.

To investigate the relationship between humancapital practices and value creation, a seriesof multiple regression analyses were conducted,identifying a clear relationship between theeffectiveness of a company’s human capitalpractices and shareholder value creation.Thirty key HR practices were associated with a 30 percent increase in market value.Summary HCI scores were created for indi-vidual organizations so that results could beexpressed on a scale of 0 to 100. An HCIscore of 0 represents the poorest human capi-tal management, while a score of 100 is ideal.

In 2000, a European HCI survey was con-ducted to gain a more global perspective onthese issues. More than 250 responses from 16countries were received. The survey included200 questions in six languages and coveredcompanies of all sizes and from all sectors ofthe economy — more than a third of partici-pants were in the Euro 500 and more than aquarter were in the Global 500. The findingsfrom the European study were similar to theNorth American results, with improvements in 19 key HR practices associated with a 26 percent increase in market value.

In early 2001, the HCI research was con-ducted again, this time including responsesfrom more than 500 North American com-panies. In this most recent research, theparticipants reflected a broader view ofbusiness and included some larger, moreprominent firms — with average annualsales of $4.68 billion, $8.45 billion in mar-ket value and 18,697 employees on average.Fifty-one of these companies participated inboth the 1999 and 2001 surveys.

The European and new North American datawere then merged. The result is a completerespondent base of more than 750 companiesin the United States, Canada and Europe withat least three years of shareholder returns,1,000 or more employees and a minimum of$100 million in revenues or market value.

ABOUT THE SURVEY

1999 2000 2001

First North American HCI Study

First EuropeanHCI Study

Second NorthAmerican HCI Study

2001/2002 HCISurvey Report

The majority of the combined findings from these surveys were consistent, making it a logical anduseful tool from which to draw conclusions. It is important to point out, however, that there werenotable differences in emphasis between the European and North American studies. For instance,certain questions about benefits and HR service delivery were included only in the North Americansurvey. In addition, the database is weighted nearly 2 to 1 to North American companies, so the generalized findings should be considered with that in mind. Watson Wyatt will publish more aboutthe similarities and differences between the studies in the future.

The results from the 2001 HCI study are justas definitive as those from 1999: The highera company’s HCI score, the higher its share-holder value. In other words, the better anorganization is doing in managing its humancapital, the better its returns for shareholders.We broke the companies into three groupsbased on their summary HCI scores. Thosein the low group averaged a 21 percent five-year return. The medium group aver-aged 39 percent. Those with high HCI scores returned 64 percent over five years(Figure 1).

In addition to providing dramatic evidencethat good human capital management mat-ters, the HCI study shows precisely whichHR practices — amid the ever-increasingportfolio of options — have an impact onthe bottom line. This year’s study identifiesthe 49 specific HR practices that play thegreatest role in creating shareholder value.We have divided those practices into sixdimensions (Figure 2). The research quanti-fies exactly how much an improvement ineach practice could be expected to increase a company’s market value. For example, acompany that makes a significant improve-ment* in all of the practices categorizedunder “Total Rewards and Accountability”should see its value improve by 16.5 percent(Figure 2). And a significant improvement in 43 key HR practices is associated with an increase of 47 percent in market value.Additionally, one dimension, “Prudent Use of Resources” identifies six practices thatdiminish shareholder value.

SURVEY HIGHLIGHTS

Results Link Superior Human Capital Practices to Higher Shareholder Return

* What constitutes a “significant improvement”? A one standard deviationincrease. Most answers to HCI questions are on a 1 – 5 scale, so a significantchange is a one-scale-point movement from a 1 to a 2, a 2 to a 3, and so on.

Total Rewards and Accountability 16.5%

Collegial, Flexible Workplace 9.0%

Recruiting and Retention Excellence 7.9%

Communications Integrity 7.1%

Focused HR Service Technologies 6.5%

Prudent Use of Resources -33.9%

Expected change in market value associated with a significant one standard deviation (1 SD) improvement in HCI dimension.

F I G U R E 2 : Key L inks Between Human Capi ta l and Shareholder Va lue Creat ion

Pract ice Impact on Market Va lue

Low (0-25)

Medium (26-75)

High(76-100)

21%

39%

64%

HCI Score

F I G U R E 1 : F ive-Year Tota l Returns to Shareholders (Apr i l 1996 – Apr i l 2001)

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The first HCI study confirmed that there wasa positive relationship between the quality ofa company’s HR practices and its economicresults. But it did not offer resolution to thedebate that has raged for years: Do effectiveHR practices drive positive financial resultsor do positive financial results lead to betterHR practices?

Two years ago, we noted that the best-performing companies did not simply havebetter-funded programs, they had entirelydifferent programs than the poorly performingcompanies. The high performers employedcertain programs (e.g., broad-based stockoptions) that low performers did not. Theystayed away from certain programs (e.g.,training employees for future jobs) that lowperformers embraced. If it were true thatgood financial performance simply affordedrich companies the ability to implementelaborate HR programs, one would expect tosee the same types of programs across theboard. We did not. Yet it was still not proofthat superior HR management was causinghigh market value. The best we could offerat the time was that the relationship probablymoved both ways.

But our latest study yields the missing cru-cial data. Fifty-one companies participatedin both the original and the follow-up HCI studies. We have HCI scores and financial performance information for 1999and 2001.

To see which way the relationship truly runs,we simply compared two different correlations:

❙ Correlation A represents the relationship between the 1999 HCI score and 2001financial performance.

❙ Correlation B represents the relationship between 1999 financial performance and2001 HCI scores.

If better financial performance is what createssuperior HR practices, Correlation B shouldbe larger. If, in fact, the way companiesmanage their human capital is what drivesfinancial success, Correlation A should be larger.

Our results were dramatic. Correlation A,.41, is statistically significantly larger thanCorrelation B, .19. Our analysis demon-strates that HR practices are not only associ-ated with business outcomes, but also createthem. Moreover, a careful inspection of all the data shows that for every availablecorrelation calculated over time, the relation-ship between past HR practices and futurefinancial performance is stronger than therelationship between past financial outcomesand future HR practices. We will be follow-ing this data prospectively in longitudinalstudies, but for now the weight of the evi-dence clearly favors human capital practicesas a leading — rather than a lagging — indicator of business success.

Data Over Time Show Human Capital Practices Lead Value Creation

Correlation A

Correlation B

1999 HCI Score x 2001 Financial Performance

1999 Financial Performance x 2001 HCI Score

.41

.19

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F I G U R E 3 : Corre lat ion Analys i s

Rewarding employees for good work — andrefusing to accept subpar performance — hasa dramatic impact on shareholder value. Byshowing an improvement in the HR practicesfalling under the category of “Total Rewardsand Accountability,” companies can achieve a16.5 percent increase in market value. Thatmakes it the most important HCI dimension,replacing “Recruiting Excellence,” whichshowed the highest impact on market valuetwo years ago.

Making a stronger effort to link pay to per-formance is associated with a 6.3 percentincrease in market value. Stock programs,incentive/profit sharing plans, pay that islinked to strategy and higher pay for top performers all focus employees on the bottomline — and our research shows it pays off. In a closely related finding, recognizing variations in performance by promoting themost competent employees, helping poorperformers improve and terminating chronicnonperformers can boost market value by 2.2 percent.

In the current climate, the emphasis is onusing rewards to keep top talent in place. In doing so, our research shows that the roleof benefits should not be underestimated: A company must not only offer an above-market benefits package, but must make sureemployees understand its value. Companiesthat improve their selection of health andretirement benefits as an important tool forrecruiting and retention can increase share-holder value by a total of 4.3 percent.

Total Rewards and Accountability: 16.5%

THE KEY LINKS BETWEEN HUMAN CAPITAL AND SHAREHOLDER VALUE CREATION

2.8%

1.3%

1.3%

1.2%

1.1%

1.0%

0.9%

0.9%

0.8%

0.8%

0.8%

0.7%

0.7%

0.7%

0.6%

16.5%

0.9%

Health benefits are important for recruiting and retention

High percentage of company stock owned by employees

Defined contribution and defined benefit plans,combined, important for recruiting and retention

High percentage of company stock owned by senior managers

Pay is linked to company’s business strategy

High percentage of employees eligible for stock options

Company promotes most competent employees

High percentage of employees participate in incentive/profit sharing plans

Defined benefit plan important for recruiting and retention

Employees have choice regarding benefits

Defined contribution plan important for recruiting and retention

Top performers receive better pay than average performers

Company positions benefits above the market

Company helps poor performers improve

Company positions pay above the market

Company terminates employees who continue to perform poorly

Total rewards and accountability

F I G U R E 4 : L inks Between Tota l Rewards and Accountab i l i ty and Va lue Creat ion

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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Great leadership and a less hierarchical culture that encourages employee contribu-tion combine to produce a “Collegial, FlexibleWorkplace” — and a 9 percent increase inshareholder value for any company making asignificant advance in this area.

Companies that show more flexibility inwork arrangements — supporting flextime,working from home and job sharing — areable to capture the skills and knowledge of a wider range of talent, and it pays off in a3.5 percent increase in value.

Leaders play a key role in the establishmentof a collegial company culture. Improving

the trust and integrity associated with company leadership builds shareholder valueby 2.3 percent.

Titles, closed doors and formality canimpede the flow of ideas. Our data show that minimizing status distinctions also has a significant impact on market value. Byencouraging teamwork and avoiding the useof titles and office space to designate author-ity, companies can increase shareholder valueby 1.9 percent.

Finally, making a stronger effort to keep employees satisfied can result in a 1.3 percent increase.

Company shows flexibility

in work arrangements

Company has high employee satisfaction

Trust in senior leadership is actively engendered

Managers demonstrate company’s values

Company culture encourages teamwork and cooperation

Company avoids using titles to designate status and authority

Company avoids varying perquisites by position

Company avoids varying office space by position

Collegial, flexible workplace

F I G U R E 5 : L inks Between a Col leg ia l , F lex ib leWorkplace and Va lue Creat ion

3.5%

1.3%

1.2%

1.1%

0.5%

0.5%

0.4%

9.0%

0.5%

Collegial, Flexible Workplace: 9.0%

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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While still a critical element for businesssuccess, “Recruiting and Retention Excellence”has dropped from its slot as the strongestdimension in 1999. With less hiring takingplace and a greater emphasis on doingmore with less, companies enjoying a stable, seasoned workforce find themselves atan advantage. Doing a better job of keepingvoluntary turnover low rewards 3.2 percenthigher shareholder value. Companies with astronger commitment to job security earn anadditional 1.4 percent.

And when it comes to recruiting, which isundoubtedly still critical, the research showsthat an investment of time more than paysfor itself. Companies that step up their

efforts to use formal strategies, align themwith business plans, bring coworkers intothe hiring process and then offer new hireorientation can be rewarded with 2.0 percenthigher market value.

When it comes time to choose the candidate,the HCI results are clear: Select the one whocan hit the ground running. Companies thatsignificantly improve their record of hiringpeople who are well equipped to perform theirduties can achieve a 0.8 percent increase inmarket value.

Finally, establishing a reputation as a greatplace to work is rewarded with a 0.5 percentincrease in shareholder value.

1.7%

1.5%

1.4%

0.6%

0.5%

0.5%

0.4%

0.5%

0.4%

7.9%

0.4%

Company has low voluntary turnover of managers/professionals

Company has low voluntary turnover of employees in general

Company emphasizes job security

Formal recruiting strategy exists for critical-skill employees

Recruiting efforts are aligned with the business plan

Employees have input on hiring decisions

Company has established reputation as a desirable place to work

Systematic new hire orientation exists

Hourly/clerical new hires are well equipped to perform duties

Professional new hires are well equipped to perform duties

Recruiting and retention excellence

F I G U R E 6 : L inks Between Recru i t ing andRetent ion Exce l lence and Va lue Creat ion

Recruiting and Retention Excellence: 7.9%

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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The ideas and solutions that come from toptalent are the key success differentiators inthe knowledge economy. Creating an envi-ronment where employees can and will sharetheir knowledge is crucial. A company thatimproves its “Communications Integrity” can experience a 7.1 percent growth in market value.

Capitalizing on technology is the practicethat holds the greatest potential for financialpayoff. Companies that give employees easyaccess to basic communications, like e-mailand voicemail technology, can see an impressive4.2 percent gain in shareholder value.

But technology itself is only half of the picture.Companies also need to create an environmentwhere the sharing of thoughts, ideas andknowledge is encouraged, rewarded andviewed as “the way we do things.” Whencompanies increase the level at which theyshare business plans and financial informa-tion with employees, they are rewarded with1.1 percent higher market value. The same1.1 percent increase can be gained when ahigher percentage of the workforce partici-pates in opinion surveys and the companytakes action based on that feedback. When acompany makes a significant improvementin creating a culture where employees at alllevels can offer input to senior management,it is associated with a 0.7 percent increase inshareholder value.

4.2%

0.7%

0.6%

0.6%

0.5%

0.5%

7.1%

Employees have easy access to technologies for communication

Employees at all levels give ideas andsuggestions to senior management

Company shares business plans and goals with employees

High percentage of workforce participates in opinion surveys

Company shares financial information with employees

Company takes action on employee survey feedback

Communications integrity

F I G U R E 7 : L inks Between Communicat ions Integr i ty and Va lue Creat ion

Communications Integrity: 7.1%

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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One of the most interesting findings fromour HCI research involves the use of HR service technology. Our research shows that if HR groups use new technology for thefundamentals — improving accuracy, serviceand cost-effectiveness — it pays off in 6.5percent higher shareholder value (Figure 8).But when HR service technology is imple-mented with less clear, less quantifiable goalsin mind — enhancing communication andpromoting culture — the technology is actu-ally linked to a large decrease in marketvalue (Figure 9, p.10).

Why? Because the basics come first. Part ofsuccessful HR service delivery is understand-ing the crucial balance between day-to-dayoperations and big-picture initiatives. Thatmeans streamlining the payroll process andgetting new hires well integrated before concentrating on shaping the organization’sculture. When HR groups capitalize on newtechnology to address their fundamentalresponsibilities, it pays off in a strongerfinancial picture for the company. Clearly,enhancing communication and promotingculture are inherently positive practices. Butthey should not be the key goals of an HRtechnology strategy.

2.3%

2.3%

1.9%

6.5%

Improving service to employees/managers is akey goal in implementing HR service technology

Reducing cost is a key goal in implementing HR service technology

Increasing transaction accuracy/integrity is a keygoal in implementing HR service technology

Focused HR service technologies

F I G U R E 8 : L inks Between Focused HR Serv ice Technolog ies and Va lue Creat ion

Focused HR Service Technologies: 6.5%

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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The HCI research steers companies towardthe most financially rewarding HR practices.It also throws a cautionary flag in front ofsome practices applauded by conventionalwisdom. We found that three practices inparticular — 360-degree review, longer-termdevelopmental training and implementing HRtechnologies with “softer” goals in mind —were often associated with a decrease in market value. Our hypothesis is that, whilethere is nothing inherently wrong with thesepractices, many organizations implementthem in misguided ways. In these areas,companies must pay special attention tostrategic alignment and appropriate execu-tion, and for that reason, we have categorizedthese practices into those that require “PrudentUse of Resources.”

Multisource feedback continues to enjoymass popularity, and many, if not most, busi-nesses report that they feel it is successful.Yet, when the impact on market value forevaluating superiors and evaluating peers iscombined, our research suggests it is linkedto a decrease of 10.6 percent. The truth isthat it is a challenge to get multisource feed-back right. It succeeds when an open culture

is already in place. It succeeds when partici-pants have been well trained to give andreceive feedback. It succeeds when there isvalid and reliable instrumentation and appro-priate follow-up. When one or more of theseelements is missing, multisource feedbackcan be a lengthy distraction that interfereswith teamwork and reduces productivity and, ultimately, shareholder value.

For the second time, the HCI research hasturned the spotlight on training by findingthat some types are actually associated with a decrease in shareholder value. Our studiesshow that developmental training — prepar-ing workers for their next job, instead of thecurrent one — is linked to a 5.6 percentdecrease in value. Our hypothesis is that thistype of investment is recouped by competingcompanies, as the newly skilled workerswalk out the door when a promotion is notimmediately forthcoming. Also ill-advised isthe maintenance of training during economicdownturns. Again, it may be that the competi-tors cancel their own programs, subsequentlyto capture the value by hiring newly knowl-edgeable workers away.

-7.7%

-6.6%

-5.7%

-5.6%

-4.9%

-3.4%

-33.9%

Enhancing communication is a key goal in implementing HR service technology

Culture change is a key goal in implementing HR service technology

Employees have opportunity to evaluate superiors

Employees have access to training needed for career advancement

Employees have opportunity to evaluate peers

Training programs maintained even in difficult economic circumstances

Prudent use of resources

F I G U R E 9 : L inks Between Prudent Use of Resources and Va lue Creat ion

Prudent Use of Resources: –33.9%

Expected change in market value associated with a significant (1 SD)improvement in HCI practice.

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There’s no question that it pays to managepeople right.

Organizations have long focused resources onother aspects of their companies, includinginfrastructure, R&D, sales and advertising,just to name a few. These things can increaseshareholder value creation in measurableways. Some — but certainly not all — triedto use their human capital to increase returnsto shareholders. But even these companieswere taking a shot in the dark, because noone could quantify which human capital programs were linked to good outcomes.

The business case has been building andWatson Wyatt’s Human Capital Index researchmakes it airtight. The linkage between supe-rior human capital management and superiorshareholder returns has been proven.Moreover, proof that superior HR practicesdrive financial results more than superiorfinancial results drive HR practices supportsour theory: If you hire the right people, createan environment that supports creative think-ing and increased productivity, leveraged by technology, you’ll reap the rewards.

3MABB Inc.Acceptance Insurance

Companies Inc.ActivisionAdvanced Neuromodulation

Systems, Inc.Advanced Power Technology ADVO, Inc.Affiliated Computer Services, Inc.AirTran AirwaysAlaska Airlines, Inc.Albemarle CorporationAlberta Energy Company Ltd.Allen Telecom Inc.Aloha Airlines Alstom, Inc. Amcast Industrial CorporationAmerica West Holding Corp.American Axle & Manufacturing

Holdings, Inc.American Express CompanyAmerican International Group, Inc.American Micro DevicesAmerican StandardAmerican Woodmark CorporationAmeriPath, Inc.AmerUs GroupAnchor BankAndres Wines LtdAnexsysAngiotech Pharmaceuticals, Inc.Anixter International Inc.Applica Incorporated

Applied Innovation, Inc.Applied Terravision SystemsAramark Canada Ltd.Archer–Daniels Midland CompanyArista Corp.ArQuleArrow Electronics, IncArvinMeritorAshland Astral Media Inc.ATCO GasAurora Foods, Inc.Avado Brands, IncAvaya CommunicationsAventis BehringAviall, Inc.Avnet, Inc.AXT, Inc.Baldwin Piano & Organ CompanyBall Park Brands/

Sara Lee CorporationBaltimore Gas & Electric CompanyBank North GroupBank One CorporationBanque Nationale Du CanadaBeckman Coulter, Inc.Belden Inc.Bentall CorporationBest Buy Company, Inc.Best Kosher Foods CorporationBIC CorporationBiomira Inc.Biovail CorporationBombay Company, Inc.

Borders Group Inc.Boston Properties, Inc.Bowater Pates et Papiers

Canada Inc.Brinker InternationalBrocade Communications

Systems, Inc.BrookfieldBrown & BrownBrown and SharpeBrush Engineered Materials, Inc.Bryan Foods (division of Sara Lee)BuckeyeBuffets, Inc.Burlington Northern

Santa Fe CorporationBurntsandCambrex CorporationCamcoCamecoCampbell Soup CompanyCandlewood Hotel Company, Inc.Capstone Turbine CorporationCaraustar Industries, Inc.CE Franklin Ltd.Cendant CorporationCentocor, Inc.Central Arizona ProjectCentral Garden & Pet CompanyCF Industries, Inc.CGU Insurance CompanyCH2M HILLChateau Communities Inc.CheckFree Corporation

Chemical Bank ShorelineChick-fil-a, Inc.Cisco SystemsCitgo Petroleum CorporationClear Channel

Communications, Inc.Clearly Canadian

Beverage CorporationCobra Electronics CorporationColgate-Palmolive Co.Colonial Properties TrustCOM DEVCompuCom Systems Inc.Computer Sciences Corp.Concurrent Computer Corp.Conductus, Inc.Cone Mills CorporationConestoga Enterprises Inc.Constellation Energy GroupCooper Tire & Rubber CompanyCott CorporationCPAC, Inc.Creo Products Inc.Cross Timbers Oil CompanyCrossroads Systems, Inc.CyberOptics CorporationCymer, Inc.DaimlerChrysler CorporationDal-Tile CorporationDanzas AEI, Inc.Dayton Power & Light CompanyDel Webb CorporationDelphi Automotive SystemsDevon Energy Corporation

CONCLUSION

LIST OF PARTICIPATING COMPANIES

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DeVry, Inc.Diebold, Inc.Digital Impact, Inc.Diversa CorporationDole Food Co., Inc.Douwe Egberts Coffee SystemDow AgroSciencesDucommun IncorporatedDuke EnergyDun & BradstreetE.W. Scripps CompanyEast Group Properties, Inc.Edison Schools Inc.eFunds, Inc.El Paso Corp.Elcor CorporationElectro Rent CorporationElizabethtown Water Co.Embarcadero Technologies, Inc.e-MedSoft.comEncompass Services CorporationEnerflex Systems Inc.Entergy CorporationEPIX Medical, Inc.ePresence, Inc.Equitable Resources Inc.Equity Office Properties TrustErie Insurance GroupEsterline TechnologiesFairview Health ServicesFairview NorthlandFBL Financial Group, Inc.FelCor Lodging Trust Inc.FerrellgasFerro CorporationFibernet Telecom Group, Inc.Fidelity InvestmentsFifth Third BankFinning International, Inc.First Albany Corp.First Federal Savings BankFirst Horizon

Pharmaceutical CorporationFirst National Bank of Long IslandFirst National of NebraskaFirst Tennessee

National CorporationFishery Products International Inc.Flow International CorporationFonar CorpForbes Medi-Tech Inc.Former Clearnet Inc.

(TELUS Mobility)Franklin Templeton InvestmentsFreddie MacFreightliner LLCGables Residential Services, Inc.Galileo InternationalGantz Wiley ResearchGap Inc.Gartner, Inc.GBCGenentech, Inc.General Motors Corp.Genesis Energy, L.L.C.Genlytc Thomas GroupGennum CorporationGentiva Health ServicesGetty ImagesGibraltar Steel Corp.GlenayreGlobal Thermoelectric Inc.Golden State VintnersGoodyear Tire &

Rubber CompanyGreat American

Financial ResourcesGreat River EnergyGreat Southern BankGreif Bros. Corp.Groupe LGS Inc.Groupe Transcontinental G.T.C.

Guardian Capital Group LimitedGuiness UDV North AmericaGulf Canada Resources LimitedGulf Mark Offshore, Inc.H.J. Heinz CompanyHallmark Cards Inc.Hancock BankHandspring, Inc.Hawaii Medical Service

AssociationHawaiian Electric Industries, Inc.Helix Technology CorporationHeller Financial, Inc.Hewlett Packard CompanyHexcel CorporationHighliner Foods Inc.Hillshire Farm & Kahn’sHerman Miller, IncHormel Foods CompanyHudson’s Bay CompanyHughes Electronics CorporationHuntington Bancshares Inc.Hutchinson TechnologyHybrid Networks, Inc.Hyseq Inc.IBM CorporationICI PaintsImagex.com, Inc.Imation Corp.IMPATH Networks Inc.Independence Community

Bank Corp.InfoInterActive Corp.ING CanadaInsignia Financial GroupIntegrated Measurement

Systems, Inc.Intermountain Health CareInternational Datacasting

CorporationInternational Multifoods

CorporationInterpool, Inc.Intuit, Inc.Investment Company InstituteIsis Pharmaceuticals, Inc.i-Stat CorporationItronItron, Inc.JDS Uniphase CorporationJimmy Dean Foods John Wiley and Sons Inc.Jostens, Inc.Kellogg CompanyKellwood CompanyKeyCorp.Kimball International, Inc.Kinder Morgan Inc.King SoopersKmart Corp.Knight RidderKnight Trading GroupKPMG, LLP.Kraft FoodsL. B. Foster Co.LaFarge Canada, Inc.LandAmerica Financial Group, Inc.Laser Vision Centers, Inc.Le Skoupe Canam ManacLiberty Mutual GroupLimited Too, Inc.The Loewen Group, Inc.LoJack CorporationLone Star Industries, Inc.Lorus Therapeutics Inc.Louisiana-Pacific CorporationLucent TechnologiesLynx Therapeutics, Inc.Lyondell Chemical CompanyMaax Canada Inc.Mackenzie Financial CorporationMagna International Inc.

Manor Care, Inc.Mariner Post-Acute NetworkMaritrans, Inc.Marshall & Ilsley CorpMassey Energy CompanyMcCormick & Co.McLeodUSAMDU Resources Group, Inc.Meade Instruments CorporationMedStar HealthMedtronic, Inc.Mercury Air Group, Inc.Merrill LynchMetro Inc.Metro-Goldwyn-Mayer Studios Inc.MFS Investment ManagementMicroAgeMicrosoft, Inc.Middlesex Water Co.Mindspeed TechnologiesMinnesota Power, Inc.Mirant CorporationMolson Quebec AtlantiqueMontrusco Bolton, Inc.Moody’s Investor ServiceMoore Medical Corp.Mortgage Guaranty

Insurance Corp.Mosaid Technologies, Inc.MTD Products Inc.Multiactive Software

Multiactive Technologies, Inc.Murphy Oil CorporationN W NaturalNational - Oilwell, Inc.National CityNational Tech TeamNature’s Sunshine Products, Inc.Navigant Consulting, Inc.Nelvana LimitedNeoPharm, Inc.Net Creations, Inc.NetIQ CorporationNetSilicon, Inc.New York - Presbyterian HospitalNewton Park Inc.Nicor, Inc.Nissan North AmericaNoranda Inc.Nordstrom, Inc.Northeast UtilitiesNorthwest AirlinesNStar NTELOSNVR, Inc.NxTrend Technology, Inc.O & Y EnterpriseOAO Technology Solutions, Inc.Odetics, Inc.OMI Ocean Mammal InstituteOpus360 CorporationOrenda Aerospace CorpationPacific & Western’s eTrust

of CanadaPacific Guardian LifePactiv CorporationParadigm Genetics, Inc.Parmalat CanadaPatterson Dental CompanyPCC Structurals, Inc.PDIPenske CorporationPeoples BankPerkin Elmer Inc.Perot Systems CorporationPetro-CanadaPetroleum Helicopters, Inc.PetsMart Inc.PFF Bank & TrustPharmacia CorporationPhelps Dodge CorporationPinnacle Entertainment, Inc.

Pinnaclewest Capital CorporationPioneer-Standard Electronics, Inc.Plantronics, Inc.PPG Industries, Inc.PPL Corp.Premdor, Inc.Prime Hospitality Corp.Prime RetailProNational Insurance CompanyProtective Life CorporationQuebecor World, Inc.R J Reynolds Tobacco

Holding, Inc.Ralcorp Holdings, Inc.Ralston Purina CompanyRand WorldwideReader’s Digest Association, Inc.Regency Centers CorporationRegent Communications, Inc.Reliant EnergyReynolds & ReynoldsRichmond Times-DispatchRidley Inc.Ritchie Bros. Auctioneers

(Canada) Ltd.Roadway Express, Inc.Rogers Communications Inc.Roseburg Forest Products Co.Rosemount Inc.Ryan Energy Technologies Inc.SAFECO CorporationSafeway Inc.Sallie MaeSara Lee CorporationSaskatchewan Wheat PoolSAVVIS Communications

CorporationSbarroSBC Communications, Inc.Schawk, Inc.SchlumbergerSchreiber Foods, Inc.SDRCSecure Computing CorporationSelect Comfort CorporationSequa CorporationSequoia Software Corp.Services Pharma MDSSheldahl, Inc.Shell Oil CompanySierra Wireless, Inc.Sigma-Aldrich Corp.Silent Witness Enterprises Ltd.Silgam Containers Corp.SITEL CorporationSLSC/SLDSmartServSoftNet Systems, Inc.Solectron CorporationSolutia Inc.SonoSite, Inc.Southern Union Gas Southwestern Gold CorporationSparton CorporationSpecial Metals Corp.SRPStanford MicrodevicesStantec Consulting Ltd.Starwood Hotels and

Resorts WorldwideStelco Inc.STMicroelectronicsStora Enso North AmericaStoragetekStrategicNova, Inc.Stryker CorporationSun Chemical CorporationSuncor Energy Inc.Sunquest Information Systems, Inc.SurModics, Inc.Synovus Financial Corp.Talbots, Inc.

Tecumseh Products CompanyTeknion CorporationTektronix, Inc.TeleCorp PCS, Inc.Teledyne Technologies

IncorporatedTeleHubLink CorporationTellabs Inc.Telus QuebecTenet Health SystemTerra Industries Inc.Tesco Corporation Textron Inc.The Ascent Group, Inc.The Dial CorporationThe Longaberger CompanyThe Marmaxx GroupThe Midland CompanyThe Mills CorporationThe North West CompanyThe Oath-A Health Plan for

Alabama, Inc.The Penn Traffic Co.The Sportsman’s GuideThomaston Mills Inc.Thoratec CorporationToll Brothers Inc.Trans World EntertainmentTransamerica Insurance &

Investment GroupTredegar CorporationTriQuint Semiconductor, Inc.Trism Inc.Trojan Technologies Inc.Trustmark Insurance CompanyTurnstone Systems, Inc.TVAU.S. BancorpUBSUnderwriters Laboratories Inc.Unican Inc.Union Pacific CorporationUnion Planters Corp.United Space AllianceUnitil Corp.Universal Forest Products, Inc.University of Maryland

Medical CenterUnocal Corp.Upton Resources Inc.US Oncology, Inc.Varian, Inc.Vasco Data Security

International, Inc.Vasogen Inc.Veritas DGC Inc.Veritas SoftwareViad CorpVicinity CorporationVideotron CommunicationsViskase CorporationW.R. Berkeley CorporationWatson PharmaceuticalsWelch’s CompanyWellPoint Health NetworksWestern Multiplex CorporationWestport Innovations IncWeyerhaeuser CompanyWhitney National BankWilson Greatbatch

Technologies Inc.Wm. Wrigley Jr. CompanyWolverine World Wide Inc.World Heart CorporationWR Grace & Co.Xcel Energy, Inc.Yale New Haven HospitalYork International, Unitary

Products GroupZoltek Z-Tel Technologies, Inc.

12

Watso

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Hu

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Abou t Wa t son Wya t t Wor l dw ide

A global consulting firm, Watson Wyatt brings together two disciplines

— people and financial management — to help clients improve business

performance.

We provide consulting services in the areas of employee benefits, eHR

and human capital management.

Our collaborative consulting approach starts with ClientFirst™ — where

we work with clients to define needs and expectations and then measure

our performance according to these agreed standards. Building on

our research-based innovation and a deep knowledge of our clients’

businesses, we partner with them to provide tailored solutions.

Watson Wyatt has more than 6,100 associates in 29 countries.

Corporate offices are in Reigate, England and Washington, D.C., USA.

For more information, visit us at www.watsonwyatt.com.

FO R MO R E IN F O R M AT I O N on how your human capital can drive shareholder value, call 1-800-388-9868 or visit us at www.watsonwyatt.com.

At a time when virtually all companies say that people

are their most important asset, the Watson Wyatt Human

Capital Index can now quantify that importance. Want to

learn your organization’s HCI? Fill out our diagnostic, and

we will analyze the results and provide you with:

❙ An HCI score that correlates the effectiveness of your

company’s human capital management with its

market value

❙ Your ratings on each of the key dimensions of

human capital

❙ A customized, easy-to-understand report that outlines

your organization’s strengths and opportunities for

improvement

❙ “What-if” scenarios and the return on investment

models associated with selected changes

❙ Ideas for prioritizing human capital practices to

achieve results

WHAT’S YOUR COMPANY’S HCI SCORE?

Divisions and Subsidiaries

PEOPLE MANAGEMENT RESOURCES

RESEARCH AND INFORMATION CENTERS

WATSON WYATT DATA SERVICES

WATSON WYATT INVESTMENT CONSULTING

Corporate Offices

Washington, D.C. USA

1/800-388-9868

Reigate, England

44-1737-241144

WWW.WATSONWYATT.COM

Copyright © 2001, Watson Wyatt Worldwide.

All rights reserved.

Catalog # W-488

Consulting Offices

ASIA-PACIFIC

Auckland • Bangkok • Beijing • Calcutta •

Hong Kong • Jakarta • Kuala Lumpur •

Manila • Melbourne • Mumbai • New Delhi •

Seoul • Shanghai • Singapore • Sydney •

Taipei • Tokyo • Wellington

CANADA

Calgary • Edmonton • Montréal • Ottawa •

Toronto • Vancouver • Waterloo

EUROPE

Amsterdam • Barcelona • Birmingham •

Bristol • Brussels • Dublin • Düsseldorf •

Edinburgh • Eindhoven • Leeds • Lisbon •

London • Madrid • Manchester • Milan •

Munich • Nieuwegein • Paris • Redhill •

Reigate • Rome • Rotterdam • Stockholm •

Welwyn • Zürich

LATIN AMERICA

Bogotá • Buenos Aires • Mexico City •

San Juan • São Paulo

UNITED STATES

Atlanta • Boston • Charlotte • Chicago •

Cleveland • Columbus • Dallas • Denver •

Detroit • Grand Rapids • Honolulu • Houston •

Irvine • Lake Oswego, OR • Los Angeles •

Marlborough, MA • Memphis • Miami •

Minneapolis • New York • Philadelphia •

Phoenix • Portland • Richmond •

Rochelle Park, NJ • St. Louis • San Diego •

San Francisco • Santa Clara • Seattle •

Stamford • Washington, D.C.

W W W . W A T S O N W Y A T T . C O M