Lack of Human Capital Becoming Critical

With the beginning of the New Year, corporate executive and personnel changes and appointments are in full swing. Consequently, personnel managers will be paying keen attention to performance evaluations. A recent study suggests that six in ten office workers establish their own “tactics” to cope with merit rating such as avoid being late for work and being friendly with superiors and peers. Yet, many workers say they are not satisfied with the evaluation ratings system since they think the assessments are neither fair nor objective.

Towers Perrin, a leading global consulting firm in human resources, released a study on Jan. 18 that personnel assessments of domestic firms fall far behind global standards. According to the study of eight leading domestic companies and thirteen overseas multinational companies between 2006 and 2007, personnel evaluations by domestic firms are inferior to those of global firms. Towers Perrin is based in the U.S. and has the largest market share in providing global human resource consulting and administration.

○ Merit Management Counts for 70 Percent for Advanced Companies

Towers Perrin Korea released its “performance management index” which contains domestic corporate information regarding performance evaluation systems and their measurement. On a scale of one to one hundred, domestic conglomerates stood at 70, while ordinary firms received 55. The study is the result of an in-depth analysis of data over the past two years regarding merit evaluation content, methods, subject and basis of domestic firms.

In an interview with the Dong-A Ilbo, Park Kwang-seo, CEO of Towers Perrin Korea, said, “Domestic firms’ performance evaluations are seriously flawed.” He added, “If their evaluations are not trusted, all other parts including rewards, promotion, and mentoring are not sustainable.” Merit rating plays a crucial part in providing motivation. In addition, it also plays a role in distributing the talented and sorting out key employees. Therefore, outdated performance managements shake morale and hinder high returns among members of the organization, something often seen in developing countries.

The report supports some arguments that the personal opinions of managers heavily influence personnel assessments in Korean firms. In order to deal with this problem, the report suggests the need to strengthen education for personnel managers like in other advanced countries, and come up with methods to prevent subjective evaluations.

IBM Corporation runs an evaluation system in which the highest performer and the lowest performers need to be evaluated and agreed by all personnel managers.

○ Lack of Human Capital Undermines the Economy

Towers Perrin also pointed out that Korean businesses significantly need core human resources to lead domestic firms into the future. In an additional study, the firm said, “As for advanced countries, the human resources account for about 5 percent of the total employment. But in Korea, the rates are just about 1 percent.”

Shortage of human resources is the biggest challenge Korean companies face and will have a far-reaching negative impact on the economy if they fail to secure new growth engines.

Then, what should domestic firms do to maintain the necessary human capital?

“To date, firms have focused on managing human resources. But from now, they should pay more attention to nurturing them. If domestic companies foster and support future human growth engines, they will eventually end up damaging the entire corporation,” said researcher Kim Jae-moon at LG Economic Research Institute.

Towers Perrin CEO Park also stated that, “Domestic firms should break away from outdated and meaningless educational methods. They must teach their employees business practices they are going to be handling, not theory. It’s the same with soldiers as field training helps them prepare for battle.”

mikemoon@donga.com