ASTD study: employee training increases a company's ROI

By David Essex, ITworld.com |  Business

There's little debate that companies should invest in their people by offering
training and other educational opportunities. But such investments are usually swept
under the rug as expenditures best kept from the eyes of frugal shareholders. Now an
effort is afoot to prod companies to view employee training as an investment -- even to
report it in their financial statements alongside R&D and capital expenditures. New
evidence suggests that the money will come back in enhanced shareholder value.

That's the conclusion of the American Society for Training and Development (ASTD;
based in Arlington, Va.), a professional association of 70,000 corporate-learning
specialists around the world. It routinely collects detailed training data for its
benchmarking service, and by last fall had accumulated enough data from 575 US
companies between 1996 and 1998 to show a link between training expenditures and total
stockholder return (TSR). The study, entitled "Profiting from Learning: Do Firms'
Investments in Education and Training Pay Off?" provides new ammunition for anyone who
needs to make the case for employee training programs.

Why training pays

ASTD defines a company's TSR as the change in its stock price plus dividends, calling
it the best measure of a stockholder's actual return. ASTD found that companies that
spent $680 more per employee per year than the average company increased their TSR by
six percent the following year. These top companies had a 37 percent TSR, while
companies investing below the average (ASTD doesn't give a figure for this average in
its report) had an average TSR of 20 percent, compared to a 26 percent return of the
Standard & Poor's 500 index. The top quarter of the study group spent $1,595 per
employee, while the bottom quarter spent just $128. ASTD can't reveal the companies
that participated.

Skeptics might hunt for other causes for these figures. Perhaps
productivity-enhancing IT expenditures boost TSR, or perhaps some industries simply
have inherently higher returns. But the ASTD applied "a more sophisticated statistical
model" that employed multivariate regression and still found a positive effect from
training. With employee education factored in, the model's ability to predict TSR
growth improves by 50 percent.

The study notes that training probably influences TSR indirectly by positively
affecting other "productivity indicators" that the market recognizes. "We do know from
our research that employee retention is higher at companies that have significant
training efforts," says Mark Van Buren, ASTD's director of research and the study's
coauthor. He adds that "more of the firms that lead in terms of investment in training
are in the IT sector."

Join us:
Facebook

Twitter

Pinterest

Tumblr

LinkedIn

Google+

Answers - Powered by ITworld

Ask a Question
randomness