Since the mid 20th century, the tenets of positive psychology have become progressively more integral to corporate practices. Today, a crucial aspect of human resource management for many companies is human capital investment. Though these investments may incur relatively large costs, business leaders say the returns are even greater.
Historically, employers viewed workers as static inputs that are necessary for production. As a result, work conditions were often shoddy, pay was low and most importantly, the workers were unhappy and unmotivated. Since the 1950s, however, this view has begun to steadily shift toward improving working conditions for employees.
Positive psychology simply argues that happy people are more successful and productive than unhappy people, and companies that employ happy people are more profitable. The positive-psychology movement began in the 1950s, though it has become considerably popular since 1998 when APA President, Martin Seligman, coined the term during his inaugural speech. Today, experts list several benefits for companies that foster a positive psychological environment.
When positive psychology is implemented in a workplace, employees are more motivated, remain loyal and they tend to have more agreeable relationships with co-workers. Companies can reduce worker absenteeism, record high productivity and attract more qualified job applicants. Positive psychology essentially strengthens the employer-employee bond by benefiting both parties.
Human Capital Investment
One form of positive psychology in the workplace is human capital investment. Human capital can be positive attributes, professional competencies, academic knowledge or any other characteristic in a given person that translates to economic value.
Many companies choose to invest in human capital as a way of not only producing a more skilled workforce, but also to strengthen the employer-employee relationship. Human capital investments may include college or university programs, on-the-job training or seminars and medical care. These practices have become somewhat commonplace in corporate America, and employers who make these investments point to the huge returns their companies receive as a result.
In today’s business world, many companies invest in human capital by paying for their employees to attend MBA programs. According to a March 2011 article in The New York Times titled, “Find a Sponsor to Pay for That MBA,” many companies use academic programs as incentives to net attractive applicants during the recession. According to a 2010 study, 85 percent of more than 1,000 surveyed American companies have a tuition-funding program—up from 53 percent just three years before. These companies include Target Corporation, Deloitte and Northrup Grumman. If a company manager is intimidated by the idea of human capital investments, he or she can opt to hire a consultant. One example is ‘Big Four’ firm Ernst & Young, which offers a ‘total picture perspective’ on human capital services that incorporates “human resources, tax, employee financial education and counseling and a focus on staying ahead of the competition.”
Calculating the returns on one’s investment in human capital uses the standard return on investment (ROI) formula: total profit divided by the total value of assets used to generate the profit. However, human-capital investments also require employers to factor in the wage increase that is made possible by the investment; the raise one receives after earning his/her MBA, for instance.
Still, many employers say the returns are high on these investments. In January 2012, John Quelch, Dean of the China-Europe International Business School, told CNN that businesses today should foster a ‘knowledge economy.’ “Everybody wants to invest something in the knowledge economy, and that means innovation … education [and] R&D investment,” he said, adding that multinationals who wish to form positive relationships with emerging economies should also consider making human-capital investments in those countries.
As with any investment, business leaders who wish to invest in human capital should do so wisely by offering opportunities to employees to advance their education and by creating a positive and happy workplace. Most companies that do this record solid returns—better working relationships and higher overall productivity.