You Get What You Pay For: Human Capital Impact on Organizational Performance in Portugal

Abstract

The neoliberal trend in human resource management has been to increase corporate profits by cutting personnel expenses. Mean while, corporate leaders continue to give official speeches clamming that people are their greatest asset. By applying a longitudinal approach to the organizational scope of the phenomenon, we explored the possible relationship between investment in human capital and organizational performance in Portuguese companies from 2010 to 2016. Our findings indicated that a 1% increment in investment in human capital increased gross value added by 0.63% the same year, and by 0.65% if the increase remained consistent over 2 years. The organizational context in which behaviours occurred, represented by the life cycle stage variable, also positively impacted performance, especially when investment in human capital was made in stage 4- decline. Our findings led us to conclude that cutting personnel expenses is detrimental to company performance and contributes to poorer business results.