The Case for Sharing — and Understanding — Human Capital Metrics
August 18, 2020
Ask most companies to define their most important asset and they’ll tell you it’s something intangible: humans. Yet when evaluating a given company's worth, investors still rely on performance metrics that largely ignore an organization's brainpower.
Think about the problem this way: A low turnover rate sounds like a good quality for any company, right? But what about nimble startups that live by the motto "fail fast, fail often?" Low turnover might signal to an investor that talent is too complacent, and therefore not innovating fast enough. No wonder universal talent metrics are a touchy subject.
It's a debate that's been lately revived thanks to better reporting tools and growing demand from investors. And while human capital reporting standards have drawn their fair share of advocates and opponents, there’s no question that people information will only become more relevant to company performance. Outside pressure and reporting initiatives aside, HR departments must learn to measure, share and explain the human capital metrics that matter to their businesses.
The Trouble with "People Data"
As the gap between net assets and market capitalization widens, no one can seem to agree on how to measure and report the increasing value driven by employees. In 2012, SHRM drafted standards to help companies disclose human capital information in six areas:
- Human capital spending, including investment on training and development and third-party employees
- Retention, categorized by job types
- Leadership depth, including succession planning and internal hires
- Leadership quality, based on employee surveys
- Employee engagement, based on surveys
- Discussion and analysis to explain the metrics
SHRM ultimately withdrew its draft in response to public opposition, however, which included concerns about competitive disadvantages and the cost of reporting. There’s also the issue of context: The metrics above are general and might not be relevant to employers in all industries.
Of course, it all comes down to comparability and how different people interpret different measures.
A Nuanced Approach
While the initial push from SHRM fell flat, technology has made reporting tools more accessible and advocates have fine-tuned their arguments. Two initiatives from both sides of the Atlantic call for more substantive reporting of human capital information. In the UK, the International Integrated Reporting Council published a reporting framework that includes human, social and relationship capital.
In the U.S., the Sustainability Accounting Standards Board (SASB) provides industry-specific reporting recommendations. In software and IT services, for example, SASB calls for employers to report the risks of recruiting foreign nationals, such as threats to intellectual property and visa regulations. Guidelines also suggest management include an explanation of how it addresses those challenges. The industry standards also propose that software and IT companies report employee engagement metrics like "actively engaged" or "passive."
Campbell Soup reports the amount it spends on training and employee satisfaction rates. "Investors and potential candidates for jobs want to rank and rate companies. Retention and happiness are proxies in some people’s minds for better performance," Dave Stangis, vice president of corporate responsibility at Campbell, tells SHRM.
Whether or not reporting standards become law, companies that understand the value of their human capital will turn that knowledge into competitive advantage.