Why We Need Human Capital Metrics and Reporting in Company Disclosures

by Jeff Higgins
Founder and CEO, Human Capital Management Institute

Can we agree that the coronavirus pandemic is above all a human crisis requiring people-centric measurement and solutions?

The last great crisis in the U.S. was the financial crises of 2008-2009. If the pandemic is a uniquely human crisis, the most powerful driver in our economic recovery is what we do next with our human capital and people practices.

Given the importance of people and human capital practices in organizations, does it not make sense that such a critical resource and source of value creation be included in public disclosures?

Without standard human capital metrics, everyone is flying blind (risk planning, investors, policy makers, and corporate executives).

Human capital risk planning is a new focus for many companies. It’s a topic frequently mentioned but has seen little action beyond companies adding boilerplate legal risk language in public reporting.

Reliable, validated human capital reporting has long been a black hole for investors, including institutional investors representing employee pension funds. This may change, as investors and policy makers press for insightful evidence of risk mitigation and future sustainability including global standards like ISO30414 Human Capital Reporting Guidelines (December 2018) and US SEC proposed rule on human capital disclosure (August 2019). Recently the SEC has reaffirmed its want for enhanced disclosure and more focus on workforce health and welfare.

“We recognize that producing forward-looking disclosure can be challenging and believe that taking on that challenge is appropriate,”  explained the SEC in an April 2020 letter.

While critical for investors, human capital reporting is just as important for employees. Think about a person deciding where to work. Wouldn’t they want to know key human capital metrics to make their decision, such as the diversity of employees and leaders, the amount invested in developing employees, the percentage of employees and leaders who take advantage of training, the retention or turnover rate, and culture measures, such as leadership trust index or employee engagement score?

It is critical to note that organizations disclosing more about their human capital have historically performed better in the market.

EPIC research shows:

Reliable human capital data is often lacking yet raw data is readily available, along with proposed ISO HC reporting guidelines.

The enhanced usage of people data and analytics has been a positive business trend long before the COVID-19 crisis. But stakeholders, including executives and investors, have not always had information that was relevant, valuable, and useful for decision making.

Turning people data into decisions requires skill, effort, discipline, and money, which is lacking in many HR departments. Priorities have often been elsewhere in building employee engagement and experience metrics, along with other “hot” technology driven vendor offerings.

Even experts acknowledge that the value of human capital is not always easy to measure. Nevertheless, ISO guidelines do exist for internal and external human capital reporting. Until now, relatively little has been offered publicly in most U.S. companies.

“We may not always want to know what the data tells us,” said one member. As we have seen with the COVID-19 crisis, not wanting to know what the data tells us, can be a recipe for disaster and  not one that leads to economic recovery.

The Need for Transparency Has Never Been Greater

Many of the critical metrics and practices needed most are not transparent to the very stakeholders (such as employees, investors and government policy makers) who must start and sustain the economy recovery. 

Moving forward, enhanced transparency around workforce management and human capital measures will be needed. Without such data, organizations will have a difficult time adapting to changing markets and workforce needs and building critical partnerships. Such data is vital to building trust within the workforce and attracting, engaging, and retaining talent.

Increasingly, as organizations collect more data about their workforce, employees will want to benefit from that data.

“We saw less concern about privacy when we saw the workforce data was shared and being used to protect the workforce,” said one member.

Investing In and Developing the Workforce Has Never Been More Important

The power of learning, development, and people investment has never been greater nor more directly tied to economic results. A greatly changed world requires a new level of learning investment, adoption and innovation.  

Will organizations see the need for learning investment and people development as a continuing need? Will they measure it to better manage it? Will they begin to see human capital measures as a means for learning about what is working and what is not? Will they begin to see human capital reporting as a leading indicator of recovery? 

2020 CTR Annual Conference

IN-DEPTH LOOK AT ISO'S L&D AND HR METRICS FOR HUMAN CAPITAL REPORTING

Join us at the 2020 Virtual CTR Annual Conference for this session where industry experts share the definitions of the 23 ISO disclosure metrics and how to use these to in your human capital reporting strategy.

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