If the rhetoric is true and people really are an organization's greatest asset, is it time for public companies to start sharing the value of that asset with investors, creditors and other interested parties? According to the Society for Human Resource Management (SHRM) and the American National Standards Institute Inc. (ANSI), the answer is yes. Following up on their cost-per-hire metric, SHRM and ANSI have teamed up once again to develop "Guidelines for Reporting Human Capital Metrics to Investors." The question is, will CFOs and other senior executives agree that reporting this information publicly is useful and effective?
Noting that most public companies and other organizations do not currently have a consistent way to communicate with shareholders and other stakeholders and interested parties about the financial value of their human capital assets, SHRM and ANSI have focused these guidelines on helping companies to communicate "the true wealth of the organization" by including human capital in that discussion. It is important to note that the standard is not finalized and that it will be voluntary. Although the initial comment period is over, there may be additional opportunities to comment on the standard.
The standard focuses on human capital metrics that are relevant to investors, can be readily produced from information companies already compile, and can be audited. The end result is a proposed standard that focuses on six key elements:
1. Human capital spending, including employee salaries, benefits and taxes; number of full-time equivalents and total headcount; spending on employee support; spending in lieu of employees; and training and development.
2. Employee retention as measured by voluntary and total turnover and a calculation of number of terminations during the period divided by average active headcount during the period.
3. Leadership pipeline measured as a percentage of defined positions with an identified successor and the percentage of open defined positions filled internally during the period.
4 and 5. Leadership quality and employee engagement metrics that focus on an index of relevant questions from employee surveys and information on the response rate and methodology/tool.
6. Human capital discussion & analysis (HD&A) would be similar to the MD&A (Management's Discussion and Analysis of Results of Operations and Financial Condition) currently required in financial reports but, obviously, focused on human capital issues. This section would provide narrative context and discussion of the reported metrics to help readers better understand what is being reported, while also disclosing any material risks or information related to human capital. For example, this section could include information about and the underlying reasons for trends and changes to metrics over time, information that allows investors to predict future outcomes, and overall information that can help investors to develop an enterprise-wide perspective of these metrics and their meaning and impact on the organization.
SHRM and ANSI have also developed a proposed standard for performance management that focuses on what they consider to the three minimum elements of an effective performance management system: goal setting, performance review and performance improvement plans.