Why is Human Capital Reporting Important?
By: Caleb Baker
Tags: Human Capital, HR, Human Resource, Work, Human Resource Management

Human capital (HC) is vital to the DNA of how we do successful business in the present, and the future. Human capital reporting has now become less of an operational requirement and far more of a strategic imperative. For organisations to ensure they are building a truly sustainable business they must be able to report, interpret and make decisions from their human capital reporting. To achieve this, organisations must define which human capital metrics are important in measuring culture and performance. They need to be able to measure them effectively and efficiently. Then most importantly, make key people decisions that bring the most positive impact on all stakeholders. Identifying these metrics or indicators allow organisations to fully understand human capital, in more than just financial and operational terms. Understanding these metrics is pivotal in the agenda of bringing HR and human capital to the boardroom and transitioning from a purely financial and shareholder-centric framework to an all stakeholders approach to build the future of work.

Strong Call for Human Capital Reporting

According to a late 2019 report by EY Center for Board Matters, on average 52% of an organisation’s market value is attributed to human capital and culture. We are witnessing this with organisations, candidates, investors, asset managers and even politicians clamoring for more human capital reporting and integration.

The 2020 Human Capital Index report by the World Bank Group indicates many countries have made significant improvements in human capital management and its reporting. The report goes on to indicate that progress in human capital is strongly correlated with unity in societies, higher income for nations, better earnings for their people and company share market outperformance versus those organisations that do not.

On August 26, 2020, the Securities and Exchange Commission (SEC) adopted a disclosure rule on human capital and human capital management. After a three to two vote, public companies in the US must now follow disclosure of rules on how to manage their respective workforces. This ruling, however, is vague at best and does not provide prescriptive requirements. Nonetheless, the SEC recognizing human capital is a great development in strengthening the workforce.

Human Capital Metrics

In 2018, the ISO (International Organisation for Standardisation) released the first-ever International Standard for human capital reporting known as ISO 30414, which provided globally agreed-upon guidelines on human capital reporting. The report comprises 11 human capital areas broken down across 58 employee-related metrics.

Not all organisations will be able, equipped or even willing to report on all these metrics. That is why it is important for organisations to identify, and measure the most relevant metrics to their business to focus on, in order to successfully capitalise and unlock the true value of human capital.

Productivity and Costs

Workforce productivity is a gateway to human capital reporting as it can track and measure Human Capital ROI (HCROI). It connects the relationship between human capital investment/costs and effectiveness with profitability. The parameters to track and measure productivity include company revenue, profit per employee, turnover rate, absences and effective working hours.

Diversity

Diversity in the workplace, especially at the leadership level, is also a focal point in human capital reporting. Diversity goes far beyond nationality as it also covers, age, gender, sexual orientation, etc. It has been long proven that diverse teams work smarter and more strategic. According to a 2020 McKinsey report, more diverse organisations are more likely to outperform their peers financially. The report also found that organisations with 30% or more women executives outperform those with fewer females at the table. More and more organisations are now working towards stronger diversity and inclusion (D&I) in the workplace. According to a Marketplace report, ‘diversity recruitment is booming’ especially for recruitment agencies helping organisations hire ‘underrepresented job seekers.’

Health, Safety and Well-Being

If it weren’t for the Covid-19 pandemic, this human capital area would remain a secondary concern for most organisations. However, in 2020, organisations all over the globe placed a stronger focus on their social and legal responsibilities to establish and maintain a safe and healthy work environment. Candidates and investors are now expecting organisations to go above and beyond when it comes to health, safety and well-being.

Recruitment and Turnover

Recruitment is a deciding factor for the growth and success of a company. There are different indicators to consider when tracking recruitment including shortlist quality, quality of hire, time to hire, cost per hire, candidate experience and mobility. According to a Harvard Business Review article, nowadays, it is safe to say that many organisations can no longer take chances on bad hires as they often result in disengaged employees. A 2014 employee engagement report by Gallup found that active disengagement in the US workplace cost the country $450 to $550 billion (USD) annually. That is why it is important to learn from past mistakes and start acknowledging the significance of quality hire that improves employee retention — also an important human capital metric to cover.

Forward with Human Capital Reporting

There are many human capital metrics to cover, with each being uniquely relevant. Human capital reporting is more than just measuring ROI and compliance. In building the future of work, we need data and information that represents the true backbone of every organisation, the employees. In 2020 we are giving more power to the true value of human capital and the real progress it carries with it. As we push through, we destroy notions and discrimination against human capital. Like the way, a White House adviser referred to American workers as ‘human capital stock.’

Human capital is the past, present and future of work.