SHRM Developing Metrics to Gauge Human Capital Assets

Under SHRM's draft human capital metrics standard, companies would report on topics including spending on training and development, ability to retain talent, leadership quality and employee engagement.

July 20, 2012

Most companies believe that human capital is their most valuable asset, and now the Society for Human Resource Management is developing a standard to prove it.

The proposed standard has come under fire as unhelpful or even harmful, but advocates say it addresses a major problem: namely, that the value of human capital remains unaccounted for in investment communications. Few companies report on any aspect of their HR investments or planning beyond leadership succession plans, says Laurie Bassi, CEO of McBassi & Co., a consulting firm that specializes in human capital analytics, and chair of the SHRM work group creating the standard.

Bassi notes that any money companies do spend on training and development is simply lumped into overhead costs on financial statements. "So if Firm A makes major investments in developing its people and Firm B is not, all investors see is that Firm A has a lot higher costs," she says.

The human capital metrics standard will give corporations a way to quantify and communicate about those expenditures so stakeholders and analysts can differentiate between companies that invest in their people and those that don't.

"This standard is a good idea," says Keith Mills, an analyst at Trillium Asset Management in Boston. "We are always trying to gage whether companies actively invest in their employees because we believe those are the types of organizations that will be more successful."

Without more detailed workforce analyses, Mills seeks out external data, such as Top 100 best firms to work for lists. But he notes that there is little other public data to assess workforce investment or predict future leaders in this area. "We are trying to find the next set of companies to make those Top 100 lists," he says.

The voluntary disclosure could provide analysts such as Mills with the workforce data they are seeking. Under the draft standard, companies would report on workforce metrics in six categories: spending on human capital; ability to retain talent; leadership depth; leadership quality; employee engagement; and human-capital discussion and analysis, which is a space to provide any additional background or context that the firm believes would be useful in interpreting the metrics.

The resulting data will give analysts a quantifiable measure of human capital investments, and create a launch point for conversations about leadership and employee development, Bassi says. "It will be good for everyone, including HR, because the people side of the business will finally be accounted for."

Mills argues that companies should have most of this information already, even if they aren't tracking it. And additional tools, such as employee surveys about leadership, are worth investing in, he says. "If you are trying to build a successful organization, I think you'd want that feedback."

Other observers, though, argue that such detail would be difficult and time-consuming to collect, and would add little value for investors or analysts.

"To put this kind of HR information into context would be difficult," says Timothy Bartl, president of the Center on Executive Compensation, a division of the HR Policy Association, a professional trade group based in Washington, DC. "It would require a lot of explanation to make it meaningful."

Because these data are so industry-specific, it would be easy to misinterpret them, adds Greg Kesler, managing partner in Kates Kesler Organization Consulting, and a member of the editorial board for the People & Strategy Journal. "I'm not convinced it would be terribly useful to investors," he says.

Further, critics worry that publicizing such information could in some case put companies at a distinct disadvantage.

"The standard as drafted would require disclosure of confidential proprietary information that would be extremely valuable to the competition," Bartl says. This includes data regarding turnover rates, and the degree to which there is strong set of up-and-coming leaders in the ranks of middle and senior management.

."This is not information most companies want to share," he says.

Bassi is unfazed by criticism that the standard would reveal too much. "Resistance to this level of transparency is understandable, but it is already happening," she says. Social media sites such as LinkedIn and Glassdoor give employees a place to share information about their worklife and salaries and to offer reviews of their company and its leadership for public consumption. "The question is: Do business leaders want to have influence over the way that conversation evolves, or do they want to leave it to the social networks?" Bassi says.

By pursuing this standard, business leaders can communicate directly with Wall Street about their people, and position that engagement as a competitive advantage, she argues. "We hope this will help investors become more sophisticated in the questions they ask firms, and help CFOs manage the conversation with analysts more proactively."

The working group is currently revising the standard in response to comments on the first draft, and attempting to make it "less onerous," Bassi says. She expects the next version to be ready for public comment in August. SHRM aims to win approval of the standard from the American National Standards Institute later this year.

Sarah Fister Gale is a writer based in the Chicago area. Comment below or email