HR Group Creates Workforce Metrics
Cubicle workers who’ve been told their medical benefits are being “enhanced” by a hike in co-pays, or that 360 reviews are an improvement on a one-on-one chat with the boss, often greet a new idea from HR with skepticism. So perhaps it should come as no surprise that a proposal by human resources managers to establish a national standard for measuring the value of a company’s workforce is getting a lot of pushback. What’s notable is that the opposition comes from within the ranks of the profession itself.
A group of 600 HR managers, academics, and advisers are drafting guidelines for standardizing measures of workforce diversity, turnover, job training, and the like. They are also drawing up a template for how companies should report such information to shareholders. Those involved in the project argue that companies and investors would benefit if a single set of metrics were used to gauge what they call “human capital.”
“In the financial-services sector, my supply chain is human capital—it’s relationships, it’s ideas,” says Erika Karp, head of Global Sector Research at UBS Investment Bank, who has been involved in devising the standards. A stockpicker choosing between two banks should favor the one that spends more money training and rewarding its employees, thereby lowering turnover, which is costly, Karp says. Investors will also gravitate to companies with a deep leadership bench. With the metrics, “you have more transparency on factors that result in better profitability,” she says. “It’s what a reasonable investor would want to know.”
The project, which is being spearheaded by the 250,000-member Society of Human Resource Management (SHRM), has drawn fire from the HR Policy Association (HRPA), a lobbying group whose members include the top HR officers at more than 300 of the largest companies in the U.S. HRPA says the reporting standards would place an unnecessary burden on public companies, which are already shouldering a mountain of paperwork under Sarbanes-Oxley. Information on how much time and money companies spend on training and what kinds of workers they are hiring would be less valuable to investors than to rivals, HRPA representatives say. “These are all things the competition would love to know,” says Tim Bartl, a senior official. While most companies would agree they need to have a succession plan, a requirement to name candidates for the top job would irk some, says Peter Cappelli, director of the Center for Human Resources at the Wharton School. “In a lot of firms that particular question isn’t even known to the participants.”
Henry Eickelberg, vice president for human resources at defense contractor General Dynamics and an HRPA member, agrees that companies’ financial statements aren’t designed to capture the value of their workforce and the intellectual property workers create. But the SHRM standards are not the tool to do it with, he says. “We are not selling cars where gas mileage is a number people can objectively use to choose among car models,” he says. He faults the proposal for offering a “one-size-fits-all” measurement. “They may be great metrics for management to use, but an individual investor or institutional investor would say, ‘What conclusions can I really draw from this?’ ”
Officials at SHRM declined to comment, yet members of the task forces drawing up the standards said in interviews that the proposals merely codify practices already in place, such as tracking training time or employee satisfaction for internal use. Probably half the data covered by the standards are already being collected by companies, says Russell Klosk, a Hewlett-Packard executive whose job is to predict what kind of workforce the technology company will need. A decade ago, HR’s job was to manage employee benefits and administer the corporate payroll; now it’s helping top management make strategic decisions, says Klosk, a SHRM member.
Laurie Bassi, an economist who has studied the relationship between human capital and corporate performance, says a consistent set of HR metrics makes sense given the shift in the U.S. from a manufacturing to a service economy. “People are your most important asset,” says Bassi, who chairs the SHRM working group devising the reporting standards for publicly listed companies. “The evidence is pretty compelling for investors looking for indicators of future performance.”
SHRM has begun submitting its proposed set of metrics to the American National Standards Institute, a nonprofit that oversees voluntary consensus standards across a variety of areas, from biofuels to health care. Implementation of the investor metrics is at least two years away, Bassi says. Ultimately, says Karp of UBS, the market will decide whether companies embrace them or not. If the standards help attract investors, companies will adopt them. Being able to place a dollar value on intangibles such as worker training and employee loyalty will give businesses a competitive advantage over rivals, she predicts: “I find this area ripe with opportunity to look for an edge in the investment process.”