You Decide: Should there be a Human Capital Value Standard?

Do you remember the last time you bought a car? You might first start by researching brands and models that interest you. You might seek out information on the internet, read consumer reports, and listen to what trusted advisors say about the car. You might check safety ratings and if there were any major recalls.  A test drive is also important.  Ultimately you want to know everything about that item before investing several thousands of dollars.  Ultimately, you depend on the information provided to be complete and accurate.

The investor relation’s picture is no different.  As prospective shareholders seek to invest dollars, complete and accurate company disclosures on value and performance become key component of that decision.

The Society for Human Resource Management (SHRM) has developed a draft human capital standard that is intended to help investors evaluate the value of a company’s human capital.  The proposed standard titled, “Human Resource Indices for Investors” is currently being developed for certification by the American National Standards Institute.

The standard would require publicly held companies to provide discussion and analysis in these five areas:

• Spending on human capital, including the total head count and number of full-time equivalent employees; and the total amount spent on employees (all wages, benefits, and taxes); spending in lieu of employees (temps, contractors, outsourcing); and the total spent on training and development;
• The company's ability to retain talent, including voluntary and total turnover broken down by job types;
• The company's leadership depth, including the percentage of defined positions with an identified successor, and whether defined positions were filled internally or externally;
• The company's leadership quality based on responses to an employee survey; and
• Employee engagement results based on an employee survey.

Bloomberg BNA reports that controversy surrounds this initiative.

Supporters of the initiative say, “Establishing respected and durable measurements of human capital value that must be included in investor communications is crucial for presenting a full picture of the performance and wealth of an organization.”

Opponents of the initiative are skeptical that investors are even requesting this information. In addition, the HR Policy Association commented in a letter dated May 18, “The members of our Association were taken aback that the Society of Human Resource Management would propose yet another significant new regulatory burden.”

Like most debated issues it is helpful to weigh the pros and cons before deciding. Here is a list highlighting some of the pros and cons of implementing such a standard.

The Pros:

• It would provide a wider scope of company information for investors;
• It would raise human capital management higher on the executive radar;
• Human Capital Management would potentially be taken more seriously;
• It would provide information for regulatory agencies such as the Securities and Exchange Commission;
• It is a step toward the need to establish respected and durable human capital measures.

The Cons:

• It adds additional regulatory burdens on companies;
• It would create a competitive disadvantage by disclosing talent and potentially proprietary information;
• It is hard to gather data required. For example, fluctuations in foreign currencies could complicate the compilation of salary data;
• Basing leadership value on employee surveys is potentially short-sided. Leadership is more than a popularity contest;
• The disclosure of staffing costs could reduce the flexibility to adjust workforce staffing to meet fluctuating customer demands.

SHRM has indicated they will reopen the standard up for additional comments after they incorporate the first round of suggestions. If you missed the first opportunity to make your voice heard like I did, stay tuned for round two.

In the meantime you decide: Is developing a human capital value standard for investors a good idea?  Complete this short poll and share a comment with us.

[polldaddy poll=6342044]

Additional Resources:

• Click here to download SHRM's proposed standard.
• Click here to read the HR Policy Association's response.
• Click here to read the American Staffing Association's response.
• Click here to read Bloomberg BNA's report.