Click to edit Master title style Human Capital Reporting Quantifying the value of Human Capital in an organisation.

Click to edit Master title style

Human Capital ReportingQuantifying the value of Human

Capital in an organisation

Cliché – People are our greatest asset Fact – People costs constitute up to 65% of operating costs.

Reality – Very little reporting on value and efficiencies of people

Agenda

Why report on human capital?

Barriers to human capital reporting

Reliability and measurement

Guide to human capital reporting

Case study: Kelly Group’s people value statements

International benchmarks

Questions

Why report on human capital?

Gaining a competitive advantage through traditional means such as product and process is becoming increasingly difficult to achieve. In today’s economy, an organisation’s success is the product of the competence of its people

Where all else is equal customers chose one company over another because of their experience they have at the human interface

A company’s ability to support its strategies with human capital is an important indication of the sustainability of the company’s future business performance

Why report on human capital?(cont.)

Reporting can support the four pillars of decent work i.e. fair wage, job security, benefits, safe environment and can be used to benchmark for best practice and regulation

Your human capital is a value producing asset

Sound HR practices account for gains of 40% or more (Jeff Pfeffer: Stanford University)

This information should be visible and available to all stakeholders

Click to edit Master title style

“Though your balance sheet’s a model of what a balance sheet should be,

Typed and ruled with great precision in a type that all can see,

Though the grouping of assets is commendable and clear,

And the details which are given more than usually appear,

Though investments have been valued at the sale price of the day,

And the auditor’s certificate shows everything’s OK,

One asset is omitted – and its worth I want to know,

The asset is the value of the men who run the show”

- Archibald Bowman, 1938

Barriers to human capital reporting

Accounting barriers:− No requirement under Generally Accepted Accounting Practices (GAAP)− No official standard or framework − Human capital is not included in the valuation of a business

Other barriers:− HR data often collected for administrative and labour compliance rather than evaluation

purposes − Disclosure can be competitively sensitive − Resistance to change

Reliability and measurement

Information should be neutral, free from bias, dealing with good and bad aspects

Content must be relevant, reliable consistent and complete

Use comparatives / historic data and basic accounting concepts such as matching

and the consistency concepts

Measurements disclose source, assumptions and benchmark data

Should be audited

Human capital reporting guide

Include human capital strategy and provide information on human capital performance

A company’s ability to support its business strategy with its human capital is an indication of its future performance

−Reporting should start with the company’s strategy statement, highlighting its approach to

the attraction, development, management and performance of human capital aligned to the

brand personality with the vision, promise, values and culture of your organisation e.g. Kelly

Group leadership blueprint

Case study: Kelly Group


People Value Statements: delivering on the brand’s promise− Included in Kelly Group’s annual report and designed to measure the effectiveness,

attitude and efficiencies of it’s people so that stakeholders can see the value of our people as a sustainable business asset

Key performance indicators: human capital performance − Financial: traditional accounting metrics− Customer service: measuring the effectiveness of the people in the organisation at the

point of interaction between our people and our customers (client and candidates)− People relationships: the attitude of our people and leadership effectiveness as

measured by independent research organisations − Productivity: the efficiency of our people in real terms

Case study: Kelly Group Customer service at the point of interface

− Customer Satisfaction Index (CSI)o Independently measuredo Shows ability to deliver on brand promiseo Shows ability to gain and maintain market shareo Rational vs. emotional connection


People relationships − Staff complement − Staff turnover− Length of service (retention of corporate memory)− Absenteeism− Demographics

o age / generational aspects / gender

− Employment equity − Intellectual capital data base − Skills development / leadership development initiatives − Employee assistance programs / wellness initiatives− Employee relationship index

o critical improvement issues, loyalty analysis and commitment index

− Management review


Employee Relationship Index – critical improvement issues Independently measured Shows employee satisfaction over a number of areas

Source: Kelly Group Annual Report 2008

Case study: Kelly Group Employee Relationship Index - loyalty analysis

− “Employee commitment” accounted for 12% of the variation between companies in their profitability and 17% in their productivity and a HR ethos showed consistently better results.” * •Source:

•Sheffield Business School 2001/R. Kasselman 2006

Intervene & Re-Direct Maintain & Grow Relationship

If Profitable, Save Fix Concerns to Retain or Enhance

– Action: Likely to stay +

Accessible

TrappedHigh Risk

13% 49%

25% 14%

–

Att

itu

de

to C

o.

+

Positiveimpressions,may notstay

Want to stay,

will continue

to stay

Don’twant to stay, probably won’t

Willcontinue

to stay, don’twant to stay

Truly Loyal P1_May07 P2_Feb08 P3_Nov08Accessible 12% 13% 13% 0%High Risk 25% 24% 25% 1%Loyal 52% 50% 49% -2%Trapped 11% 13% 14% 1%

100% 100% 100%

Case study: Kelly Group Employee Relationship Index - commitment index

This overall mean score is created by combining and averaging the answers to the statements:

I really feel like part of the family in my company I feel a strong personal attachment to my companyI am proud to be part of my companyWhen there are challenges in my company, they feel like my challenges tooI believe my company deserves my loyaltyI feel part of my specific department/ team

5.0

4.0

3.0

2.0

1.0

High

Low

4.0

74.0

Feb 08

4.0

74.9


Productivity: measuring efficiency in real terms


Calculating the value of your human capital− The Kelly Group has devised a simple formula to value its people:

(current monthly salary / 1 000) x (average training days per year of service)

x (average cost to company per training day) x ((100 – age)/age)

− According to this formula the intellectual capital within the group is approximately R2.08 billion (2008); R1.73 billion (2007)

International benchmarks

Human Capital output of America’s biggest companies was assessed

Early days however Top Companies are taking human capital and organisational capability seriously

GE, IBM, Intel, Ups, Wells Fargo reported a strong position

“If a company doesn’t show any evidence of good human capital practices or outcomes then stakeholders assume that they are not investing in future results and begin to lose confidence”

- Dave Creelman

Source: Creelman Research, Reporting on Human Capital

What the Fortune 100 tells Wall Street about Human Captial Management Reporting: Best Practice

Communication How management is using communication to drive the business forward, specific

details of programs, metrics showing outcomes, verification of effectiveness and showing how the organisation keeps its promise.

Diversity Survey findings, Data on gender, retention, listing of goals and performance scores

according to gender and other innovative or unique practices.Employee surveys Industry and national benchmarks, include questions, explanations, actions and

engagement scores.



Health and safety Metrics on injury, fatalities and illnesses, benchmarks, rationale for importance of

safetyIndustrial relations Number of unionized employees, unions they belong to, evidence on practices to

ensure good industrial relations, costs which can be tied to industrial relations issues i.e. strikes, measures of satisfaction/engagement of unionized employees, explanation of past difficulties and how they were resolved and a description of relationship-building programs

Reward Hourly workforce costs, policy, details of incentive pay at all levels and how the

compensation policy supports the strategy



Recruiting Quality-of-hire metrics, number of applicants per opening, data on the percentage

acceptance of offers, an audit of recruiting practices showing if best practices are being followed, “cost of hire” and “time to fill”

Training and development Historical trends, training by strategic intent, industry or national benchmarks,

detailed information on the most strategic training programs, impact of training on future earnings

Work-life Satisfaction metrics, comprehensive program information and rationale behind the

work-life programLeadership Development and succession planning practices, processes or structures that

ensure the leadership team is effective and depth of the talent poolSource: Creelman Research, Reporting on Human Capital

Questions

“The most valuable asset of a 21st century institution…….will be its knowledge workers and their productivity”

- Peter Drucker

Click to edit Master title style Human Capital Reporting Quantifying the value of Human Capital in an organisation.

Documents

human capital performance

performance of human

framework human capital

regulationyour human

future performance reporting

kelly groupcase study

companys strategy statement

measurement information