Government Controllers Speak

Discover how government controllers are leading the state and federal governments out of the pandemic in FEI's ForwardThinking Q2 Series.

Strategy

Demystifying Human Capital Reporting


FEI Daily spoke with Tim Hird, Executive vice president for Robert Half and Protiviti, and Kimberly Lanier, Associate Director, Business Performance Improvement for Protiviti, about human capital trends and actionable strategies to address the related challenges.

©Andrii Yalanskyi/iStock/Getty Images Plus

Whether you’re part of a public company that is required to address the new human capital disclosures or a private company that needs to begin considering the requirements, there is a focus across all industries on understanding the value of human capital as a key factor for sustainability and long-term success. But how do you identify what and how to measure in order to accurately reflect human capital’s impact on the organization? And how can your organization best invest in human capital development?

FEI Daily spoke with Tim Hird, Executive vice president for Robert Half and Protiviti, and Kimberly Lanier, Associate Director, Business Performance Improvement for Protiviti, about human capital trends and actionable strategies to address the related challenges.

FEI Daily: You’ve been invited to present on Human Capital Reporting at this year’s 2021 Financial Leadership Summit. What about this topic is exciting to you?

Tim Hird: As the workforce and workplace have undergone significant change, so, too, has how companies approach their human capital strategies. For example, companies employ new labor models, and leaders tailor their management styles for today’s remote workers.

Even as much as changed, however, other trends persist. Recruiting remains difficult, and talent shortages aren’t going away. Retention sits top of mind for many executives, who watched their teams stretched thin and ponder greener pastures. Hanging on to top performers is challenging in the best of times and even more so after a difficult year.

As a result, we see employers trying to enhance employee engagement, helping to make teams feel more connected to each other. Many organizations re-emphasized the priority they place on building their workforce, finding the right mix of employees to meet business goals and taking care of their teams.

Despite making changes – or at least recognizing they need to make changes – many employers, including financial leaders, have questions on how to make them happen. That’s one of the reasons I look forward to this session. I’m excited to discuss the trends we’re seeing, share what we’re seeing work and highlight ways financial leaders can address today’s pressing challenges.

Kimberly Lanier: One of the more exciting aspects of human capital reporting is helping organizations establish direct links between human capital and organizational outcomes. Measuring the impact of investment in people and reporting on it – internally and externally – can be challenging. It’s energizing that more and more companies are starting to treat human capital reporting with the same rigor and accountability as financial capital. A strong reporting foundation is essential for organizations and leaders that promote the concept that “people are our most important asset.”

FEI Daily: How do the new human capital disclosures differ for a private company vs. a public company?

Lanier: At this time, the U.S. SEC Regulations require that publicly held companies are accountable for disclosure. The SEC’s requirement is new, high level and leaves room for interpretation – for now. SEC regulation 101(c) stipulates as a disclosure topic a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business. That’s high level – and we’re seeing organizations approach fulfilling this requirement in a wide range of ways – from a simple “check-the-box” exercise of providing basic workforce demographics to the other end of the spectrum with 50-page “People Fact Books” that position human capital as a competitive differentiator. The SEC disclosure requirements are apt to get more prescriptive as time goes on. Requirements are already more elaborate in other countries, especially the UK. The disclosures in practice are also likely to evolve as companies fine-tune their approaches and can reference benchmarking, including competitor and sector leader disclosures. There is also additional regulation pending. But whether you work for a public or private company, there is value in establishing human capital reporting, internally and externally. The SEC requirements were over a decade in the making and driven by investor-shareholder demand. Private companies have investors, too – and this information is incredibly relevant to investors (and the marketplace) and to other stakeholders to understand the business fundamentals.  

FEI Daily: What are some of the metrics companies are using to accurately reflect human capital’s impact on the organization?

Lanier: Everyone wants a “template” or silver bullet set of metrics that work for all organizations or industries. We’ve found (based on a lot of research), that isn’t likely to be the case. The human capital metrics you track are aligned to the story you want to capture and express to your audience/s. The important element is alignment – between internal/external reporting and up/down/across your leadership teams. There are four types of measures: demographics, HR operational measures, business outcome measures and linkages. For each of the four types, sample metrics could include:

  • Demographic – number of employees, broken down by gender, race, diversity measures (leadership)
  • Operational – time to fill position, cost-per-hire, number of training days, number of grievances
  • Outcome – voluntary turnover rates, engagement scores, absenteeism
  • Linkages – how employee engagement links to turnover; how employee satisfaction links to customer satisfaction

FEI Daily: How are you seeing organizations invest in human capital development?

Hird: One of the first steps for many companies after all the changes of the past year was recognizing investing in human capital development was a business imperative. It’s not a choice. Employees were burned out, facing additional stressors inside and outside of work, and taking on additional responsibilities. That isn’t sustainable for people, and companies that don’t address it will see good employees walk out the door.

Fortunately, many leaders recognized this and started taking steps to fix the situation. One way is to show employees their future with the organization. Talk about how they’re contributing to the company and what it means for their career path.

The next step is professional development. We’re seeing organizations upskill employees, helping them expand their skills and expertise and prepare for advanced positions, and reskill employees, helping them learn new skills and prepare for different roles in the organization. Even when budgets are tight, leaders must find professional development opportunities for personnel, including working with them on stretch assignments and facilitating knowledge sharing from consultants.

Finally, I’ll mention that managers and executives need to make employee appreciation and recognition a focal point. Leaders that don’t make their teams feel valued and show contributions will be rewarded risk watching productivity decline and turnover rise.

FEI Daily: What do you hope attendees will learn from your discussion?

Hird: My goal is for attendees to walk away from our discussion with a greater understanding of current human capital trends and actionable strategies to address the related challenges. Leading a team isn’t easy, and it’s even more challenging in today’s environment. Despite all of the challenges, leaders have resources and strategies they can use, and I want attendees to leave our session optimistic they can meet today’s challenges and know how they can do it.

Lanier: We want to demystify human capital reporting, and at the same time illuminate it for those who have a requirement to make the disclosure. We hope attendees will (1) understand the value and embrace a new level of accountability for human capital reporting, (2) understand the SEC requirements and ensure compliance, (3) learn an approach to developing the right measures for internal/external reporting, and (4) discuss eight practical steps to take now to develop human capital reporting in their organizations.

To learn more, register for FEI’s 2021 Financial Leadership Summit and join Tim Hird and Kimberly Lanier for their session “Human Capital Reporting. Is Your Company Ready?”