The study is based on 16 interviews with investors, researchers and standard-setters. Human capital is defined in the study as “the value of people at work and their collective knowledge, skills, abilities and capacity to develop and innovate”. Human capital management is the process which "enables organisations to make more productive use of their people through measurements, analysis and evaluation". Human capital management reporting refers to quantitative and qualitative information reporting on these activities.
The research report highlights that whilst some organisations do present people-related data in their annual reports “very few” actually describe how this information links into value-creation for their business.
The research report also indicates that “respondents believe that company reporting on HCM should be promoted and improved” and “that the quality of HCM reporting is not as good as it should be”; although no respondents indicated a desire to include the value of human capital on a company’s balance sheet. The research concludes that:
It’s evident that investors want to use HCM data in combination with other perspectives on company performance to develop a more holistic view of their investments.
A number of barriers to HCM reporting such as confusion over HCM terminology and measures and also a lack of encouragement from investors for better quality HCM reporting are highlighted in the research report. Significantly, the research report indicates that investors “don’t recognise this information as powerful and pertinent”. Investors do, however, consider that four key metrics (total cost of workforce employed, recruitment costs, total investment in training and development and employee engagement survey scores) proposed to standardise external HCM reporting represented “a step forward in CM reporting”.
In light of the findings and perceived barriers to HCM reporting, the research report offers a series of recommendations for both increasing demand among investors and for improving reporting practice. It is hoped that this reported information will then “improve decision-making, justify investments in people, and demonstrate to external stakeholders [that organisations] are led and managed for the long-term”.
The research report provides recommendations under a number of headings:
- what interest investors can do;
- what asset owners can do;
- what gatekeepers can do;
- what professional education bodies can do;
- what reporting companies can do; and
- what policy-makers and government can do.
The full report can be downloaded from the CIPD website.