“Human capital has historically been treated as the labor input in the business model and merely categorized as an expense, but is increasingly being recognized as a valuable intangible asset,” according to a new report from the Center for the Future of Higher Education and Talent Strategy (CFHETS) at Northeastern University.
Human capital management and reporting is becoming a top priority, according to Sean Gallagher, Ed.D., founder and executive director, CFHETS. “There’s much more attention to people-related issues, hiring, retention, training, etc. and it’s really risen to the top of the corporate and the board agenda.”
Gallagher continues, “That means everything around it in terms of strategy, operations, data, and measurement gains importance.”
In 2020, federal regulations by the Securities and Exchange Commission called on employers to improve access for investors to human capital information – an agenda that continues its examination of these evolving mandates.
Gallagher notes that companies’ ESG (environmental, social, and governance) initiatives, typically, have been more focused on the ‘environmental’ component but the ‘social’ piece is gaining attention. “There’s the demand from investors for ESG-related reporting and greater transparency pressures to ‘do good’ as a business.”
Co-author Monica Borgida, Ph.D., associate teaching professor, Northeastern University, says there is a cultural component among young job seekers. “We know that one of the main drivers when they’re looking for a new position is not driven by money – at the center of their decision-making framework.”
“The research shows that during the interview process or during just that search process, prospective employees are looking for values, looking for elements of the strategy that will drive their role, and their vision of the role within the company,” says Borgida.
Citing research again, Borgida says companies that commit to ESG initiatives are seeing the benefits.
“Imagine one group of companies that are business-as-usual and one group that is engaged in this conversation around ESG. The research clearly shows, not only U.S. but global evidence, that global companies that are engaging in these initiatives clearly outperform the business-as-usual group.”
Getting the Whole Picture
How do companies boost their human capital management and reporting? “There’s a wide array of metrics that companies could start looking at,” says co-author Emilee Trieckel, research associate, CFHETS
“Part of the challenge is having a little bit more standardization. It’s great if you have Company A and they have all these wonderful things to say about their training and development. Then over here you have Company B that has all these nice things to say about their compensation packages, but that’s not giving you the whole picture,” says Trieckel.
She offers headcount as an example. “Another popular topic was how surprising it might be to us that most companies can’t tell you on a given day exactly the number of people that work there. There are so many ways to count – a daily headcount or monthly headcount. How do you define full-time employees, part-time employees, and contractors?”
“There’s a lot of really good work on metrics that are relevant. But what we uncovered is that it will be even more effective if there’s more coordination and standardization,” says Trieckel.
“If the data is available and if it’s comparable, it opens up the opportunity for benchmarking. Just like a company will benchmark its costs, profit margins, everything else – when we have consistent human capital data, they can begin comparing apples to apples, right?” explains Gallagher.
“The inflection point I think we’re at today – as these frameworks and regulations begin to require and demand data that then everyone can access – levels the playing field,” says Gallagher. “When there’s a level playing field and it’s required and investors are seeking it, then you could have a whole ecosystem of possibilities. Just like when we take any government data or corporate data, you can build businesses around it, you can analyze it, you can research it, you can automate investment decisions based on it.”
Getting HR Up to Speed
Regarding HR’s role in human capital management and reporting, Trieckel explains there’s never been a seat at the table for human resources before. “There hasn’t, historically, been a lot of investment from a strategic standpoint. It’s a huge gap in moving the field forward for this area. Part of our major conclusion was raising the flag and saying, ‘Hey, we think this isn’t going to go anywhere. Maybe now is the time to start thinking about bolstering some of these systems.’”
Borgida adds, “When we interviewed people that were professionals related to HR functions, we witnessed that shift that change is happening. There is a lot of excitement in HR rooms to be able now to see a more strategic role that they’re taking on. They’re gaining a seat around the table. They’re talking to the chief financial officer, the chief executive officer with a different entitlement in a way. A different responsibility, even a different accountability. I think it is a good time to build a career in HR from this perspective because of all the change that is evolving.”
Building the Tech Infrastructure
Technology systems, the infrastructure, and the data standards need to be ready – from both a business and an accounting sense, according to Gallagher. “There’s a whole set of investments and conversations that need to happen to empower companies to actually access the right data.”
“This is good for their business. It can improve their operations, their growth, their employee experience.”
Borgida says, “I think another important word is ‘comparable’ – the idea that if companies, organizations end up aligning along similar frameworks, similar standards, there will be more opportunities for external stakeholders to compare them.”
She continues, “That comparison can be for investing purposes. It can be if you’re looking for a job. It can be if you’re looking for philanthropy activities. You have to think about a different way that is emerging – starting from investing in financial markets all the way to the work environment.”
Borgida says thinking is changing around the idea that profit is everything. “There are other elements, more intangible, that are really becoming prominent in that assessment process. I think that is ultimately a very progressive note.”
Check out the full report – Human Capital Measurement and Reporting: The New Frontier in Talent Strategy and ESG – here.
The report is also co-authored by Curtis Odom, Ed.D., associate teaching professor, Northeastern University.