49 (144) 2021


How Human Capital Reporting can increase productivity

By Jan J. Kluk, OBE and Dr Andrzej Blatiak

The US Securities and Exchange Commission (SEC) has made Human Capital Reporting (HCR) mandatory for companies listed on the stock exchange and those wishing to be listed from 9 November 2020. Many, if not most, countries are expected to follow suit because HCR allows investors to compare companies more directly. The emerging trend is that investors and financial institutions around the globe will increasingly be requesting validated human capital data.

The table (derived from Ocean Tomo LLC) shows that the value of intangible assets is increasing annually. Whereas 45 years ago intangible assets constituted only 17% of the value of an organisation, today the percentage is estimated to be around 90. The business economy is being driven by reputation which has been enhanced by the HR function as well as rapid advances in technology, fast-moving competitive environments, regulatory scrutiny, transparency and social change.


You can only effectively manage what can be measured and compared

HCR sets the framework for consistent measurement and comparison, leading to significant potential for improvements in productivity.

Human resources has now an opportunity of being at the same level as finance in public reporting terms. HCR allows investors to compare companies more directly. Investors will require accurate and reliable data as will regulatory bodies. The SEC will introduce penalties for inaccurate reporting, as is the case with financial results. Linking human-capital value to financial returns will be important in the development of the workforce today and for the future.

Focus on productivity

An organisation is only as good as its people and the cost of the workforce is one of the largest overheads. Measuring the return on the HR investment becomes easier with HCR.

Effective HR strategies can have a very important and positive impact on organisational performance, especially in view of the fact that workforce costs can make up to 70% of an organisation’s expenditure.
There are many different HR management systems and processes aimed at maximising the return on investment in staff, but they vary from business to business and country to country, making it difficult to accurately benchmark and be internationally relevant.

HCR allows an organisation to get a clear view of the actual contribution of its human capital, applicable to enterprises of all types and sizes, HCR provides recommendations on core HR areas such as organisational culture, recruitment and turnover, productivity, health and safety, and leadership.
HCR reporting is a reflection as to how organizational value could allow for more data-driven decision across HR management.
Governments could benefit by obtaining greater knowledge of human capital development in their country’s organisations in relation to others, which is important for political labour market initiatives.

Agile organisations are strategically realigning their workforce now to meet their urgent needs while maintaining their most critical roles to be able to adapt or pivot quickly post-Covid. Hence the following issues could be relevant:

  • How can the workforce be re-aligned to meet the current challenge and be prepared for the recovery?
  • What percentage of our workforce can be switched to work remotely if needed?
  • What is our current productivity by business line and location? Is it higher than competitors?
  • Is productivity increasing, decreasing or static? How are we performing when compared to our competitors?

Many companies fly blind on talent decisions, unaware of the financial and business impact of their workforce decisions. Much of talent management decisions for typical employers in Europe are still made without metrics support and usually spend too much, which can affect profits. Alternatively, if there is too little investment in talent, there is a danger that top talent may be lost to competitors.











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