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What do you think of the proposed human-capital reporting standards?

Here are the proposed human capital reporting standards from SHRM. My take on this is that it would be a colossal waste of time to create data that could be easily manipulated to get the "right' results, and even if reported accurately could lead to misleading conclusions unless outsiders were well-versed in the corporate culture of the reporting company. But as this moves along I am interested in hearing if others share my viewpoint, or if I am off-base.


Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |


No, you're not off base. The idea of *reporting* this stuff is ludicrous.
1) Your points about manipulation, misleading and context-sensitivity.
2) This is a good *internal* process, and having an external process might undermine that.
3) There are unstated premises, such as "voluntary turnover". If I pay an incompetent employee $20K to walk away and sign a release of claims, is that "voluntary"? If I offer early retirement, is that "voluntary" when it comes with it the threat that the next offer won't be?
4) Identified successor? Don't you mean "process", or are you really expected to be that rigid?
5) Does someone need to be a statutory employee to be a contributor? What about external talent (both retention of individuals, and developing a good process for cycling them, such as seasonal or specialty labor)?

HR in general can benefit from more transparency, but doing to HR what GAAP has done to accounting in some instances (jamming the square peg of innovation into the round hole of tradition) does not seem to have a benefit that I can fathom. At both large companies and small ones, variations on the above were important to track.

This also leaves out of the equation the idea of the "going concern" and the know-how inherent in the company itself, which at larger companies is the critical concern in my mind.

There may, however, be benefits. Being able to see year-over-year metrics on change might be interesting if presented in context. If this were to drive companies to review their processes and become more efficient/effective in developing their employee base, that could benefit the economy generally. If this became a process audit, that could have internal and external benefits. Here, the value I see is in helping companies invest in their processes effectively and productively.

While I'm not a utilitarian by any stretch, I do believe that the fundamental basis for investor-oriented reporting is money. This is why we have GAAP, IFRS and similar. How companies get to that goal, returning more money to you than you invested, is not (imho) so easy to communicate.

There is a final, seemingly stated premise here that I am not sure is more disturbing or uninformed. Below is a link to the doc; check section 1.2. IP can have financial value, because you can sell it. An operating process that generates a good or service at a cost has a value, because you can monetize it. Money has a clear value...until the government pulls another QE...and so on. Assigning a financial value to a workforce *itself* suggests that the workforce can be bought and sold like property.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Who is going to do this? The CFO, the HR person?
Who is going to take the time to digest the info and act on it?

It seems to me that part of the questions are already, for the most part, mandated by law or GAAP.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

Many HR functions in mature organizations capture a lot of this information. There needs to be a platform for HR function to demonstrate the economic value it adds to organization and establishing standards and making disclosure voluntary is a good starting point. SHRM and ANSI seized on this opportunity to get “HR to table”. Other events underlying this development are also Dodd Frank and CEO turnover. Dodd Frank has a proposed rule for companies to report CEO Worker pay ratio. There is a lot of lobbying against the rule to be enacted as it would be difficult to report especially for truly global organizations and interpreted very differently without other metrics to further explain it. The high turnover and large severance packages paid to poorly performing / recently hired CEOs (Yahoo, HP) has drawn attention to succession plans and bench strength of an organization. As with any standards, there will likely be amendments and continuous review. I view this as a positive development and there will be some “growing pains” for companies.

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

Malak, I like your take on what *could* be good, but from my reading this goes in a very different direction, again from 1.2:

"financial value of human capital is inadequately addressed"
In other words: there is a way of monetizing employees that is not communicated by things such as Rev/Comp or similar metrics, and further;

"... and so the true wealth of the organization is consistently underreported to investors and other stakeholders."
Stated premise (and apparent necessary fallacy in a below-average company) that there is an investor-relevant ROI that is not captured by, well, ROI.

In general, I find the metrics presented to both come from a context that is troubling at best, and to be metrics that seem intended to distract from organizational value, the latter which is intertwined with the presented metrics but is also quite a bit more complex and distinct.

Back to your point Malak, there *could* be something here. I will posit that having standardized information publicly available is a good thing, in that there may be a correlation between long term value and some employee metrics, and that the only way we will know is to consistently measure them. Thus, the intent is absolutely a positive development.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

One of the problems with standardized information is that it is often irrelevant in the context of the company.

For example, I worked with a company where about 80% of the positions were entry-level functions, with no growth path available except in rare cases. The turnover rate in these positions ran between 90% and 120% annually. But that was acceptable to the company because the cost of training was so low that it was more economical to let people move on than it was to incur the retention costs.

I also see issues with companies that rely on seasonal employees or have production cycles that fluctuate dramatically. The problems are not in the gathering of data, but in presenting that data to investors in a manner that makes the context of the numbers relevant and understandable. What will end up happening is that companies will devote substantial man-hours to craft the narrative that would be required, and investors will be presented with a multi-page document that few will read.

Ram Hariharan
Title: Technology Director
Company: Expedia, Inc.
(Technology Director, Expedia, Inc.) |

It'd probably be valuable to first find agreement on the meaning of the term "human capital."

Here's one definition:

Since many of the proposed metrics above correlate with future financial performance it is good to develop metrics that measure how a firm is investing in the experience, talent, and education of its employees. Even for the most money-focused of investors.

Let's face it, finance itself is highly complex, is not a science (despite its extensive use of quantitative methods), and is susceptible to "cooking the books." While the complexity of measuring human capital is high, there is significant value in doing the work to figure out how to get better at it.


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