HR metrics: Bringing finance and HR together
The phrase “people are our greatest asset” is arguably the most regularly indulged piece of hypocrisy in business. “Greatest asset” has appeared on 32 separate occasions within the annual reports of FTSE 100 companies over the last decade.
On 27 of these occasions, it was used solely in relation to the company’s workforce. And yet this greatest asset is never measured. After all, there is no commonly-accepted metric to quantify the contribution of a workforce.
This failure to value has three impacts. First, it prevents businesses having a true and integrated understanding of how their organisation works; second, it can lead to discrimination as people make hiring judgements based on prejudice not data; finally, it contributes to the wider issue of undervaluation of firms’ intangible assets.
In today’s world, where increasing amounts of jobs can be outsourced or digitised, nurturing skilled people and understanding what impacts performance are two of the best ways for a country or business to maintain competitive advantage. A better understanding and transparent reporting of the value of talent serves to benefit not just the bottom line, but the workforce too.
Effective people measures can enable an organisation to understand engagement levels – a key indicator of staff wellbeing and performance. They can also show the health of the pipeline of talent within an organisation, helping to improve succession planning.
Secondly, prejudices still exist in the workforce. In 2015 the proportion of non-white managers in FTSE 100 companies was just 5.7%, according to Green Park executive recruitment. In the same year MWM Consulting found that fewer than 10% of executive directors in Britain’s top companies were female.
The reasons for this under-representation are multifaceted – but it is difficult to deny that conscious or unconscious prejudice plays a part. This is where objective people measures can play a role.
This is not to say that all HR decisions should rely exclusively on metrics – but the more we rely on data to gauge performance and contribution, the more we take irrelevancies such as disability, gender, ethnicity or sexual orientation out of the question.
Finally, every year the FTSE 100 alone fails to value over £80bn worth of talent. This figure comes from research for the Chartered Institute of Management Accounting (CIMA), and is the annual total that the UK’s firms fail to account for in either investor reports or in business plans.
That such a large expenditure can occur out of the view of management and with little influence on business strategy is hugely worrying, and it’s not just a concern for management accountants and the boards they serve, but for investors as well.
People are arguably the greatest intangible assets an organisation has. The more that companies and public sector bodies can measure the contribution of its workforce, the more they can truly understand the full worth of their organisation.
To help organisations meet these challenges, CIMA, the Chartered Institute of Personnel Development (CIPD), the Chartered Management Institute and Investors in People, have created Valuing Your Talent, a partnership which is taking the first steps on the road towards universal people metrics.
Key among these is a framework, which helps organisations ensure the metrics they use work within the proper strategic context; further innovations are planned to make it easier for companies to understand and unlock the value of their colleagues.
In the meantime however, all organisations are encouraged to firstly measure the contribution of their people, and secondly to report it. If people are really your greatest asset, you should value them.
Tony Manwaring is executive director of external affairs at the Chartered Institute of Management Accounting (CIMA) and Valuing Your Talent programme director.
This article originally appeared in Financial Director.