Click to edit Master title style Human Capital

Click to edit Master title style Human Capital Reporting Quantifying the value of Human Capital in an organisation

§ Cliché – People are our greatest asset § Fact – People costs constitute up to 65% of operating costs. § Reality – Very little reporting on value and efficiencies of people

Agenda § Why report on human capital? § Barriers to human capital reporting § Reliability and measurement § Guide to human capital reporting § Case study: Kelly Group’s people value statements § International benchmarks § Questions

Why report on human capital? § Gaining a competitive advantage through traditional means such as product and process is becoming increasingly difficult to achieve. In today’s economy, an organisation’s success is the product of the competence of its people § Where all else is equal customers chose one company over another because of their experience they have at the human interface § A company’s ability to support its strategies with human capital is an important indication of the sustainability of the company’s future business performance

Why report on human capital? (cont. ) § Reporting can support the four pillars of decent work i. e. fair wage, job security, benefits, safe environment and can be used to benchmark for best practice and regulation § Your human capital is a value producing asset § Sound HR practices account for gains of 40% or more (Jeff Pfeffer: Stanford University) § This information should be visible and available to all stakeholders

Click to edit Master title style “Though your balance sheet’s a model of what a balance sheet should be, Typed and ruled with great precision in a type that all can see, Though the grouping of assets is commendable and clear, And the details which are given more than usually appear, Though investments have been valued at the sale price of the day, And the auditor’s certificate shows everything’s OK, One asset is omitted – and its worth I want to know, The asset is the value of the men who run the show” - Archibald Bowman, 1938

Barriers to human capital reporting § Accounting barriers: − No requirement under Generally Accepted Accounting Practices (GAAP) − No official standard or framework − Human capital is not included in the valuation of a business § Other barriers: − HR data often collected for administrative and labour compliance rather than evaluation purposes − Disclosure can be competitively sensitive − Resistance to change

Reliability and measurement § Information should be neutral, free from bias, dealing with good and bad aspects § Content must be relevant, reliable consistent and complete § Use comparatives / historic data and basic accounting concepts such as matching and the consistency concepts § Measurements disclose source, assumptions and benchmark data § Should be audited

Human capital reporting guide § Include human capital strategy and provide information on human capital performance A company’s ability to support its business strategy with its human capital is an indication of its future performance − Reporting should start with the company’s strategy statement, highlighting its approach to the attraction, development, management and performance of human capital aligned to the brand personality with the vision, promise, values and culture of your organisation e. g. Kelly Group leadership blueprint

Case study: Kelly Group

Case study: Kelly Group § People Value Statements: delivering on the brand’s promise − Included in Kelly Group’s annual report and designed to measure the effectiveness, attitude and efficiencies of it’s people so that stakeholders can see the value of our people as a sustainable business asset § Key performance indicators: human capital performance − Financial: traditional accounting metrics − Customer service: measuring the effectiveness of the people in the organisation at the point of interaction between our people and our customers (client and candidates) − People relationships: the attitude of our people and leadership effectiveness as measured by independent research organisations − Productivity: the efficiency of our people in real terms

Case study: Kelly Group § Customer service at the point of interface − Customer Satisfaction Index (CSI) o o Independently measured Shows ability to deliver on brand promise Shows ability to gain and maintain market share Rational vs. emotional connection

Case study: Kelly Group § People relationships − − − Staff complement Staff turnover Length of service (retention of corporate memory) Absenteeism Demographics o − − − age / generational aspects / gender Employment equity Intellectual capital data base Skills development / leadership development initiatives Employee assistance programs / wellness initiatives Employee relationship index o critical improvement issues, loyalty analysis and commitment index − Management review

Case study: Kelly Group § Employee Relationship Index – critical improvement issues § Independently measured § Shows employee satisfaction over a number of areas Source: Kelly Group Annual Report 2008

Case study: Kelly Group § Employee Relationship Index - loyalty analysis − “Employee commitment” accounted for 12% of the variation between companies in their profitability and 17% in their productivity and a HR ethos showed consistently better results. ” * • Source: • Sheffield Business School 2001/R. Kasselman 2006 – Attitude to Co. + Intervene & Re-Direct If Profitable, Save – Action: Likely to stay + Positive impressions, may not stay 13% Accessible High Risk 25% Don’t want to stay, probably won’t 49% Maintain & Grow Relationship Want to stay, will continue to stay Truly Loyal Trapped 14% Will continue to stay, don’t want to stay Fix Concerns to Retain or Enhance

Case study: Kelly Group § This overall mean score is created by Employee Relationship Index - commitment index combining and averaging the answers to the statements: 5. 0 Feb 08 4. 0 74. 9 High 4. 0 74. 0 3. 0 2. 0 1. 0 Low § I really feel like part of the family in my company § I feel a strong personal attachment to my company § I am proud to be part of my company § When there are challenges in my company, they feel like my challenges too § I believe my company deserves my loyalty § I feel part of my specific department/ team

Case study: Kelly Group § Productivity: measuring efficiency in real terms

Case study: Kelly Group § Calculating the value of your human capital − The Kelly Group has devised a simple formula to value its people: (current monthly salary / 1 000) x (average training days per year of service) x (average cost to company per training day) x ((100 – age)/age) − According to this formula the intellectual capital within the group is approximately R 2. 08 billion (2008); R 1. 73 billion (2007)

International benchmarks § Human Capital output of America’s biggest companies was assessed § Early days however Top Companies are taking human capital and organisational capability seriously § GE, IBM, Intel, Ups, Wells Fargo reported a strong position § “If a company doesn’t show any evidence of good human capital practices or outcomes then stakeholders assume that they are not investing in future results and begin to lose confidence” - Dave Creelman Source: Creelman Research, Reporting on Human Capital

What the Fortune 100 tells Wall Street about Human Captial Management Reporting: Best Practice Communication § How management is using communication to drive the business forward, specific details of programs, metrics showing outcomes, verification of effectiveness and showing how the organisation keeps its promise. Diversity § Survey findings, Data on gender, retention, listing of goals and performance scores according to gender and other innovative or unique practices. Employee surveys § Industry and national benchmarks, include questions, explanations, actions and engagement scores. Source: Creelman Research, Reporting on Human Capital

What the Fortune 100 tells Wall Street about Human Captial Management Reporting: Best Practice Health and safety § Metrics on injury, fatalities and illnesses, benchmarks, rationale for importance of safety Industrial relations § Number of unionized employees, unions they belong to, evidence on practices to ensure good industrial relations, costs which can be tied to industrial relations issues i. e. strikes, measures of satisfaction/engagement of unionized employees, explanation of past difficulties and how they were resolved and a description of relationship-building programs Reward § Hourly workforce costs, policy, details of incentive pay at all levels and how the compensation policy supports the strategy Source: Creelman Research, Reporting on Human Capital

What the Fortune 100 tells Wall Street about Human Captial Management Reporting: Best Practice Recruiting § Quality-of-hire metrics, number of applicants per opening, data on the percentage acceptance of offers, an audit of recruiting practices showing if best practices are being followed, “cost of hire” and “time to fill” Training and development § Historical trends, training by strategic intent, industry or national benchmarks, detailed information on the most strategic training programs, impact of training on future earnings Work-life § Satisfaction metrics, comprehensive program information and rationale behind the work-life program Leadership § Development and succession planning practices, processes or structures that ensure the leadership team is effective and depth of Source: Creelman Research, Reporting on Human Capital the talent pool

“The most valuable asset of a 21 st century institution……. will be its knowledge workers and their productivity” - Peter Drucker Questions