WHILE BIG organisations spend more than a third of their revenue on human capital, few tell their shareholders about how those dollars are spent
WHILE BIG organisations spend more than a third of their revenue on human capital, few tell their shareholders about how those dollars are spent.
A two-year Mercer Human Resource Consulting analysis of the 100 largest publicly traded US companies indicated that only about 20 per cent discuss human capital and its contribution to business success in their annual reports. About a quarter of the companies provide only limited references to the workforce while others do not mention their people at all.
“Imagine a company spending one third of its revenue on a capital investment or an interest payment and never addressing it with shareholders in their annual report,” said Mercer human capital strategy consultant Rick Guzzo, who conducted the study with fellow consultant Haig Nalbantian. “It’s unthinkable.”
Even when employees are discussed, the annual reports usually fail to provide hard facts about how the companies’ practices for managing human capital drive business results.
While the US Securities and Exchange Commission (SEC) requires disclosure of top executives’ compensation, there is no regulatory requirement that companies report their human capital practices other than the number of persons employed.
Further, Guzzo and Nalbantian believe sweeping disclosure reforms announced recently by the SEC are not likely to address human capital issues.
Nalbantian said it was up to CEOs and boards of directors to break the silence and report to shareholders about how they are managing the human capital side of the enterprise.
“Workforce management strongly contributes to the market value of a company, directly through its impact on productivity, and indirectly through the creation of other tangible and intangible assets such as the company’s intellectual property and market brand,” he said.
The state of external human capital reporting reflects a company’s internal state, according to Guzzo, with most firms having little to say on the subject despite the availability of various metrics.
“Organisations do have the capabilities – sophisticated tools and information databases – to gain insights into the workforce and how it can best be managed for business success,” he said.
“The demand for human capital reporting will escalate over the next few years. Investors let companies off the hook in the past but I don’t think they’ll settle for the ‘sound of silence’ much longer.”
