The International Standards Organization released its first standard for human capital reporting in December 2018, titled “Human Resource Management – Guidelines for Internal and External Human Capital Reporting.” The document is 35 pages long with guidance for internal and external reporting by both large and small organizations. The standard is the culmination of a great deal of work by an ISO working group representing experts from numerous countries during the past three years, led by Stefanie Becker from Germany.
Although several measures still need to be defined in greater detail, the standard is a major achievement and an important first step toward bringing standardization of measures and reporting to the HR field. Accountants have long had definitions of measures and standard reports as well as guidance about how the measures should be used. This has served their profession well and a similar discipline would serve L&D professionals well. Imagine that in the not-to-distant future everyone in our field might be using the same language for measures and would share a common understanding of how to use the measures in reports to better manage their operations. Imagine the rich benchmarking and best-practice sharing that this standardization and reporting would allow. And imagine the potential for university students in our profession to graduate with this common knowledge just as accountants do today.
Of course, there are compelling business reasons to move in this direction as well. Today, about 84 percent of the value of S&P 500 firms is attributable to intangible assets that have little visibility on the balance sheet. Just 40 years ago, the percentage was reversed, with 17 percent of the value in intangibles and 83 percent of the value in tangible assets. So in the “old days” an investor could look at a balance sheet and get a good feel for the underlying value of a company — namely, its physical assets such as building, equipment, land and investments. Today, human capital drives the value of the intangible assets, which makes up most of the value of many companies. Human capital, however, does not appear on the balance sheet and appears on the income statement only as an expense to be minimized. This is why it is so important to provide visibility and transparency to human capital. Investors, customers and employees need to know more about the human capital in an organization.
The standards are completely voluntary, though the hope is that leading organizations will adopt them to provide this greater transparency for their investors and employees. The working group recognized that measurement and reporting can be burdensome for small organizations, so only the most important, basic (and easy to calculate) measures are recommended for reporting. The working group also recognized that some measures, while important to properly manage human capital internally, may not be appropriate for public sharing and thus are recommended for internal use only.
There are 54 measures in all, with 23 recommended for external reporting by large organizations. Many large organizations are already measuring most of these but not reporting them publicly. Hopefully they will begin using the ISO definitions as they become available and publicly report some of the measures. In some countries the government may mandate adoption of the ISO standard, but that is not the case for the United States where organizations will be free to decide which, if any, of the recommended measures they report internally or externally.
Of the 23 measures recommended for public reporting by large organizations, there are five for recruitment and turnover, five for diversity, three for compliance and three for health, safety and well-being. Productivity and workforce availability each have two, and cost, leadership, and skills and capability each have one. The one for L&D – skills and capability – is the total training cost, which is recommended for external reporting for large and small organizations. While not an ideal measure, since it focuses on inputs rather than outcomes, at least it gives some indication of how much an organization values its employees.
Four other L&D measures are recommended for internal reporting by large organizations: percentage of employees who participate in training, average formal training hours per employee, percentage of employees who participated in training by category and workforce competency rate. The first two are also recommended for small organizations.
I recommend that everyone in our profession become familiar with the standard. If your organization is not already reporting these measures internally, consider them for your measurement and reporting strategy going forward. In the future, investors and employees will begin asking for these and you should be reporting on them internally to best manage your human capital.