The metrics that matter to investors
Katie Jacobs, September 24, 2015
Yep, those are exactly the sorts of metrics I was afraid of (see my comments on yesterday's piece: 'Why investors are thinking about human capital'). Total investment in training and development. ...
Read More Jon Ingham
September 24, 2015 14:20
Investors are becoming increasingly interested in human capital metrics. Here's some ideas of where to start
Andrew Ninian, director of corporate governance and engagement at the Investment Association, advocates “identifying the metrics that are most important to your business and structures, and demonstrating what is happening to them over time and what you are doing to drive them in the right way”. “You need to explain why this metric is relevant, what you are trying to achieve, and how far you have progressed. Just talking about KPIs doesn’t tell investors enough.”
Hermes Fund Management’s associate director Tim Goodman adds that while compliance-related metrics will often appear on a report these don’t give a full enough picture. “Companies will report on things like lost time injury rates, but aren’t sickness rates, wellness rates, and mental health absence far more powerful indicators of how well a company is being managed?” he asks. “Companies often do what’s legally required, but if they are serious about this agenda they should think about internal KPIs for measuring performance. Don’t just lob out engagement statistics. Wellness and mental health stats tell us more.”
There’s also a desire from the investment community for organisations to move beyond a focus on executive pay. “At our quarterly IR forum, which brings together investor relations directors and investors, we heard strongly that people want the debate to move on from executive pay and remuneration,” says Investor Relations Society chair Sue Scholes. “They want to move the conversation to talking about other governance issues like board composition, succession planning and supply chain.”
There’s also a growing recognition of the importance of matters pertinent to the whole workforce. Recent NAPF research found that members put greater weighting on whole workforce issues such as health and safety records (65%), and pay and conditions of employees (58%), than the level and structure of management pay (48%) when making investment decisions. “Investors are now provided with page after page of reporting about pay and other governance matters. It is possible to know exactly what metrics an executive is rewarded against. It is however, not uncommon to have little idea about how many employees an organisation employs,” says NAPF chief executive Joanne Segars.
“As investors we are there to hold companies to account and encourage good practice,” concludes Hermes’ head of responsibility Leon Kahmi. “We are looking for a happy, productive workforce – what data do you have that reflects that?”
For those HR directors considering where to start in producing metrics that can both add value internally and help investors assess your organisation, the recent NAPF report, Where is the workforce in corporate reporting?, offers four suggested categories. While some of these areas may be overly simplistic (for example, the issues inherent in engagement scores), they offer a good jumping off point for developing stronger metrics.
1. The composition of the workforce
Core metric: Total number of employees and workers.
Additional metrics: Proportion of full-time, part-time and contingent labour; diversity of ages and gender; divergence between benefits awarded to full-time employees and to part-time or temporary staff.
2. The stability of the workforce
Core metric: Employee turnover in a defined period.
Additional metrics: Regrettable turnover; remuneration policies and ratios; number of applicants per post; offer/acceptance statistics; levels of skills shortages; industrial relations issues; retention rates after parental leave; benefit entitlements of employees.
3. The skills and capabilities of the workforce
Core metric: Total investment in training and development.
Additional metrics: Average hours spent on training per worker and for each employee category; number of courses taken; leadership/career development plans; internal hire rate; the proportion of professionally qualified employees.
4. Employee satisfaction
Core metric: Employee engagement score(s).
Additional metrics: Absentee rates; number of accidents and work-related fatalities; lost days to injury; occupational diseases rate.