The CIPD’s Valuing Your Talent (VyT) project has ditched a contentious plan to capitalise the value of people in financial statements and will focus instead on helping organisations be more sustainable and maximise their workforce potential.
The change of tack follows the feedback of more than 40 organisations as well as doubts raised from parts of the HR and finance professions.
The human capital framework at the heart of VyT is on track for a July launch. Project leaders admit it is a work in progress and might evolve into several iterations, which could be sector or company size-specific.
Although details have not been finalised, the framework will be modelled on an organisation’s value chain, a common approach in finance (see chart). This organises human capital data into ‘buckets’ across the four phases of a business model: inputs, activities, outputs and outcomes. An input could be retention; an activity might be recruitment; an output could be workforce capability; and an outcome might be productivity.
There are four lenses from which the value chain can be viewed: sustainable business performance, risk, external context and valuation.
The framework has been criticised for being rigid and prescriptive. CIPD human capital metrics adviser Edward Houghton said the project never set out to tell organisations how to measure value, but to highlight where metrics should be applied.
“We want to define each of these buckets and say ‘you should be thinking about measuring something around demographics and performance’, then leave it to the organisation to think about how they do that,” he said. “When it comes to measurement, [more] work needs to be done on standards.”
The ambition to measure human capital as an asset on the balance sheet was met with scepticism, including “passionate criticism” from practitioners with ethical concerns or those who feel jaded by failed attempts in the past.
CIMA head of performance management Peter Spence said the finance community would not accept this aspect due to uncertainties. “It is a bit ambitious. At the moment people are seen as an expense,” Spence said.
Spence explained that when assets such as plant and equipment are accounted for, it is easy to predict their cost and economic benefit. “However, the problem with capitalising people is there is currently no way of calculating their potential future economic value,” he said. Too many factors make their value uncertain, such as length of tenure, skills and training.
The project, a collaboration of the CIPD, CIMA, the University of Lancaster, the RSA and others, is now reaching out to SMEs.
Julian Thompson, director of enterprise at the RSA Action and Research Centre, said SMEs support the broader objectives, but there are divisions over how best to achieve them. “The financial imperative around how people drive performance is understandable, but they don’t want to lose the humanistic account of how work needs to be more rewarding and how organisations should develop people beyond exploiting their labour,” he said.
Related article: HR magazine hands down its verdict on Valuing your Talent project to date
