an American National Standard for Human Resource Management 11
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Guidelines for Reporting Human Capital 14
Metrics to Investors 15
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Approved XXXXXXX 20
American National Standards Institute, Inc. 21
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NOTICE and DISCLAIMER 29
The information in this publication was considered technically sound by the consensus of those who engaged in the 30 development and approval of the document at the time of its creation. Consensus does not necessarily mean that there is 31 unanimous agreement among the participants in the development of this document. 32
This SHRM HR standard was developed through a voluntary consensus standards development process. This process brings 33 together volunteers and/or seeks out the views of persons who have an interest and knowledge in the topic covered by this 34 publication. SHRM administers the process and establishes rules to promote fairness in the development of consensus. While 35 SHRM may participate in the standards development discussions, it does not write the document and it does not independently 36 test, evaluate, or verify the accuracy or completeness of any information contained in its standards publications. 37
SHRM is a nonprofit individual membership association with no regulatory or licensing enforcement power over its members or 38 anyone else. SHRM has no authority to monitor or enforce compliance with the contents of this document, nor does it 39 undertake to monitor or enforce compliance with the same. It merely publishes standards to be used as voluntary guidelines 40 that third parties may or may not choose to adopt, modify or reject. 41
SHRM does not accept or undertake a duty of care to the general public regarding this HR standard. SHRM disclaims any and all 42 liability for any personal injury, property, financial damage, or other damages of any nature whatsoever, whether special, 43 direct, indirect, consequential, or compensatory, directly or indirectly resulting from the publication, use of, application, or 44 reliance on this document. SHRM disclaims and makes no guaranty or warranty, expressed or implied, as to the accuracy or 45 completeness of any information published herein, and disclaims and makes no warranty that the information in this document 46 will fulfill any person’s or entity’s particular purposes or needs. SHRM does not undertake to guarantee the performance of any 47 organization or its employees, products or services by virtue of this standard. 48
In publishing and making this document available, SHRM is not undertaking to render legal, professional or other services for or 49 on behalf of any person or entity. Anyone using this document should rely on his or her own independent judgment or, as 50 appropriate, seek the advice of a competent professional in determining the exercise of reasonable care in any given 51 circumstances. Information and other standards on the topic covered by this publication may be available from other sources, 52 which the user may wish to consult for additional views or information not covered by this publication. 53
The Society for Human Resource Management (SHRM) is the world’s largest association devoted to human resource 59 management. Representing more than 250,000 members in over 140 countries, the Society serves the needs of HR 60 professionals and advances the interests of the HR profession. Founded in 1948, SHRM has more than 575 affiliated chapters 61 within the United States and subsidiary offices in China and India. 62
Suggestions for improvement of this document are welcome. They should be sent to the Director of Standards, SHRM, 1800 63 Duke Street, Alexandria, VA 22315 or to [email protected]. 64
The information contained in this Foreword is not part of this American National Standard (ANS) and has 67 not been processed in accordance with ANSI’s requirements for an ANS. As such, this Foreword may 68 contain material that has not been subjected to public review or a consensus process. In addition, it 69 does not contain requirements necessary for conformance to the Standard. 70
ANSI guidelines specify two categories of requirements: mandatory and recommendation. The 71 mandatory requirements are designated by the word shall and recommendations by the word should. 72 Where both a mandatory requirement and a recommendation are specified for the same criterion, the 73 recommendation represents a goal currently identifiable as having distinct compatibility or performance 74 advantages. 75 76
Abstract 77
Standard is designed as a series of analytical measures that will reflect the value of human capital in 78 financial terms that are consistent will those currently used and commonly respected in financial, 79 accounting, and other business communications to investors and similar stakeholders. Standard is 80 structured at a high level. Specific consideration and responses are also addressed for consideration by 81 individual organizations based on specific operational and financial environments and requirements. 82
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Workgroup Members 83
84 It is recognized that the following Staffing and Workforce Planning (SWP) Cost Per Hire Workgroup 85 members are responsible for the Cost Per Hire baseline text: 86
Workgroup Leader: Laurie Bassi, McBassi & Company 87 Associate Workgroup Leader: David Creelman, Creelman Research 88 89 Ronald Adler, Laurdan Associates, Inc. Mark Adma, Empindex Ltd Kent Barnett, Knowledge Advisors Stephanie Basler, Self Andrew Botwin, Rothstein Kass J Chris Boyd, Simply Best Practice, LLC Holly Burkett, Principal, Evaluation Works David Carhart, Cornell University JoAnn Cox, MGT of America, Inc. Michelle Deneau, Intuit, Inc. Frank DiBernardino, Vienna Human Capital Advisors, LLC Mike Echols, Bellevue University Arlene Gannon, NEFCU Tim Giehll, MBA, eEmpACT Kerstin Gnädig, Deutsche Bank Angela Harris, ASQ (American Society for Quality) & ASHconsulting James Harvey, Erie Insurance Group Patrick Kalke, ISHRMR at Leuphana University Erika Karp, UBS Brian Kelly, Mercer Tobias Kuehr, ConMendo GmbH Tanya Lewis, Development Raytheon Company Scott Livanec, The University of Texas Medical Branch Pat Lynch, Business Alignment Strategies, Inc. Steve McElfresh, HR Futures Penny Meier, Ameriprise Financial Noelle Nitz, Institute For Financial Mastery, Inc. Flavio Passaro, Leuphana Universitaet Lueneburg Brad Pearce, Wells Fargo Hilger Pothmann, Goinger Kreis - Initiative Zukunft Personal & Beschäftigung e.V. Curtis Powell, Rensselaer Polytechnic Institute Dr. Rebecca Ray, The Conference Board Merryl Rees, Prudentia Consultants Jeremy Shapiro, Morgan Stanley Madhu Sreekumar, Vinson Hall Corporation Dave Vance, Manager Learning LLC Ashley Walvoord, Verizon Wireless
Jeanne Wardlaw, Arlington County Government Deborah Williams, Columbia Sportswear Mark Bolgiano, Howard Hughes Medical Institue Jeffrey Cherry, Diamond Back Advisors Katharine Claytor, Delta Dental of Va Samuel Dergel, CFO2Grow Asaad Faquir, Self David Gentry, Qualcomm Ann Hartwig, Cycle Gear, Inc Bill Heck, Harlon Group Malica Jibowu Walcolm, Viacom Theresa Kane-Gringer, not employed at this time Russell Klosk, Hewlett Packard Brian McDaniel, Coca-Cola Enterprises Daniel McMurrer, McBassi & Company Patricia Meglich, University of Nebraska at Omaha Sue Meisinger, Self Amit Mohindra, Nelson Touch Consulting, LLC Janice Presser, The Gabriel Institute Michael Sass, Community Care Ambulance Network Nik Shah, PricewaterhouseCoopers - Saratoga Achim Sieker, Federal Ministry of Labour and Social Affairs, Germany Raymond Suarez, Quality Management International Jeffrey Thomas, A.T. CROSS COMPANY
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Taskforce Members 90
At the time it approved this document, the Staffing and Workforce Planning (SWP) Taskforce, which is 91 responsible for this Standard, hand the following members: 92
Taskforce Leader: Jeremy Shapiro, Morgan Stanley 93 Associate Taskforce Leader: Brian Kelly, Mercer94
Al Adamsen, People-Centered Strategies LLC Ronald Adler, Laurdan Associates, Inc. Mark Adma, Empindex Ltd Heather Albarano, The Arora Group Dean Altman, Service America Enterprise, Inc. Ralph Archibald, MGT of America, Inc. Kent Barnett, Knowledge Advisors Stephanie Basler, Self Laurie Bassi, McBassi & Company Katherine Bender, Prommis Solutions Mary Berger, Namco, LLC Lisen Berquist, MFM, Inc Joanne Bintliff-Ritchie, JBR and Associates Mark Bolgiano, Howard Hughes Medical Institue Andrew Botwin, Rothstein Kass J Chris Boyd, Simply Best Practice, LLC Dennis Briscoe, International Management and Personnel Systems (IMAPS) Elizabeth (Beth) Brooks, Highline Community College Tyler Brown, JCSI Holly Burkett, Principal, Evaluation Works David Bush, Villanova University Jennifer Cahill, Orange County Transportation Authority Fran Cardaci, ADP David Carhart, Cornell University Anand Chandarana, Consultant Jeffrey Cherry, Diamond Back Advisors Lauren Cole, MSL Group Heather Coles, National Council for Architectural Registration Boards Sharon Consoli, The Consoli Company Andrew Cook, TE Connectivity JoAnn Cox, MGT of America, Inc. Jennifer Cozier, ADP David Creelman, Creelman Research Leslie Crickenberger, Athens Technical College Audrey Croley, Beneficial Bank David D'Angelo, Federal Reserve Bank of Cleveland
Susanne Dahl, Northern Trust Timothy Dahlby, The Goodman Group Maria Dalupan, International Finance Corporation of the World Bank Group Yolanda deJesus, American Institute of Certified Public Accountants (AICPA) Asya Delm, Schlumberger Brian Deming, Federal Reserve Board Michelle Deneau, Intuit, Inc. Samuel Dergel, CFO2Grow Kay Diamond, California HR Rescue, a division of TalentWealth Frank DiBernardino, Vienna Human Capital Advisors, LLC Ann Dinges, Village of Campton Hills Eddice Douglas, SHRM Staff Patricia Duane, American Institute of Certified Public Accountants (AICPA) Mike Echols, Bellevue University Barbara Eddy, Canada Cartage Rob Eidson, Deloitte Asaad Faquir, Self Robert Flores, AT&T Marc Fournier, Core Physicians, LLC Arlene Gannon, NEFCU Shelly Geary, ASCD David Gentry, Qualcomm Tim Giehll, MBA, eEmpACT Kim Gladbach, ACS (contract assignment) Kerstin Gnädig, Deutsche Bank RT Good, Shenandoah University Roberta Goughnour, Klebs Mechanical Jonathan Grafft, The Newman Group Kelly Guerrero, Alpla Linda Haft, The HR Office, Inc. Angela Harris, ASQ (American Society for Quality) & ASHconsulting Ann Hartwig, Cycle Gear, Inc James Harvey, Erie Insurance Group
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Mike Hawn, Murphy Brown Bill Heck, Harlon Group Jon Helmin, M&T Bank Corporation Kaenan Hertz, Lulustar Consulting Irene Higgins, Sanddollar Path, LLC Jan Hunter, John Muir Health Malica Jibowu Walcolm, Viacom Catherine Johnson-Komins, Menlo Worldwide Logistics Patrick Kalke, ISHRMR at Leuphana University Theresa Kane-Gringer, not employed at this time Erika Karp, UBS Mike Kent, Jeitosa Group International Russell Klosk, Hewlett Packard Linda Kruso, Beaumont Hospitals Sara Kubin, Audiology Business Services Tobias Kuehr, ConMendo GmbH Aaron Lambert, PricewaterhouseCoopers Anne-Marie Lee, Novation Tanya Lewis, Development Raytheon Company Scott Livanec, The University of Texas Medical Branch Pat Lynch, Business Alignment Strategies, Inc. Lee Mariano, SRA International, Inc. Bruce Marks, Development Dimensions International, Inc. (DDI) Brian McDaniel, Coca-Cola Enterprises Steve McElfresh, HR Futures Ronald McKinley, The University of Texas Medical Branch Daniel McMurrer, McBassi & Company Tracy McPhail, TECO Energy Patricia Meglich, University of Nebraska at Omaha Penny Meier, Ameriprise Financial Sonya Merritt, Star Island Corporation Christopher Meyers, AT&T Amit Mohindra, Nelson Touch Consulting, LLC Brett Morris, Patient First Shelly Murray, East Alabama Medical Center Muhammad Nabeel, GBS Group Holding Edna Nakamoto, The HR Manager LLC Noelle Nitz, Institute For Financial Mastery, Inc. Paula Nuzzi, Evergreen Packaging I. Godwin Otu, Self Dan Oyler, TMEIC-GE Automation Systems, LLC Mustafa Ozbilgin, Norwich Business School Judith Parker, Acme Cryogenics Flavio Passaro, Leuphana Universitaet Lueneburg Brad Pearce, Wells Fargo Bert Pereboom, IBM Global Business Services
Anthony Perez, Children's Medical Center Dallas Hilger Pothmann, Goinger Kreis - Initiative Zukunft Personal & Beschäftigung e.V. Curtis Powell, Rensselaer Polytechnic Institute Janice Presser, The Gabriel Institute Dori Ramsey, Washington Gas Katherine Rawe, Employee Management Services Dr. Rebecca Ray, The Conference Board Merryl Rees, Prudentia Consultants Romuald Restout, Arbita Karyn Rhodes, Cornerstone Group Jennifer Riddick, Rex Healthcare Ursula Roesler, Planned Parenthood Arizona Carla Romero-Erlanson, Yukon-Kuskokwim Health Corporation Cai Rong, Transocean Alexander Ruch, Amway Shreya Sarkar-Barney, Human Capital Growth, INC. Michael Sass, Community Care Ambulance Network Catherine Savage, Klepper, Hahn & Hyatt Randi Schoenfelder, Theodolite Human Capital Thomas See, Tom See & Associates Nik Shah, PricewaterhouseCoopers - Saratoga Achim Sieker, Federal Ministry of Labour and Social Affairs, Germany Brian Silva, Fresenius Medical Care Steve Smrcina, Holcim (US) Inc. Jan Soran, JCIII & Associates, Inc. Roger Spayer, Illinois Mathematics and Science Academy Madhu Sreekumar, Vinson Hall Corporation Raymond Suarez, Quality Management International Patricia Swedin, Dow Jones & Company Mark Sweeny, Empindex Ltd Dianna Tafazoli, DBK Associates, LLC Linda Teresi, Tampa Electric Company Jeffrey Thomas, A.T. CROSS COMPANY Paula Thorn, WVU Healthcare Hilde Van Gool, Walt Disney Animation Studio Dave Vance, Manager Learning LLC Dennise Vaughn, Edward Hospital and Health Services Robert Von Der Linn, Change Leadership Resources, LLC Ashley Walvoord, Verizon Wireless Jeanne Wardlaw, Arlington County Government Kimberly Weber, University Hospitals Ron Weigelt, Seattle King County Public Health Theresa Welbourne, eePulse, Inc. Jason Whitman, Indeed
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Deborah Williams, Columbia Sportswear John Winchell, American Airlines Katharine Claytor, Delta Dental of Va
Melissa Mason, Cox Communications Sue Meisinger, Self Kathy Slack, AMP, Inc.
NOTICE and DISCLAIMER ............................................................................................................................. iii 106
About SHRM ............................................................................................................................................. iii 107
Foreword ...................................................................................................................................................... iv 108
Abstract ........................................................................................................................................................ iv 109
Workgroup Members.................................................................................................................................... v 110
Taskforce Members ..................................................................................................................................... vi 111
Contents ....................................................................................................................................................... ix 112
1.0 Scope, Summary, Purpose and Interpretation ....................................................................................... 1 113
3.1 Introduction for investors .................................................................................................................. 3 122
3.2 Introduction for corporations ............................................................................................................ 3 123
3.3 Relationship with other standards ..................................................................................................... 3 124
4.0 Human capital indicators ........................................................................................................................ 4 125
5.0 Instructions for reporting on human capital spending .......................................................................... 5 126
10.3 Instructions for writing the HD&A: ................................................................................................ 21 180
11.0 Appendix: List of Tables ...................................................................................................................... 22 181
182
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1.0 Scope, Summary, Purpose and Interpretation 183
1.1 Scope 184
Standard is designed as a series of analytical measures that will reflect the value of human capital in 185 financial terms that are consistent will those currently used and commonly respected in financial, 186 accounting, and other business communications to investors and similar stakeholders. 187 188 1.2 Summary 189
As the financial services industry builds a common language for communicating business and financial 190 metrics, it recognizes that a significant portion of the value of organizations remains unaccounted for in 191 investment communications. Specifically, the financial value of human capital is inadequately addressed in 192 investment communications (annual reports, 10-Ks, etc.) and so the true wealth of the organization is 193 consistently underreported to investors and other stakeholders. 194 195
1.3 Purpose 196
Establishing respected and durable measurements of human capital value that must be included in investor 197 communications is crucial for presenting a full picture of the performance and wealth of an organization. 198 Stakeholders would will be most directly affected by this standard includes Global private business, non-199 profit and public government sectors at every level. HR professionals within these sectors responsible for 200 talent acquisition and HRIS matters; government workforce compliance agencies; and HR educators and 201 consultants 202 203
1.4 Interpretation 204
To achieve consistent application of this Standard, suggestions involving changes in the requirements or 205 disputes over its interpretation shall be referred to the following organization: 206 207 HR Standards Secretariat 208 Society for Human Resource Management (SHRM) 209 1800 Duke Street 210 Alexandria, VA 22314 211 Fax: 703-962-7807 212 E-mail: [email protected] 213 Website: http://www.shrm.org/hrstandards 214 215 If it is determined that your inquiry required an interpretation of the Standard, the inquiry must be 216 submitted in writing and SHRM will forward the inquiry to the appropriate Standard’s taskforce leader for a 217 taskforce response. 218
The following documents contain information, which, through reference in this text, constitutes 220 foundational knowledge for the use of this American National Standard. At the time of publication, the 221 editions indicated were valid. All material is subject to revision, and parties are encouraged to investigate 222 the possibility of applying the most recent editions of the material indicated below. 223 224 2.1 Normative References 225
The following documents contain provisions, which, through reference in this text, constitute provisions of 226 this Standard. At the time of publication, the editions indicated are valid. All standards are subject to 227 revision, and parties applying this standard are encouraged to investigate the possibility of applying the 228 most recent editions of the documents listed below. 229 230 The U.S. Equal Employment Opportunity Commission provides access to EEO-1 reports and guidance about 231
their use (http://www.eeoc.gov/employers/reporting.cfm) 232 233 2.2 Informative References 234
The following documents may provide valuable information to the reader but are not required when 235 complying with this Standard. 236 237 Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First. Boston: Harvard Business 238
Research evidence suggests human capital has an impact on organizational success.1 This is not surprising. 242 While many aspects of human capital are hard to measure, there are some useful metrics. This ANSI 243 standard provides guidelines for easy to understand and easy to implement human capital metrics. In 244 some cases the metrics will simply confirm what investors already know about a company; in other cases 245 they will provide an early warning sign of trouble or else evidence of underlying strength that might 246 otherwise be overlooked due to a short-term dip in financials. Over time, as investors gain experience 247 interpreting the data, and a historical track record is created, the metrics will become increasingly useful. 248
The metrics are not perfect; however they are practical, useful and reasonable. In the future these 249 standards can be revised, but this is a good place to start that will be a step forward for most stakeholders. 250
3.2 Introduction for corporations 251
In selecting these indicators of human capital we strove to rely on metrics that were relevant to investors, 252 readily produced from information corporations already had on hand, and were auditable. Practicality was 253 an overriding concern and organizations should have little trouble adhering to this standard. 254
While the main target for this standard is public companies, it would be equally useful for other 255 organizations including government and not-for-profit. 256
257
3.3 Relationship with other standards 258
Every attempt will be made to keep this standard consistent with other relevant standards and it will be 259 updated as needed. 260
261
1 There are many hundreds of academic papers on this topic. An excellent review can be found in The Human Equation by Stanford University professor Jeffrey Pfeffer.
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4.0 Human capital indicators 262
To comply with the standard companies should report on the following six areas and, if they skip any areas, 263 indicate the reason for doing so. The discussion that follows provides definitions and details. 264
1. Spending on human capital 265 a. Total amount spent on employees (salaries, benefits, taxes) 266 b. Total amount spent in support of employees 267 c. Total amount spent in lieu of employees 268 d. Total amount invested in training and development 269 e. Total headcount and total FTE (full time equivalents) at the end of the period 270
271 2. Ability to retain talent 272
a. Voluntary and total turnover 273 b. Broken down by subset of EEO-1 job types 274 c. Industry standard formula of (# of terminations during the period) / (average active 275
headcount during the period) 276 277
3. Leadership depth 278 a. Percentage of defined positions that have an identified successor 279 b. Percentage of open defined positions filled internally during the period 280
281 4. Leadership quality 282
a. Index of relevant questions from employee survey 283 b. Information on the response rate and methodology/tool 284
285 5. Employee engagement 286
a. Index of relevant questions from employee survey 287 b. Information on the response rate and methodology/tool 288
289 6. Human Capital Discussion & Analysis (HD&A) 290
a. Narrative to provide context and discussion of the reported metrics 291 b. Disclosure of any material risks or any other material information related to human capital 292
293
Note: Organizations may wish to include breakdowns of these metrics by unit or region; it simply depends 294 on what makes sense to the organization and its investors. The HD&A section provides an opportunity for 295 organizations to provide additional detail or context in this regard. 296
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5.0 Instructions for reporting on human capital spending 298
5.1 Concept: 299
Spending on human capital 300
5.2 Measure: 301
The spending on human capital metric is based upon three different types of expenditures: Employee 302 Costs, Costs in Support of Employees, and Costs in Lieu of Employees. Investments in Training and 303 Development are reported as an additional metric. Most of this information can be sourced from an 304 organization’s financial general ledger in conjunction with an HRIS system. Headcount/FTE numbers 305 will also be reported in this section. 306
Employee costs consist of wages, benefits and payroll taxes. Costs in support of employees are the 307 variable or incremental costs a company incurs to support its employees. While also a part of the chart 308 of accounts, all of these costs are not obvious. The test is whether the cost primarily supports the 309 business or the employees. Costs in lieu of employees are costs associated with independent 310 contractors and outsourcing. The test of whether the expense is a cost in lieu of employees is if the 311 expense replaces an employee that otherwise would normally perform the service. 312
5.3 Objective 313
The objective of the spending on human capital metric is to quantify an organization’s total expenditure 314 on people, and look at that measure relative to other standard financial measures used in valuing an 315 organization. The inclusion of the headcount/FTE metric in this section provides an extra level of detail 316 that can be used in analysis. 317
5.4 Formula for calculating spending on human capital: 318
The number should be reported in $ form. 319
(A) Direct cost of employees $_______________ 320
(B) Costs in support of employees 321
(C) Costs in lieu of employees $_______________ 322
Human capital expenses (A+B+C) $_______________ 323
(D) Investment in training & development $_______________ 324
325
5.5 Definitions for calculating spending on human capital 326
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The following sections list the individual components that fall into each human capital expenditure group. 327 Each of these amounts should be reported in numeric form and provided as end of period numbers. 328
5.5.1 Direct cost of employees 329
The items in this section are directly related to maintaining the current employee base (most of these items 330 are related to employee compensation). 331
The items in this section are related to all overhead expenses that are necessary to provide employees with 343 the tools and equipment necessary to do the work. 344
• Real estate or housing 345 • Communications 346 • Supplies 347 • Information technology 348 • Transportation 349
350
5.5.3 Costs in Lieu of Employees 351
• Leasing company expense 352 • Temp (agency) workers 353 • Independent contractor costs 354 • Costs related to outsourcing 355
356
5.6 Investment in Training & Development 357
Total direct spending for learning, including formal learning, work-based learning, and learning function's 358 contribution to non-training performance improvement solutions. Spending on Training and Development 359 is already included in the three cost categories above. Identifying this spending separately provides a 360 means to focus on investments in Training and Development. This includes: 361
• learning and performance staff salaries 362 • travel costs for learning and performance staff 363 • administrative costs 364 • non-salary development costs 365 • non-salary delivery costs (classroom facilities, online infrastructure, etc.) 366
Because of difficulties in consistently tracking and accounting for some components of investments in 370 training and development, the following categories of expenditures should be excluded: 371
• learners' travel expenses 372 • costs of participants' conference attendance, fees, and travel 373 • cost of lost work time while engaged in formal learning activities 374 • costs of internal subject matter experts' time for content analysis, coaching, and knowledge 375
sharing 376 377
5.7 Total Headcount/FTE 378
• Direct W-2 headcount is defined as the sum of all employees whose status group in the HRIS 379 system of record is “active” and includes: Active, Paid Leave, and Unpaid leave employees. 380
• Contingent headcount is defined as the sum of all contingent workers, not covered under a W-2 381 including: 1099 contractors, leased employees, and temp (agency) workers, etc. Headcount 382 associated with outsourcing contracts on a per head basis should be counted. Service level 383 arrangements where headcount is not easily attainable should not be counted (e.g., when an 384 organization outsources payroll). 385
• Total FTE (full-time equivalent) - FTE is a metric used to measure employees based on hours 386 worked. It is defined as total hours worked divided by the maximum number of compensable 387 hours in a full-time schedule. Total FTE is defined as the sum of the FTE for all the included 388 employees or contingent workers. 389
o Total active regular employee (W-2) headcount _______________ 390
o Total active contingent headcount _______________ 391
o Total regular employee FTE _______________ 392
o Total active contingent FTE _______________ 393
394
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6.0 Instructions for reporting on retaining talent 395
396
6.1 Concept: 397
Retaining talent 398
6.2 Measures: 399
• Voluntary turnover rate 400 • Total turnover rate 401
402 6.3 Objective 403
The objective of the retention metric is to provide a potentially important indicator of organizational 404 capability and health. For example, an inability to retain talent may compromise an organization’s ability to 405 achieve its goals. Furthermore, increases in turnover may signal that employees lack confidence in the 406 organization. 407 408 6.4 Breakdowns 409
410 Both voluntary and total turnover should be reported for: 411
• The organization as a whole 412 • For each of the job categories used in the Employer Information Report EEO-1 (EEO-1 Report) (See 413
the EEOC website for more detail: http://www.eeoc.gov/employers/reporting.cfm.) 414 415 At the time of writing there were 10 EEO-1 job categories 416
1. Executive/Senior Level Officials and Managers 417 2. First/Mid Level Officials and Managers 418 3. Professionals 419 4. Technicians 420 5. Sales Workers 421 6. Administrative Support Workers 422 7. Craft Workers 423 8. Operatives 424 9. Laborers and Helpers 425 10. Service Workers 426
427 428
6.5 Definitions 429
Voluntary turnover includes any turnover that is initiated by the employee. This includes, for example, 430 resignation, job abandonment normal retirement and acceptance of early or enhanced retirement 431
packages. Voluntary termination does not include any termination that is due to death or initiated by the 432 employer such as discharge or a reduction in force. 433
Total turnover includes all turnover, regardless of reason. 434
Job categories should be defined according to the most current EEO-1 Report at the time when the 435 organization reports the information. 436
6.6 Instructions for calculating voluntary turnover 437
# of employees in the category who voluntary left the organization over the fiscal period / 438
Average # of employees in that category over the fiscal period 439
6.7 Instructions for calculating total turnover 440
Total # of employees in the category who left the organization over the fiscal period / 441
Average # of employees in that category over the fiscal period 442
The total number of employees for EEO-1 job category should be included in the report. 443
Note: If an EEO-1 category has so few employees that turnover numbers may not be statistically 444 meaningful, they do not need to be reported for that category. Although there is no hard and fast way to 445 determine the number of employees within an EEO-1 category that constitutes a sufficiently large group for 446 reporting purposes, a rough rule of thumb is that if there are fewer than 30 employees the category is too 447 small for reporting. 448
449
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7.0 Instructions for reporting on leadership depth 450
451
7.1 Concept: 452
Leadership depth 453
7.2 Measures: 454
The percentage of defined positions where there is one or more qualified and available successors 455
The percentage of defined positions filled internally during the last fiscal period 456
7.3 Objective: 457
The objective of the leadership depth metrics is to evaluate an organization’s preparation for and 458 success at managing both planned and unplanned leadership succession. Organizations with a 459 deep leadership bench will be better prepared to make smooth, non-disruptive leadership 460 transitions and ensure that current and future business operations are not negatively impacted by 461 the departure from the organization of one or more key leaders . 462
7.4 Definition of defined positions: 463
Each reporting organization is to establish a set of defined positions for reporting leadership depth. 464 These defined positions will serve as the basis upon which measures of leadership depth are 465 calculated and reported. 466
The minimum reporting standard for defined positions is the organization’s executive / senior level 467 officials and managers as defined by the United States Equal Employment Opportunity 468 Commission’s Employer Information EEO-1 survey: 469
Executive/Senior Level Officials and Managers. Individuals who plan, direct and 470 formulate policies, set strategy and provide the overall direction of 471 enterprises/organizations for the development and delivery of products or 472 services, within the parameters approved by boards of directors or other 473 governing bodies. Residing in the highest levels of organizations, these 474 executives plan, direct or coordinate activities with the support of subordinate 475 executives and staff managers. They include, in larger organizations, those 476 individuals within two reporting levels of the CEO, whose responsibilities require 477 frequent interaction with the CEO. Examples of these kinds of managers are: 478 chief executive officers, chief operating officers, chief financial officers, line of 479 business heads, presidents or executive vice presidents of functional areas or 480 operating groups, chief information officers, chief human resources officers, 481 chief marketing officers, chief legal officers, management directors and 482 managing partners 483
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Note that this standard only requires Job Category information for the Executive/Senior Level 484 Officials and Managers. No other Job Category data is required and no Race and Ethnic 485 Identification data is required as part of this standard. 486
Organizations are encouraged to expand their categorization of defined positions beyond the 487 minimum reporting requirement so that they most clearly communicate an accurate picture of 488 their leadership depth. For example, organizations can define the critical leadership positions 489 within their organization that extend beyond the minimum standard and report on the leadership 490 depth associated with those positions. 491
The criteria for the definition of critical leadership positions often begins with the organization’s 492 executive officers and extends vertically down into the organization to include multiple layers of 493 the organization’s leadership structure. Large organizations may want to extend the definition of 494 critical leadership positions to include the top three or four tiers of their organization chart. 495 Dependent upon the organization’s business model, organization may also identify key leadership 496 roles deeper in the company that warrant evaluation of the leadership depth associated with that 497 position. For example, a firm in which Research and Development is critical to organizational 498 success may define one or more key non-executive research roles as a critical leadership position. 499
7.5 Instructions for calculating the percentage of defined positions with an 500
identified successor 501
Identify the total number of defined positions (Positions) at the end of the reporting period. 502
Identify the total number of defined positions that have at least one identified successor (Positions 503 with Successor) at the end of the reporting period. 504
Percentage of defined positions with an identified successor (Depth) = Positions with Successor / 505 Positions 506
7.6 Instructions for calculating the percentage of defined positions filled internally 507
Identify the total number of defined positions filled during the reporting period (Filled Positions). 508
Identify the total number of defined filled internally during the reporting period (Internally Filled). 509
Percentage of defined positions internally filled (Percent Internal) = Internally Filled / (Filled 510 Positions). 511
7.7 Reporting Standards and Definitions 512
Depth 513 Expressed as a percentage, Depth is the calculation of leadership depth resulting from the formula 514 Positions with Successor / Positions. 515 516 Filled Positions 517
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Each organization should report the defined positions that were filled during the reporting period. 518 Defined positions that were filled multiple times during the period should be reported multiple 519 times. New positions created during the period or that result from a merger or acquisitions do not 520 need to be reported. Positions that are open and unfilled at the end of the period do not need to 521 be reported. 522
Internally Filled 523 Each organization is to report the defined positions filled during the reporting period and to create 524 a list of those positions, indicating whether the positions was filled internally or externally. The 525 detail list provided should include the title of the defined position that was filled and, for internal 526 candidates, the title of the leader who was selected Names do not need to be provided. 527 528 A position is internally filled when an existing employee of the organization, a subsidiary, or related 529 organization fills the open position. Planned external successions, a contract-to hire consultant for 530 example, are considered external hires and should not be considered as internally filled. 531
Percent Internal 532 Expressed as a percentage, Percent Internal is the calculation of internal succession resulting from 533 the formula Internally Filled / Filled Positions. 534 535 Positions 536 Each organization is responsible for creating a list of defined positions for reporting leadership 537 depth and is expected to provide a consistent level of detail behind their calculations. For defined 538 positions this detail is a list of position by title included in the list of critical leadership position. The 539 names of the individuals who fill these positions are not required. 540 541 Positions and successors are to be reported as of the last day of the reporting period. All positions 542 defined as critical leadership positions must be included. New positions created during the period 543 and positions that are the results of a merger or acquisition during the reporting period should be 544 included. 545
For consistency of reporting period-over-period, positions filled during the period should also be 546 included even there has not been sufficient time to fully develop new successor. 547
548
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Positions with Successor 549 Each organization is responsible for creating a list of defined position and identifying whether or 550 not a qualified successor is available. Organizations do no need to provide the titles or names of 551 specific individuals deemed to be successors. 552 553 Qualified and Available 554 A successor is qualified when they meet the minimum qualification for the defined position and 555 would be considered as a short-list candidate for selection to that position. 556 557 A successor is available if they are in a position that could be vacated and filled in order to allow 558 them to move to a new position. 559 560 Successor 561 A successor is defined as an equally or less experienced leader who is currently both qualified and 562 available to fill a specific critical leadership position. Leaders who would be perceived as making a 563 lateral move from one critical leadership position to another in order to fill a vacancy are 564 considered successors for reporting purposes. However, organizations are cautioned that over-565 utilizing lateral successors for reporting purposes may be overstating their organization’s 566 preparedness for succession. 567 568
7.8 Calculation Examples 569
7.8.1 Defined Positions with Identified Successor 570
Positions with Successor 22
Positions 25
Depth 88 % 22 / 25 = .88
7.8.2 Defined Positions Internally Filled 571
Internally Filled 7
Filled Positions 9
Percent Internal 78 % 7 / 9 = .78
7.9 Replacement Planning versus Successor Pool Reporting 572
Replacement planning is an approach to succession planning during which a potential successor is 573 identified as the replacement for a specific executive position. For example, the Controller is 574 acknowledged as the successor to the Chief Financial Officer. In contrast, the successor pool 575 approach identifies multiple executives at a given level as successors to the next level, regardless of 576 specific position. For example, six Vice Presidents are identified as potential successors for any of 577 the five Senior Vice President positions in the firm. 578
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The use of successor pools increases the complexity of reporting Depth because there is not a clear 579 one-to-one relationship between Defined Positions and Identified Successors. Because the 580 standard for reporting Positions with Successor is at least one qualified and available successor 581 identified for a Defined Position, a successor pool approach will result in a Depth of 100% for a 582 given level as long as there is one qualified and available successor in the pool to succeed into that 583 level. 584
585
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8.0 Instructions for reporting on leadership quality 586
587
8.1 Concept: 588
Quality of leadership 589
8.2 Measure: 590
An index based on results from a set of relevant questions on an employee survey. 591
8.3 Objective: 592
The objective of the leadership quality metric is to gain insight into whether the organization has effective 593 leadership practices by gathering data in a systematic way from employees. 594
8.4 Instructions for calculating quality of leadership index 595
The Leadership Quality index should be based on a set of survey questions that cover issues such as: 596
Vision - do leaders promote a convincing shared vision? 597 Alignment - are leaders providing clear direction that link individual efforts to strategic direction? 598 Drive for success - do leaders push to achieve challenging 'stretch' goals? 599 Collaboration - do leaders create a collaborative atmosphere and listen input from employees 600 Innovation - are leaders open to new ideas 601
602 Note: Many management consulting firms can produce a useful leadership quality index. 603
8.5 Guidelines 604
• Comparability: Investors will be able to directly compare all organizations that are using the same 605 vendor's methodology. Over time, it will also be possible to 'normalize' the results of all the major 606 vendors, so that investors will know that, for example, Vendor A's method tends to give 10% lower 607 scores than Vendor B's method. Organizations that chose a unique methodology will be able to 608 show investors changes over time, but not compare to other organizations. 609 610 While standardizing on a single method would be ideal, it would be inappropriate to select one 611 vendor's methods over all the others. Over time investor pressure will lead to convergence on 612 methods whose results can be compared. 613
• Validity: Organizations should select a method where there is evidence that the results are 614 correlated with important business outcomes and it is not unreasonable to presume there is 615 causality (or ”reciprocal causality” where good leader ship quality scores tend to lead to good 616 business outcomes and good business outcomes lead to good leadership quality scores). 617
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• Transparency: Organizations should report the questions asked, if a particular vendor's survey was 618 used, the method for calculating the index and the percent of employees who responded to the 619 survey. 620
• Consistency over time: The same index should be used from report to report. If the organization 621 chooses to change the index then they should report on Quality of Leadership using both the new 622 and old method in the year they make the change. 623
• Scope: The survey should cover a broadly representative sample of employees. 624
8.6 Sample Calculation for Leadership Quality 625
There are many ways of using employee questionnaires to calculate a leadership quality index. It is 626 impractical to impose a single method in this standard; however this example outlines the elements likely 627 to be found in any methodology. 628
8.6.1 Step 1: Questionnaire 629
The first step is to get employees to fill in a questionnaire, typically organizations hire a vendor who has 630 expertise in employee questionnaires, but it is possible for an organization to develop their own questions. 631 Good vendors will have tested their questions to prove there is a correlation with important business 632 outcomes. Here is an example of the sort of questions that could be used to assess engagement. 633
The following statements concern how you feel about your department. Please indicate the extent of your 634 agreement or disagreement with each statement using the following scale 635
Strongly Agree 1
Agree 2
Neutral 3
Disagree 4
Strongly Disagree 5
636 Our leaders have an authentic purpose that goes beyond short-term profits. 1 2 3 4 5
The different departments are all aligned towards common organizational goals. 1 2 3 4 5
The organization pushes me to continually improve performance 1 2 3 4 5
Leaders genuinely value input from employees 1 2 3 4 5
The organization is open to new ideas and ways of doing things 1 2 3 4 5
The senior leadership is very capable 1 2 3 4 5 637
8.6.2 Step 2: Calculation 638
Normally the calculation of an engagement would be a simple average. Each employee would have a series 639 of responses such as: 4,4,3,5,4,2 In this case the engagement for that one employee would be 640 (4+4+3+5+4+2)/6 = 3.7. The leadership quality index for the company would be the average of all individual 641 employee scores. That is the index which should be reported. 642
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8.6.3 Alternatives 643
This example is illustrative rather than prescriptive. The important point is to have a clear and defensible 644 methodology and be ready to answer investor questions about the reason you chose that particular 645 methodology. 646
647
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9.0 Instructions for reporting on employee engagement 648
649
9.1 Concept: 650
Employee engagement 651
9.2 Measure: 652
An index based on results from a set of relevant questions on an employee survey. 653
9.3 Objective: 654
The objective of the engagement metric is to gain insight into whether employees are engaged in their 655 work by gathering data in a systematic way from employees. 656
9.4 Instructions for calculating engagement index 657
The Engagement index should be based on a set of survey questions that cover issues such as: 658
1. Commitment - are employees committed to doing excellent work? 659 2. Goal setting - do employees have clear goals? 660 3. Support – are employees given the support needed to achieve their goals? 661 4. Development - are employees given the support needed to develop their abilities? 662
663
Note: Many management consulting firms can produce a useful engagement index. 664
9.5 Guidelines 665
• Comparability: Investors will be able to directly compare all organizations that are using the same 666 vendor's methodology. Over time, it will also be possible to 'normalize' the results of all the major 667 vendors, so that investors will know that, for example, Vendor A's method tends to give 10% lower 668 scores than Vendor B's method. Organizations that chose a unique methodology will be able to 669 show investors changes over time, but not compare to other organizations. 670 671 While standardizing on a single method would be ideal, it would be inappropriate to select one 672 vendor's methods over all the others. Over time investor pressure will lead to convergence on 673 methods whose results can be compared. 674
• Validity: Organizations should select a method where there is evidence that the results are 675 correlated with important business outcomes and it is not unreasonable to presume there is 676 causality or ”reciprocal causality” where good leader ship quality scores tend to lead to good 677 business outcomes and good business outcomes lead to good leadership quality scores. 678
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• Transparency: Organizations should report the questions asked, if a particular vendor's survey was 679 used, the method for calculating the index and the percent of employees who responded to the 680 survey. 681
• Consistency over time: same index should be used from year (period) to year (period). Question: 682 are we recommending/suggesting annual employee surveys? If the organization chooses to change 683 the index then they should report on engagement using both the new and old method in the year 684 they make the change. 685
• Scope: The survey should cover a broadly representative sample of employees. 686
9.6 Sample Calculation for Engagement 687
There are many ways of using employee questionnaires to calculate an engagement index. It is impractical 688 to impose a single method in this standard; however this example outlines the elements likely to be found 689 in any methodology. 690
9.6.1 Step 1: Questionnaire 691
The first step is to get employees to fill in a questionnaire, typically organizations hire a vendor who has 692 expertise in employee questionnaires, but it is possible for an organization to develop their own questions. 693 Good vendors will have tested their questions to prove there is a correlation with important business 694 outcomes. Here is an example of the sort of questions that could be used to assess engagement. 695
The following statements concern how you feel about your department. Please indicate the extent of your 696 agreement or disagreement with each statement using the following scale 697
698
Strongly Agree 1
Agree 2
Neutral 3
Disagree 4
Strongly Disagree 5
699
I am proud to work in this organization 1 2 3 4 5
I am committed to doing by very best for the organization 1 2 3 4 5
I am very clear about the goals for this job 1 2 3 4 5
The organization makes sure I have the resources needed to do my work 1 2 3 4 5
The organization cares about by learning and development 1 2 3 4 5 700
9.6.2 Step 2: Calculation 701
Normally the calculation of an engagement would be a simple average. Each employee would have a series 702 of responses such as: 5,4,3,5,4 In this case the engagement for that one employee would be 703
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(5+4+3+5+4)/5 = 4.2. The engagement index for the company would be the average of all individual 704 employee scores. That is the index which should be reported. 705
9.6.3 Alternatives 706
This example is illustrative rather than prescriptive. The important point is to have a clear and defensible 707 methodology and be ready to answer investor questions about the reason you chose that particular 708 methodology. 709
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10.0 Instructions for Human Capital Discussion & Analysis 710
(HD&A) 711
712 10.1 Concept: 713
Provide context to help investors interpret human capital metrics 714 715
10.2 Objective: 716
The objective of the Human Capital Discussion & Analysis section is to provide management with an 717 opportunity to discuss and measure how the organization’s human capital creates value and to identify and 718 assess the nature and implications of human capital related risks. 719 720
10.3 Instructions for writing the HD&A: 721
The HD&A section should mirror in the traditional Management Discussion & Analysis in providing insight 722 that will help investors interpret the metrics. In addition, this is where the organization should disclose any 723 material risks or any other material information related to human capital. The organization should provide 724 information about trends and period-to-period changes, targets that were missed or exceeded, and where 725 applicable, provide information that allows investors to predict future outcomes. 726 727 Importantly, the HD&A section allows management to connect the dots and to provide investors with an 728 enterprise-wide perspective of the meaning and importance of the various the human capital 729 metrics. Additionally, this section provides management with the opportunity to discuss the external and 730 internal threats and risks that may have a negative impact on the value derived from the organization’s 731 human capital. 732
