There are a number of extra financial reporting standards that are gaining traction that ask companies to report more than just financial information. The primary driver is that investors have realized that the financial reporting system is very focused on physical assets (e.g. capital) and creates a blind spot for investors for firms that are more services based. Now that over 70% of the world economy is services based – this issues has become more material for investors, regulators and governments. Last week, the World Federation of Exchanges released their recommendation of what measures stock exchanges around the world should require – and there should be little surprise that there are some HR metrics on there.
Here are the HR metrics that the WFE is recommending. It should be noted that most of the other standards (e.g. Global Reporting Initiative, Sustainable Accounting Standards Board) also use most of these metrics.
- CEO Pay Ratio – CEO Salary and bonus to median FTE salary
- Gender Pay Ratio –Median Male Salary to Median Female salary
- Employee Turnover Rate – Percent of change for FTE’s, Contractors, and Consultants
- Gender Diversity – Percent of FTE, Contractors and Consultant positions held by Women
- Temporary Worker Rate – Percentage of FT positions held by Part Time / Contractor / Temp Workers
- Injury rate – Total number of injuries and fatalities relative to the workforce
- Board Diversity – Percentage of Board Seats held by Independents and Women
Talent Acquisition and Management is going to be Transparent
Several stock exchanges have already adopted these standards, and trend is continuing. What this means is that Analysts / Investors will be able to publicly compare the firms in the same industry sector and compare the above metrics. It will be readily apparent which firms have solid HR leadership and delivery.
Questions to ponder
- How solid is the compensation structure and is it balanced from an internal equity perspective?
- How high/low is your turnover numbers today? Note that the standard includes contractors!
- How is your diversity hiring at all levels – to include the senior most levels, including the board?
Talent Acquisition in terms of Risk Management
A crucial element, in terms of risk management, will be how good one’s talent acquisition function and process is. Some key facets to look at are:
- How good is the function and company (as it requires enterprise commitment) at Diversity hiring?
- Is your firm leveraging assessment techniques / technology to determine cultural fit?
- During offer process , how rigorous is the process to make sure there is internal and market equity?
- From an organization design perspective, what oversight is occurring to view the entire talent base (full time, part time, contractors and consultants) holistically?
The CHRO on Analyst Calls?
Given the above operating metrics, it should not be a surprise, and should be considered in CHRO succession plans that in the next 5 to 10 years, the CHRO will be on non-deal road shows (NDR’s) and analyst calls. This obviously will be a new level of visibility and accountability for the HR function.
If you would like to learn more about this issue and how Korn Ferry Futurestep can assist you , please contact Franz.Gilbert@futurestep.com