Keep Your Edge

  • Performance

Communicating Human Capital Value to Shareholders and Stakeholders

Doug Ring
on December 20, 2012

Do you have a data-driven, consistent approach to communicating human capital value to shareholders and stakeholders? If you answered no, you’re not alone. According to this article in BusinessFinance, most public companies and other organizations do not have a consistent way to communicate with interested parties about the financial value of their human capital assets.

Especially in a knowledge-based economy, the workforce powers innovation, progress and competitive advantage. Helping shareholders, stakeholders and other interested parties understand the human capital value of your talent is critical – particularly if you proclaim that people are your greatest asset.

How can an organization better measure and manage its talent and then effectively communicate its worth to investors? The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI) were working on developing guidelines for reporting human capital metrics to investors based on information companies already compile. The guidelines focus on six key elements: Human capital spending, employee retention, leadership pipeline, leadership quality, employee engagement and human capital discussion and analysis.

While the standards never materialized, it doesn’t mean you shouldn’t pursue reaching them. Implementing an integrated talent management software system can provide a deeper understanding of the workforce through robust reporting and analytics. Using data, organizations can then correlate the connection between its talent investment and business performance.

Of course some may still challenge the notion that there is a positive link between human capital and organizational performance. However, a new meta-analysis of 66 studies spanning 20 years concluded that there is indeed a strong, positive link between human capital and organizational performance.  The study also notes:

  • The link between human capital and performance is 71% stronger for organization-specific skills than for general industry-wide skills. This makes sense; employees whose knowledge and skills are specific to the organization add more value. Plus, individuals with high general skills can demand higher pay, as they know that they’ll be a valuable asset to any company within the industry. So if your outcome is profit, the relative advantage of general skills will be less.
  • Human capital has a 70% greater effect on operational performance measures like customer satisfaction, innovation or effectiveness than on global performance measures like profit or ROI. This is partly because the positive financial return of increased skills gets swallowed up by employees, managers and stakeholders demanding higher salaries.

The results support previous research findings that managing performance and motivating talent pays off. Organizations that make performance management a regular part of business have a competitive advantage. A systematic approach to performance management powered by technology and ongoing performance conversations ensure employee goals align with business priorities. Visibility into performance helps organizations identify, nurture and retain key talent and build a long-term, sustainable competitive advantage.

There is tremendous value locked in an organization’s human capital resources and that value needs to be communicated not only with shareholders and other stakeholders, but with the employees themselves (who in some cases are shareholders as well). Talent Management systems foster this communication in a more socially engaging way using techniques and technologies that the workforce is already familiar with from their consumer experiences.

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