Taskforce hands HR opportunity to shine

Annual reports will soon have to include detailed data about HR's efforts to measure people, its policies and link these to the bottom line.

The move, recommended by the DTI-sponsored Accounting for People Taskforce this week, will provide HR with an opportunity to embed itself further into business and create a more strategic niche.

The recommendations look set to take effect within the next two years, with the Company Law Review soon to require boards of larger companies to demonstrate they understand the factors that are material to the company's performance - including people.

The taskforce was established in January 2003 after the Kingsmill Review on Women's Equality and Pay found that very few companies report meaningfully on human capital to their stakeholders, despite the strong link with company profitability.

The Accounting for People Taskforce consulted widely, seeking business, union, and public sector opinion, and taking on board the views of Personnel Today readers.

The taskforce has that recommended organisations define the aspects of human capital management (HCM) that are key factors in terms of performance, and report on these.

Taskforce chair Denise Kingsmill told Personnel Today it was recognised that each organisation is different, and a one-size-fits-all system of reporting would not work.

The taskforce has collected examples of good practice and recommended a set of general principles for HCM reporting.

Kingsmill said: "We believe the recommendations in this report offer organisations a blueprint to begin developing and to improve HCM reporting.

"We hope this is the beginning of a process that will lead to UK business becoming better focused on the performance and skills of its workforce and, ultimately more competitive."

Kingsmill said that while many top chief executives understand the concept, there is a big gap between theory and application.

"Very few companies report [people management data and strategy] with any degree of rigour or clarity," she said.

HCM reporting will allow people to see whether they want to work for a company, stay working for a company, or invest in a company.

Kingsmill said HR departments will need to explain why the figures are important.

"There is no use saying 'we spend £28 per head a year on training'," she said. "What does that tell us about anything?"

The taskforce recommendations will be submitted to ministers as proposed changes to the Operational Financial Review (OFR) rules. At the moment OFRs - which will require include people management data to be published in annual reports - are voluntary, but they are scheduled to become compulsory next year, with implementation expected in 2005. That means HR has 18 months to two years to get its systems in place.

Brett Walsh, UK head of Human Capital at Deloitte, welcomed the changes.

"Organisations will be keen to use these measures to further enhance their communication to shareholders as employers of choice," he said.

"The taskforce has tried to ensure that human capital reporting is not a burden for the HR director and staff by encouraging them to measure generic themes rather than specific definitions.

"HR directors should embrace the guidance because effective measurements will develop and, over time, these will help to change the status of HR from a support service to a direct contributor to company profitability," he added.

Duncan Brown, assistant director general of the Chartered Institute of Personnel and Development, said the taskforce recommendations were extremely significant for the profession. However, he added that organisations will need to have a lot of support.

"Some in the FSTE100 are not going to find it easy, and many [smaller organisations] will find it a real struggle."

By Quentin Reade

For a copy of the recommendations www.accountingforpeople.gov.uk

The taskforce recommendations - what you need to do now

- Reports on human capital management (HCM) should have a strategic focus, be balanced and objective, and based on sound data.

The report should clearly represent the board's understanding of the links between HCM policies and practices and its business strategy and performance. This means that it should normally include details on size and composition of the workforce; employee retention and motivation; skills, competencies and training; remuneration and fair employment practice; and leadership and succession planning. The report should be susceptible to review by auditors, provide information in a form that enables comparison over time, and use commonly accepted terms and definitions.

- Directors of companies producing Operating and Financial Reviews (OFRs), and all public and other bodies that produce OFRs or reports with similar aims, should include within them information on HCM or explain why it is not material. OFRs are designed to convey the board's understanding of the factors that are most material to the organisation's performance. Following the Company Law Review, most larger companies will soon be required to produce OFRs as part of their annual report and accounts.

- The Standards Board should invite leading employers, co-operating with investors, professional organisations and other relevant stakeholders, to develop guidelines on key indicators and definitions.

The Standards Board recommended by the Company Law Review is likely to be set up shortly, and will co-ordinate voluntary activity on the part of the companies and other organisations. The taskforce hopes a sub-group on HCM reporting will be created.

- The Government should consult with leading employers, investors, professional organisations and other relevant stakeholders on a programme to disseminate best practice.

- The Standards Board should monitor the extent of HCM reporting in OFRs, reporting to the industry secretary within two years of its formation.