Staff capital must not be overlooked

The growing need to measure staff value provides an opportunity for HR to
improve its standing

Employers are under pressure to develop a more sophisticated approach to
filling out the company balance sheet, and finding ways to measure people value
in a business will be a key issue for all HR practitioners in 2002.

Public company financial reporting requirements have become more rigorous
over the years and are currently being reviewed, in particular the link between
company performance and directors’ remuneration.

Remuneration committees operating in an open global market face stiff
competition for talented executives. This and other factors such as specific
competencies and track record, make executive recruitment and retention a
significant matter for the committee and shareholders. However, with the
well-publicised payouts to executives whose risk management and control of
company performance has been questionable – recent examples include Sir Peter
Bonfield at BT and Lord Simpson at Marconi – the evaluation of an individual
contribution to company performance, particularly at senior levels, has never
been more important.

But the executives are only a small part of any company setup and it cannot
be long before statutory reporting measures begin to take account of the rest
of a company’s employees.

Employee capital is not currently considered a significant contribution to
most companies’ measurable assets, despite the view of most chief executives
that "our people are our greatest asset". And there is often no
attempt to measure the real value of a company’s human capital, its growth or
its decline.

It is crucial that businesses recognise their employees are part of the
company’s assets, but it is equally important that they understand the
employees are not like any other assets. Employees are the only assets that add
real value and creativity, and will be the ones to grow the business.

If employees can make or break a business, it is easy to see why it is
important for a company to identify when and how much its employees are adding
value, especially from an executive and shareholder standpoint.

The answer lies with human asset accounting. It aims to make the
identification of staff value possible and in the process supplies an important
source of additional shareholder information.

The need to manage company assets, including its human assets, must be a
vital part of the running of a successful company. Employee strategy and
practice is a clear HR responsibility and the adage that "if you can
measure it you can manage it" holds true. Just as financial measures and
targets are set and then measured on a monthly, quarterly and annual basis, so
must the human asset measures.

The message to UK organisations is that HR is integral to the establishment
of new measures for human asset accounting – how they are quantified, how they
are monitored and how they are reported. Such input will add weight to the
growing strategic importance of HR, while routine administration functions are
increasingly being outsourced.

I anticipate that human asset accounting will eventually become a standard
benchmark, will be part of good practice reporting in a company’s annual report
and may well become a standard legal requirement.

Whatever the final outcome for human capital accounting, it is certain the
next few years will see HR involved in developing human asset accounting
measures appropriate to their business and culture, which will be increasingly
important not only for a company’s executives and employees, but also its
shareholders.

It could even lead to the HR director’s status becoming equivalent to that
of the finance director, for the first time placing the HR function where it
should be – at the heart of the company rather than on the periphery.

By Nicholas Bennett, head of the compensation & HR practice of Buck
Consultants and is a chartered occupational psychologist

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