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."
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.
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– 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.
