Capital Standards Group paper, November 2006
The Human Capital Standards Group was established in 2005
to investigate the kind of employment metrics that could
be adopted by all companies as a basis for employee-related
information in their annual business review.
The group believes there is a need for the annual review
to formalise its employment content around a series of metrics
covering the significant intangible of human capital, recognising
that this information is as crucial to forward thinking
analysis as historic cost accounting is in the presentation
of past performance.
Focusing on the annual review was seen as an opportunity
to establish some basic principles and guidelines for the
use of human capital metrics in external reporting. Additionally
it presented itself as the logical next step in the development
of human capital management in the wake of the Kingsmill
Report from the Accounting for People task force.
That report anticipated an evolutionary process towards
the establishment of generic measures in business. The Human
Capital Standards Group is attempting to take up the baton
from Kingsmill and progress this necessary evolution to
a new stage of development.
The terms and reference of the group were established around
five guiding aims and principles:
1. To provide a basic set of metrics that we intend to
promote as organisational standards for the purpose of external
comparison by investors and other stakeholders in publicly
quoted private sector corporations.
2. To establish these standards as the underpinning of a
wider understanding and use of human capital management
3. To review and revise standards periodically in a process
of continuous improvement.
4. To embed the practice of human capital management within
all organisations around the principle of investing in people
as a means of securing stronger individual and organisational
5. To maintain the integrity of generic measurement in which
measurements and their formulas are freely available to
every organisation that may seek to adopt them
In a series of debates and information gathering exercises
seeking expert opinion among various industry sources externally
and internally from within the group, a consensus began
to emerge around the areas of human capital most useful
for information gathering and about the type of measurement
that could provide the most significant results.
Seven performance measures or groups of measures have
· Overall Performance
· Leadership and Management
· Employee Engagement
· Training and development
· Pay and reward structures
· Retention and recruitment
· Health and well being
Under each of these headings some specific measures were
Overall performance (quantitative)
1. Profit per employee
Based on HR records of full time equivalents (FTE) and Profit
taken from published accounts
2. Turnover per employee
Based on turnover from published accounts and FTEs from
Leadership and Management (qualitative)
1. Is this organisation well managed?
3. To what extent do I understand the aims of the organisation?
4. I am well managed.
Employee Engagement (qualitative)
1. I would recommend my employer to a friend as an excellent
2. I am proud to work for my employer.
3. I believe in the aims of my employer.
4. I feel comfortable with the values of my employer.
5. I will do more than I’m asked to help this organisation
6. I have a desire to do more.
7. I care about my job.
8. I enjoy my work.
9. I like the people I work with.
10. I want to continue working here.
Training and Development (qualitative)
1. To what extent do I believe I receive the training and
development I need to enable me to do my job well (including
on the job training)?
Pay and Reward Structures (qualitative)
1. To what extent am I satisfied with my pay and benefits?
2. Are my organisation’s reward and remuneration arrangements
Retention and Recruitment (quantitative)
1. Percentage of Vacancies Unfilled within 3 months
Unfilled vacancies within 3 months / FTEs
2. Offers/ Acceptance ratio for advertised posts
Number of job offers made in last 12 months/number of acceptances
in last 12 months.
Health and well being
1. I believe my employer cares about my well being
In gathering feedback from numerous organisations and practitioners
of human capital measurement it quickly became clear that
work in this field is characterised by a wide variety of
practices and opinions. The debate seems most heated around
the potential for measures to create a distorting picture
of business performance.
There were strong areas of consensus around the need to
measure the effectiveness of line management and employee
satisfaction, most commonly expressed as employee engagement.
Pay, experience, training, leadership/line management quality,
job content and staffing levels were all regarded as significant
features of employee engagement.
In the detailed comments, most of the criticism of measures
seemed to be centred on whether or not they were relevant.
Where relevance was questioned I have tried to accommodate
these points in a refinement of the measures.
It was clear from the comments that consensus over validity
of measures will remain elusive. This should not, however,
preclude some broad agreement that embraces the fundamental
differences in measuring human rather than fixed capital.
Human capital measures must account for basic human differences.
Every single employee in a workplace is an individual. No
matter how neatly approximations of human behaviour may
be assembled to categorise people, every single one of us
thinks, feels and behaves in different ways, sharing some
qualities to differing degrees.
This essential difference between accounting for people
and accounting for other forms of capital would point to
an argument for qualitative measures as the dominant means
of collecting rich employee feedback, supported by a number
of quantitative measures. The gathering of such qualitative
information is particularly useful for year-on-year performance
For this reason it is important that consensus within the
group is secured with an underpinning of some fundamental
assumptions that need to be accepted in establishing workable
and universal human capital metrics:
1. If generic measures are to have any meaning they must
be usable for external comparison of businesses. They must
carry meaning beyond the parameters of the individual companies
in which they are used.
2. Measures must be capable of shedding light on the future
capabilities and creative potential of the business.
3. Qualitative rather than quantitative measures are more
useful in providing a richness of information over time
that can best reflect the human side of human capital.
4. Measures can only deliver meaning in business if they
are linked to good management. Good management bridges the
gap between basic measurement and strategy.
5. Good management establishes a working narrative around
the measurement process so that results can be translated
in to learning, development and performance management.
The areas of measurement and individual measurements and
formulas recommended by the group are intended, therefore,
as a foundation and an underpinning of people policies.
They are not presented as a definitive group but as “work
in progress” that will need refinement and revisions
as knowledge of this still maturing discipline expands.
Neither are they focused on strategic differentiation although
we should recognise that organisations that commit themselves
to these principles may well seek to use them as a basis
for strategic distinction and competitive advantage when
combined with management interventions and the adoption
of other sector and company specific processes.
The comments and feedback are pointing to the development
of a two pronged information-gathering exercise, partly
based on employee feedback and partly based on quantifiable
Once questions are agreed some consideration should be
made of weightings and rankings. Should it be marks out
of five for individual questions or out of 10?
If a final consensus can be achieved I would recommend
that the group moves forward with its proposals in two directions:
1. To campaign through the media and with discussion and
promotion among investor bodies for the acceptance of these
measures as a broad employer standard.
2. To discuss the measures with the accountancy firms
that convened recently to recommend a regular gathering
and reporting of metrics covering intangible assets.
©2006 Richard Donkin