Human Capital Management rated by Financial Analysts

Financial Investment companies are now actively surveying organisations with a Human Capital Index.

Human Capital Management now rated by Australian Financial Analysts

“Human Capital Management has finally made it into the ratios being assessed by financial analysts."

There has been much discussion about an appropriate index on which to assess listed organisations. Several Financial Investment companies are now actively surveying Australian listed organisations with a Human Capital Index. We see this as a growing trend in analysis as to how organisations manage their Human Capital. "Human Capital often makes up 60-70% of an organisations cost base but shareholders have had little visibility on the detail.” said Lyle Potgieter CEO of PeopleStreme.

Visibility of Human Capital Management

Shareholders are often surprised when financial results are published as a consequence of changes In Human Capital Management strategies. For example, an organisation surprises in its earnings and releases higher than expected results. The share price increases in the short term but the reality is that the CEO reduced head count to achieve the result. The problem is that these results are not sustainable and the following year the share prices goes down. Shareholders are asking “what happened” as they did not have visibility of the detail.

We see Human Capital Management Indexes as providing shareholders with the necessary visibility to make intelligent informed investment decisions about the organisation in which they are investing. A one line statement in the Profit and loss accounts “Expenses – Staff” is not sufficient disclosure and does not provide investors with the required visibility. Human Capital metrics are often lead indicators and provide the necessary visibility for shareholders to determine what is really happening in an organisation.

Trend towards increasing Analysis of Human Capital Management Metrics

There has been a tremendous amount of work conducted in this area in the last three years by academia, research organisations and financial analysts. The work is coming to fruition and we expect to see an increasing number of analysts rating organisations not only on financial metrics but also Human Capital metrics. Organisations will increasingly be asked to provide these metrics to analysts as well as providing these metrics in annual reports for shareholder consumption.

Typical Metrics that will be requested include:
  • Employee Net inflows and outflows
  • Reasons why employees left of their own volition (Employee Initiated Turnover)
  • Employee Initiated Turnover as a percentage of total outflows
  • Workplace Practices
  • Recruitment Processes
  • Learning and Development
  • Succession Planning 
  • Performance Management 
  • Linkages between Performance Management and the Strategy (is the strategy cascaded down to each staff member)

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