Reporting Human Capital: Illustrating your company’s true value

This report assesses the current standard of Human Capital (HC) narrative reporting amongst the FTSE (Financial Times Stock Exchange) 100 companies. It shows that both the quantity and quality of HC reporting has increased across the FTSE 100 companies between 2013 and 2015. 

By CIMA

 

An organisation’s people are its unique resource. People can learn, develop and grow – they are the only part of a business that can improve itself and they are fundamental to creating value in organisations. People measures, and the field of human capital analytics which looks to measure the value of people’s knowledge, skills and abilities, can help organisations to understand how purposeful workforce investment can create and preserve this value, and in doing so, improve productivity, employee well-being and commitment, innovation and business performance.

 

This study was commissioned to assess the current standard of HC narrative reporting among UK FTSE (Financial Times Stock Exchange) 100 companies and to ascertain if the most up-todate guidelines have improved current practice. After undertaking a comprehensive review of the literature relating to HC and its key constituents in any organisation, an analytical framework was developed to allow us to carry out a systematic content analysis of key HC terms in the annual reports of the FTSE 100 companies. The key HC elements were grouped under four main categories: knowledge, skills and attitude (KSA), human resource development (HRD), employee welfare/stability, and employee equity. To enable us to understand and calculate any change in how HC was reported, we reviewed the 2013 and 2015 reports of these companies.

 

Additionally, to further augment our understanding of HC narrative reporting amongst these companies, we carried out an analysis of three major media outlets: the BBC website, Financial Times and The Economist. This analysis was designed to allow us to compare and contrast companies’ annual reports with media outputs and ascertain if the companies concerned are reporting HC issues accurately, particularly those that might be linked to ‘workforce risk’ factors such as poor people management practices, negative employee relations incidents, toxic organisational cultures or inadequate training and development provision.

 

This study has shown that both the quantity and quality of HC reporting has increased across the FTSE 100 companies between 2013 and 2015, although whether this increase may be solely attributed to changes in legislation is open to question. Moreover, given these findings, it would seem that FTSE 100 companies are addressing the inadequacies regarding HC issues, which have been voiced in relation to the content of annual reports. It is clear from our analysis that the majority of FTSE 100 companies are doing more than simply fulfilling their statutory duties in terms of reporting. It is also clear from our analysis that companies are conscious of Financial Reporting Council (FRC 2014) guidance and corporate governance codes that are drawn up by major  institutional investors (Tricker 2015).

 

The key recommendation from the study is that companies continue to focus on the reporting of HC issues, but adopt broadly consistent terminology to describe the human capital items, thereby making universal comparison easier. However, this does not mean that they should all use the same wording or take a ‘boilerplate’ approach to HC reporting, which we believe would not adequately reflect the contextual nature of the HC issues present in organisations. Ultimately our findings show that companies are reporting many of the elements and metrics in the Valuing your Talent  Framework (CIPD 2016b); this model may provide a useful foundation for HC reporting in the future and may offer a solution to the challenge of communicating HC issues that are of considerable material importance to organisations today.

 

Click here to download the full report.

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