Principles and framework for measuring the value of human capital for your organization

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  • Companies do not have adequate metrics to measure the value of human capital and employee return on investment;
  • Investments in labor are often mistakenly presented as damaging to budgets without any recognition of the value they create;
  • A new human capital development framework that takes into account the form of work in a post-COVID-19 world can help change that.

As companies seek to reset their human strategies in response to the COVID-19 pandemic, they face the lack of adequate measures to unleash talent and return on investment in human capital. Such measures are important to deepen stakeholder engagement and to help drive and monitor decision making in businesses under pressure to operate more efficiently and become more resilient.

In current accounting systems, investments in labor are recognized as a direct impact on profits without recognition of the value created, while reductions are given favorable treatment and are excluded from basic profits. This creates a perverse set of incentives that encourage management to reduce investment in the workforce and treat talent as an elimination.

Willis Towers Watson and the World Economic Forum published Human Capital as an Asset: An Accounting Framework to Reset the Value of Talent in the New World of Work to provide organizations with a model for reshaping human capital accounting under the Great Reset.

From this new post, here are seven guiding principles to help organizations change the way they think about how human capital is valued:

  • From profit to goal. Performance measures should focus not only on returns for shareholders, but also on how an organization achieves its larger goal of creating shared value for all stakeholders. An essential element of stakeholder capitalism is a company’s responsibility to its talents, including agency workers as well as salaried employees.
  • From corporate policy to social responsibility. With the growing emphasis on corporate social responsibility, employees will need to uphold company values ​​both in the workplace and in the community.
  • From autonomous to ecosystems. In the future, successful businesses will thrive as participants in systems that include partners, suppliers and the wider community. The pandemic highlights the need for stronger partnerships and alliances between unrelated companies. Consider, for example, how baggage handlers on leave have been successfully redeployed to supermarket chains.
  • From employees and jobs to people, work and skills. The traditional notion of work performed primarily by employees in the job is giving way to a broader focus on work and skills, and the growing plurality of ways of getting work done. Therefore, organizations need metrics that measure the plurality of working options on an equal footing.
  • From labor as an expense to labor as an asset. Instead of having labor development costs expensed when incurred without recognition of value, these investments should be capitalized and recognized on the balance sheet as an asset.
  • From retrospective financial measures to forward-looking and broader measures of value. In addition to relying on traditional measures of past performance, it is important to consider measures that have the potential to create value in the future. To put more emphasis on the workforce, these measures should be reported on an ongoing basis.
  • From quarterly to generational. Since the results of investments in a company’s workforce are often achieved in the medium to long term, measures based on a longer term vision are needed. This will help inform human capital decisions about creating or buying talent, investing in upgrading employee skills and retraining, and reinventing jobs to make the most of technology and skills. alternative working methods.

principles-of-measurement-of-human-capital-value

Image: Willis Towers Watson and the World Economic Forum

A framework for enhancing human capital

An accounting framework for human capital that incorporates these guiding principles must go beyond existing measures. We offer a three-part framework that can help businesses better understand how work and talent can create value in a post-COVID-19 workplace. here are the

1. Evaluate the employee experience

Employee experience plays a vital role in motivating all talent, from full-time employees to temporary workers, to create value for an organization and its stakeholders. Willis Towers Watson has developed an evidence-based employee experience model, based on organizational worker surveys, which identifies the most important experience factors, including the link to company goal and colleagues, and contribution to work and rewards.

Using this model, it is possible to gauge employee sentiment regarding the quality of specific work experiences compared to those of successful companies. Research from Willis Towers Watson shows that companies with a high-performing employee experience outperform their peers in terms of revenue growth and profitability.

2. Determine the value generated by all work sources

With the changing nature of work, businesses need a holistic measure that takes into account today’s many options for getting the job done. This requires determining the “total cost of labor” by capturing the cost and productivity of all types of talent (eg, employees, gigs, contractors) and automation on a comparable basis and using the result obtained to measure earned value or “Return to work”.

3. Evaluate the value of the workforce

If labor is to be treated as an asset rather than an expense or liability, it is essential to have a measure that captures the total value of the labor force and takes into account the factors that may cause a change in this value. Measuring the “Total Labor Value” will help organizations achieve this goal by first determining the market price of all talent (employee and non-employee), and then assessing the factors that may add value, such as training and development, as well as factors that can reduce value, such as skill redundancy.

These three metrics need to be tracked and communicated to senior executives and boards of directors held accountable for their investment in people.

Framework integration

Decision-makers, human resources managers (HRDs) and boards of directors all have a role to play in integrating these metrics into their business decision-making.

  • Policymakers need to focus on transforming accounting principles so that investments in the workforce are recognized as a source of value creation.
  • HRDs should encourage the use of the proposed measures among leaders of HR and the organization at large to facilitate the optimal mix of talent and technology.
  • Boards need to ensure that human capital metrics are included in their reported metrics in order to accurately communicate the return on human capital investments to shareholders and to hold executives accountable.

If properly integrated into an organization’s decision-making process, this framework and its underlying principles will help a business manage ROI in human capital in the same way that it measures ROI, everything by building resilience and a more equitable relationship. with all its stakeholders.


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