How to Comply with Human Capital Reporting Rules in 3 Steps
Guest article from John R. Mattox, II, Ph.D., Action Learning Associates
People drive value for organizations, now more than ever.
Too many managers and leaders struggle with quantifying that value. They do not know how to create competitive advantage. Do you know the VALUE of your Human Capital?
Dave Vance, the Executive Director of the Center for Talent Reporting, (www.centerfortalentreporting.org), recently published an article in Chief Learning Officer (CLO) Magazine that described when the Securities and Exchange Commission (SEC) will require human capital reporting.
On August 26, 2020 the SEC revised that rule and now requires that organizations report information that is “material”—meaning anything that an investor would find valuable when considering buying a security. That is BIG news. That ruling includes human capital metrics. Do you NEED to measure the VALUE of your Humana Capital?
Thankfully, there is a readily available framework for measuring and reporting human capital. The International Standards Organization (ISO) which has improved product quality and consistency around the globe with ISO 9000, has developed a standard for sharing meaningful measures of human capital called ISO 30414.
How Should You Prepare?
There are many ways to approach this IS) 30414 Human Capital Reporting Standard. Here are three steps that will certainly help:
- Assess your current state. Look across your systems, analytics resources, and reporting processes. Can the current state in your organization provide the information needed? The likely answer is no, but that is okay, because it is a starting point. The output of this step should be a document that defines what you have, and what you don’t have. We can help.
- Plan for your future state. You need to close your data and reporting gaps identified in step 1. Leverage your systems, teams, and processes. Prioritize the metrics that your stakeholders say are most important. Also spend time determining how much effort will be required to obtain each metric and report it. Use the business needs and efforts required as guides for prioritization.
- Deliver. Practice generating a full report regularly. Start today. Each attempt should identify persistent gaps and areas that need process improvements. Set a date for when you need to deliver the full report without any missing data. Drive towards completion. Launch the report and share results with stakeholders long before the final report is needed for reporting or compliance reasons. Continue to iterate and improve.
- ISO 30414 provides a useful framework for gathering, analyzing, and reporting results
- Prepare by examining the current state of your HR analytics practices; close gaps on the metrics that need to be reported
- Leverage your internal resources, systems, and processes
- Engage external resources like Action Learning Associates, with expertise in HR analytics and ISO 30414.
- Contact us today. You can’t afford to wait.
Guest author John R. Mattox, II, Ph.D., VP of People Analytics, Action Learning Associates, LLC
I doubt that your team is ready for the SEC. Let me explain.
The Securities and Exchange Commission (SEC) currently requires publicly traded companies to report ONLY ONE metric about human capital: number of employees. Human Capital is their biggest expense. For investors, that ONE METRIC does not provide adequate information about an organization’s most profitable intangible resource- human capital. For HR and business leaders, that one metric is NOT SUFFICIENT to monitor and manage the workforce effectively.
Human Capital metrics are essential to 1) manage the workforce and 2) drive business value.
On August 26, 2020 the SEC revised its rule on Human Capital Reporting. Anything that has a “material influence on the operations and profitability of the organization should be reported.”
Privately-owned businesses WILL follow publicly-traded organizations. They always have.
A wide range of human capital metrics will apply. Thankfully, there is a well-researched and comprehensive framework for measuring and reporting human capital metrics. We can help your team immediately.
The International Standards Organization, (ISO) which has improved product quality and consistency around the globe with ISO 9000, has developed a NEW standard for sharing meaningful measures of human capital called ISO 30414. You need to know about it.
The ISO 340414 standard outlines 11 areas that organizational leaders should measure and report on various aspects of your workforce. The purpose is to give investors insights into the people-side of the business. Equally as important, ISO 30414 gives the c-suite a standard set of metrics to monitor and manage to improve the organization.
What are the Human Capital Measures?
The ISO standard contains 11 general reporting areas which are listed below:
- Compliance and ethics
- Organizational culture
- Organizational health, safety, and well-being
- Recruitment, mobility, and turnover
- Skills and capabilities
- Succession planning
- Workforce availability
Along with these reporting areas, the new ISO 30414 standard provides specific metrics and recommended ways to calculate each of these measures.
You can expect updates to definitions and calculations in the coming years as practitioners adopt and apply these ISO 30414 standards. We can help you.
Back to my question: Is Your Organization Prepared?
The question for you is simple: Are you ready? I doubt it.
Is your organization ready to adopt this ISO 30414 framework, measure your workforce, take action to improve your organization, and also report that information internally and externally as needed? I doubt it.
If you have an HR analytics team, there is a good possibility that you can analyze and report some or even all of these metrics. If you do not have an analytics team, your system administrators might be able to cabal together a representative set of measures. But you will still require our help.
Based on the LinkedIn Global Talent Trends study (2020), 85% of those surveyed think people analytics will be a dominant function in human resources in the coming years. Yet, 55% of those surveyed say they “still need help putting basic people analytics into practice.”
Nearly half of all organizations are not prepared for ISO 30414 human capital reporting.
Sadly, I doubt that your team or organization is ready for the SEC. We can help you.
Is Human Capital Reporting Required?
This is a simple question that has a complex answer. The current answer is “no.” The SEC does not require publicly traded companies to report anything more than the number of employees. However, other countries like Germany are requiring extensive HC reporting and they are basing their efforts on the ISO 30414 standard. Dave Vance, the Executive Director of the Center for Talent Reporting (www.centerfortalentreporting.org), recently published an article in CLO Magazine describing when the SEC will require human capital reporting. The current answer is that the SEC is likely to require publicly traded companies to report “material information”—meaning anything that an investor would find valuable when considering buying a security. That is very broad language and will likely encompass all Human Capital measures.
The ISO 30414 provides a useful framework, valuable metrics, and informative calculations and will likely serve as a guide for future organizations. We recommend that YOU adopt these measures today.
Most organizations are not prepared today to augment current public financial statements about the health of their company with information about human capital. However, information about “material influencers of the business including human capital” are now required by the SEC for publicly traded companies.
ALL organizations need to prepare for ISO 30414 compliance. You will soon be required to leverage internal resources like analytics groups, HR systems, and standard measurement processes.
Most business leaders will need to hire external consultants like Action Learning Associates, with expertise with HR analytics and the ISO 30414 standard. Not only will you need to be compliant with new SEC rules, you will be able to recommend solutions to your c-suite leadership team. Your biggest expense is Human Capital. Soon you will be required to manage your investments in people and improve all aspects of your Human Capital business. Why wait?
Call us TODAY to get started.
John Mattox, PhD and Doug Gray, PhD can be reached at contact us or 615.236.9845.