Mercer’s Ravin Jesuthasan shared how to incorporate HR metrics in financial reporting.
In this week’s CHRO Community Conversation, hosted by CHRO South Africa in partnership with Workday, attendees heard from Ravin Jesuthasan, the global leader of Mercer's Transformation Services business, who authored the World Economic Forum report on how to incorporate HR metrics in financial reporting.
The CHROs in attendance listened eagerly as Ravin framed what HR should be managing, measuring into and reporting on.
Ravin explained that as his team was working on the report with the World Economic Forum in 2020, many organisations were becoming acutely aware of the impact the pandemic has had on their workforces, “As a result, they were taking actions they may not have taken in the past in order to protect their workforces. And we saw some really good evidence of good practise in some companies and some really questionable practice on others.”
The recognised global thought leader and futurist highlighted the findings from the report: Human Capital as an Asset: An Accounting Framework to Reset the Value of Talent in the New World of Work.
Guiding principles
These are the seven guiding principles to shift how human capital is valued:
1. From Profit: the value for the narrow group of stakeholders, to purpose: a recognition of how value is shared between the workforce and a broad group of stakeholders.
2. From Corporate policy: complying with code of conduct in the workplace, to social responsibility: living corporate values in the community.
3. From Stand-alone: the organisation as a stand-alone entity to an ecosystem: that sees the organisation as an integral part of the communities in which it operates.
4. From Employee and jobs: matching people to fixed jobs to people, work and skills: empowering talent to focus on meaningful, non-routine work.
5. From Workforce as an expense: treating talent as a disposal business expense to the workforce as an asset: valuing talent as an asset.
6. From Backward-looking financial metrics: focusing on past financial performance to forward-looking metrics: focusing on the future potential for value creation.
7. From Quarterly: short-term view to generational: long-term view
Three metrics for tracking and measurement
Ravin mentioned that they advocated for three metrics that can be used for tracking and measuring the value creation that the board of directors and executive leadership should be aware of.
He said the first metric is the High-Performance Employee Experience Model: the recognition of how the employee experience is evolving and how value is being created as it relates to the experience. A strong sense of purpose, doing great work in a thriving organisation, connecting with great people and strong leaders and getting growth and rewards in return.
The second metric is Total Cost of work and return on work: to reflect the changing nature of work, organisations should seek to place their “plurality of means” for getting work done on a level playing field. This means capturing the cost and productivity of all types of talent (e.g. employees, gig, outsourced) and automation on a like-for-like basis through such measures as the Total Cost of Work) and the Return on Work.
Ravin said the third metric is the Total Workforce Value: He added that it is essential that the workforce be viewed as an asset rather than as an expense or liability, “with investments in the workforce such as learning and development being captured and reflected in the overall change in workforce value. There is a relevant precedent for this view when we consider how we account for natural resources. The total workforce value metric should reflect the market price of all human talent (employees and non-employees) engaged in the business, adjusted for investments in the workforce, such as talent acquisition and development, or changes in workforce engagement or impairment of skills.”
CHRO engagement
Ravin’s presentation sparked a debate among the CHROs with many agreeing that measuring HR and its impact on an organisation is critical.
JSE’s HR director Donald Khumalo said the conversation has changed his mindset, “What Ravi shared this evening got me thinking differently and I have been sitting as a quiet student, taking copious notes on how we should be transitioning ourselves from our current approach of human capital metrics reporting to a level of a deeper meaningful engagement around data.”
SNG Grant Thornton’s people and culture leader, Neridha Moodley agreed with Ravi that HR metrics are no longer nice-to-haves but are a must for any HR team that wants to succeed, “We are reaching a stage where if we don’t start looking at these sort of metrics as professional services firms in South Africa, we are doing ourselves a big disservice."
She added that for a long time in her organisation, leaders have been asking what the metrics that they should be looking at from the HR perspective are, “And I am very keen on learning more and taking back to the organisation those that Ravi has shared with us because I believe that they will help us in understanding areas that need to be looked at in terms of competency for the future.”
Jason Bonehill, Group’s HC Projects Manager at Barloworld, said as much as HR metrics are gaining exposure in other countries, “I have attended a number of conferences where we talk about changes in terms of human capital and how we need to measure and get more comfortable in quantifying things but practically that is not my experience from an industry point of view. We have a lot of these conversations but I am yet to see those transitions happen in organisations where human capital becomes more comfortable with the use of data and puts in place quantifiable metrics to track whether we are winning or losing.”
Independent HR consultant Dolores Mashishi said she has been in remuneration committees most of her life and they have never been able to find a people metric that aligns very closely to the financial metrics, “Financial metrics are quantifiable and there are numbers that the board can see, be it Ebidta, Roic, and other metrics. We cannot use financial metrics when referring to people data around things like culture, engagement processes, and motivation.”
The CHROs in attendance debated these points enthusiastically, highlighting that this is an extremely relevant topic to their profession, but that a lot of thought still has to go into exactly how to apply these ideas. It was clear that they were going to be thinking about the topic – and perhaps even applying some of the metrics – in the coming months.
