As companies look to reset for the new world of work that emerges from the COVID-19 pandemic, it is essential for them to make several shifts in mindsets. In particular, the shift towards an approach that values talent as a key asset that contributes to an organisation's sustained value creation will be crucial, revealed a joint report by Willis Towers Watson and the World Economic Forum.
The report outlined a human accounting framework that can help organisations measure and quantify the contribution of their people in the same way it measures returns on financial and intellectual capital, as well as provided five workforce principles that can help guide employers to plan and implement an ethical and sustainable reset of their people strategies as they emerge into the 'new normal'.
It also shared seven guiding principles to shift how organisations value people. These include shifts from profit to purpose; corporate policy to social responsibility; stand-alone entities to ecosystems; and employees and jobs to people, work and skills.
Shai Ganu, Managing Director, Executive Compensation Global Practice Leader and ASEAN and South Asia Talent & Rewards Business Leader, Willis Towers Watson, said: “If you ask any Board Chair or CEO what their top priorities are, invariably most would cite People among top three issues. However, in most cases, the frameworks needed for optimal human capital management have been lagging.
"Human capital management needs to be on the Board’s agenda, the same way financial, technology, and operational issues are. Traditional HR metrics tend to be representations of what has happened in the past, such as employee turnover. To create a level of change requires a huge mindset shift on the part of shareholders and management, and companies need to consider new HR metrics that focus on forward-looking value creation for businesses.”
Excerpts of the report below.
The crisis, while having a highly disruptive effect on people and work, also presents an opportunity to take bold measures to shape a workforce ready to deliver value to the organisation, and to economy and society at large, as it navigates new realities.
At this pivotal moment, organisations should seek to work towards a more holistic approach to valuing the workforce and the return on human capital investment.
Having a robust framework for measuring and accounting for human capital would support a principled approach to workforce management. Such a framework would enable a company to monitor and assess the return on its investments in its employees – in the same way as it measures returns on financial and intellectual capital.
However, given the intangible nature of strong corporate culture, stakeholder leadership and employee well-being, companies have struggled to quantify the contribution of their human capital assets.
Earlier in the COVID-19 crisis, Willis Towers Watson and the World Economic Forum jointly developed five workforce principles to help organisations shape a responsible initial course of action in managing their workforces in changed circumstances.
These same principles can also help guide employers to plan and implement an ethical and sustainable reset of their people strategies as they emerge into the 'new normal'.
5 Workforce principles for an ethical and sustainable reset of people strategies
- See this crisis as a defining leadership moment
Continue delivering the best possible outcomes for all stakeholders. Effective leaders ensure the organisation stays true to its purpose, values and culture. They are transparent, empathetic and create trust, and their behaviour helps calm and support employees who may feel stressed and anxious.
- Adopt an agile and continuous learning mindset
The uncharted waters of this crisis demand agility and innovation to ensure responses are being recalibrated to a changing set of circumstances.
- Understand the perspectives of all stakeholders and engage them in decision-making
Maintain awareness of the shifting needs and priorities of all stakeholders and the evolving state of competitive and innovative practices.
- Focus on the intersection of employee and company well-being
Cost pressures place significant stress on leaders to meet the needs of shareholders at a time when the well-being of employees, particularly the most vulnerable, is being seriously threatened. But the risks to, and benefits of, employee well-being and company well-being are highly aligned.
- Make decisions and take actions that consider medium-term needs and longer-term business objectives
Organisations should avoid engaging in short-term actions that may compromise the longer-term sustainability of the business.
By designing with the constraints of today’s business environment in mind, organisations are able to unlock innovative ways of reimagining work and to build more sustainable business models; however, cost-effective and sustainable work redesign requires effective human capital accounting to provide measures for valuing all talent, including contingent workers, as an asset.
As companies recalibrate to the new reality, a focus on balancing company and employee well-being – encompassing financial, social, physical and emotional aspects – builds a pathway to generate sustained value for the business and workforce and support more human-centric outcomes in the world of work. Companies recognise the need to focus on employee well-being, but such efforts would be given a firmer foundation by better human capital accounting that demonstrates their tangible value.
7 shifts organisations can make to change how human capital is valued
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 requires having integrated and holistic measures of cost and productivity that capture the full range of ways in which work is organised and resourced, including those related to technology implementation to replace or augment work.
From a holistic perspective, 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 (TCoWTM) and the Return on Work (RoWTM).
Incorporating the framework into business decision-making: What it means for CHROs, boards, and policy-makers
Modern-day management systems and governance processes are predicated on frequent management and financial reporting, where management often must choose between satisfying shareholders and creating value for stakeholders and their workforce.
Although job cuts can help manage profitability over the short term, they have serious implications not just for the well-being of the people laid off and the broader community, but also for the business. Important know-how is lost, and future rehiring, onboarding and training of employees can be time-consuming and can ultimately create downward pressure on overall productivity.
Furthermore, in an increasingly socially and ethically conscious world, the brand could be harmed for consumers and an enterprise’s standing as an employer of choice could be jeopardised, putting the company in a less favourable position to rehire when demand returns. Workforce decisions during the COVID-19 crisis will have long-term effects on an enterprise.
To create systemic change, immediate management key performance indicators (KPIs) should be reviewed to balance the human and financial implications of the handling of the crisis and of other major business decisions, tending to corporate financial health and demonstrating leadership, commitment and alignment with employees, customers, supply-chain partners, broader society and environment.
KPIs should then evolve to incentivise a sustainable reset of workforce models needed to prepare the company for the future, including:
- Employee health and well-being
- Work redesign
- Return on Work
- Skills for the future
- Digital enablement
- Quality of employee experience
- Diversity and inclusion
This level of change will require a huge mindset shift on the part of shareholders and management; however, the timing is favourable.
The devastating labour market impact of the pandemic and the need for governments to step in and provide extensive support have made it clear that a financially incentivised business model driven by short-term wins no longer works; public and media focus on how companies manage their human capital resources is intensifying.
Enterprises, boards, CHROs and other supporters of human capital accounting need to ride the momentum of the crisis and communicate incentive changes along with risks and rewards to shareholders and key stakeholders.
For CHROs, this means, among other things:
- Actively using, socialising and promoting the proposed metrics to shape HR and leadership decision-making
- Expanding HR’s remit from being a steward of employment to being a steward of work by enabling the organisation to achieve the optimal combinations of talent and technology in order to achieve a sustainable employee experience
- Advancing the reskilling agenda with a clear understanding and quantification of the various drivers of “work readiness”, effectively matching changing work requirements to the skills and capabilities required of the workforce and the specific development options available to close identified skill/capability gaps
- Transforming the employee experience to ensure it aligns with the drivers of high performance, as described in this report, and the organisation’s broader social responsibility goals
- Aligning culture to principled workforce management, and defining, equipping and incentivising desired behaviours across stakeholder groups (leaders, managers, employees)
For boards, this means, among other things:
- Ensuring that reported metrics include human capital in order to hold executives accountable and accurately communicate risks and rewards to shareholders
- Actively monitoring human capital programmes and management’s progress against agreed-upon metrics
- Having stronger oversight of the company’s human capital strategies, talent management practices and employee well-being, and making human capital a board agenda item (i.e. not just leaving it to management)
- Expanding the remits of compensation committees to include human capital governance, talent management and succession planning, and organisational development
- Becoming custodians of corporate culture and setting the tone for a human-centric culture in the organisation - by placing the right people in the right jobs and by determining what performance is valued and which behaviours are rewarded
- Ensuring greater prominence of sustainable human capital performance measures in executive compensation plans
- Appointing non-executive directors with specialist human capital experience, similar to how boards view audit and legal experience as specialist skills
For policy-makers, this means, among other things:
- Transforming accounting principles so investments in the workforce are not penalised but are instead recognised as a source of value creation
- Creating a level playing field of equal protection for all workers, regardless of their employment status (full-time employees, part-time employees, independent contractors, gig workers, etc.)
- Providing incentives, reporting requirements and favourable tax treatment for prioritising human capital considerations and investments that enhance workforce value (e.g. training)
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