SEC Guidelines on HC Metrics

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Gerry Crispin 0:18
Here’s, here’s what the the the the hour is going to be like, if you have not been reading anything about the SEC guidelines, and the new requirement for human capital metrics, I think after this conversation, you will be very interested in it. I do want to provide a little bit of background but I’m going to in a couple minutes, introduce Dr. Solange Charas who will help us take a look at one or two of these key metrics that are out there some of the work that she’s been doing for some time, that I think are going to be foundational for many companies going forward. And so I think it’ll be an interesting ride for sure. A couple things. For those few of you who have not been involved with CareerXroads in the past, we are a community of talent peers. So this is a group of peers and colleagues who kind of help one another. We’ve got about 150, corporations and brands heavily involved in our community. And and we have a small but powerful little group of folks, obviously, including Chris, and Barb. And you can wave as I say, your name and Shannon. And, and a whole host of folks who are helping us in a variety of different ways to get get things done and to curate content and make sure that you have what you need. Clearly, our community resources are a fairly large range of things that engage folks from a community point of view and being able to talk to each other online as well as face it used to be face to face. And hopefully soon, we’ll be back to some face to face, which would be kind of key. But we’ve been experimenting this whole year with different ways to approach meetings. And to keep our members and our friends apprised of some of the key issues that we think are happening. And I’m convinced that the announcement that the SEC made in August 26 is in fact, probably one of the most powerful things that will happen has happened in the last 20 years, in my opinion. And it’s probably over the next two to three years will work itself out and kind of interesting ways. But I don’t think anybody can is going to be able to avoid it. And this is just some of the some of the exchanges that our members are currently engaged in in talking to one another and benchmarking some of the things that they do. So today’s agenda really is to focus on a couple things. One, I do want to take a couple minutes to tee up, what I think we’re going to be able to learn and understand in the conversation that we have with Dr. Charas. So I want to give you a little bit of a backstory on why the SEC announcement is transformative. For those of you who have not delved into it yet, and then spend some time with Dr. Charas, to really focus in on some of the work that she’s done. And the calculations that she’s looking at from a human capital ROI point of view, I think they’re important. I think they’re part of the kind of metric that most corporations will probably incorporate. But obviously, there’s a there’s a lot of conversation going to be going on around that. And then anywhere along, but certainly I want to I want to provide a little bit of time for any kind of open mic so that there’s conversation here that we can use to help inform our members. So Dr. Charas, would you just say hi?

Solange Charas, PhD 4:08
Hi

Gerry Crispin 4:10
There good. I know you’re, I know you’re, you’re voice works. So that’s a good thing. So it’s great. And Dr. Charas has been active for quite a while in a variety of different roles. But I think what what brought her to my attention was a roundtable that I I listened to her talk about some of these issues, particularly the human capital ROI. And I was just entranced by the fact that she has a company that she dared to call Human Capital Moneyball. I just thought that was a fascinating attraction just for me from that point of view, but she teaches as a professor at Columbia University in New York University, and USC. She’s a Distinguished Fellow at the Conference Board, so she’s very active in some of the the kinds of communities and organizations that fundamentally are doing some, some critical research for corporations, as well as her involvement in, in her colleges case, Western Cornell and UCLA and Berkeley. And so I, you know, that’s that’s for me, she’s got a very long resume. I just stuck a couple key things in there that I think helped people get it. So I want it what I want to do is to give you a fast, brief overview that sets up I think, the conversation with Dr. cherisse. I don’t want to spend too much time on it. But I think the critical things for me this is my take, is that August 26, there was a kind of a quiet ruling by the securities exchange commission said they wanted to modernize the regulations and disclosures for quarterly financial filings and annual reports that added human capital resources as a separate disclosure item. And, and that was pretty much it. In some respects, what I was fascinated by, I don’t know if anybody knows the answer to this. But previous to this, what was the one human capital measure required prior to this announcement? I know, you know that.

Chad Godhard, Assurant, Inc. 6:22
Oh, number, number of employees,

Gerry Crispin 6:25
Number of employees. That’s it. That’s all you had to say. And but in every single annual report, what do you usually start out with that human capital is our biggest asset, right? So some companies are probably lying about that, but no one’s holding them accountable in relation to that. And that’s kind of the key. The SEC, is an extremely powerful organization founded in 1934, in part to reduce investment fraud. And for years they built. I mean, there’s other things, obviously, but I’m just giving some highlights that hit me. And one of them is that the financial measures have been established for many, many years. And they were established at a time when you focused often on the tangible assets to determine the value of a corporation that you would invest in. But that has changed over the course of the last number of decades. So most companies now view some of those intangible assets, particularly human capital, as the critical asset that we have yet we are not putting metrics together for that, that are that you’re held accountable for. And so that’s what the biggest issue and change is. And so from my point of view, there is a quick backstory that I’ve confirmed from several sources that a group of 26 institutional investors like fidelity, who have 3 million $3 trillion in assets to invest in stocks last year petitioned the US Securities Exchange to do this, because they want to change the way that they invest in stocks in the future. So imagine, for the moment that you are a CEO of a corporation, there may be a lot of things that you want to do that are good for the world and good for your company. But one thing you do want to do, and that is something that’s good for you, you want to make sure your salary continues, and you want to have a good bonus. And Jerry, we think this was the catalyst. I think this is the catalyst. I think, if I’m a CEO of a corporation, and I know that my stock might get changed, not based on what I’ve been doing, but what I’m I either fail or do do in the next few quarters. I’m, I’m convinced I’d be all over this with the CFO, and then quickly with the chro. And then kind of the ship keeps on going downstream from there. So you know, I just think this is coming. I think it’s still at an early stage. I do think it’s going to be a couple years before you all settles out for a variety of reasons. But I think this is the most fascinating thing I’ve seen in a long time. And there are a couple key things that were in what the SEC did say they said and and when I was talking to Dr. cherisse, this came up a couple times to is is at some point, the company has to determine what is really material to how they how they manage human capital, how they manage their workforce. And that’s what they have to be able to declare and make some metric on they have to be able to disclose around that. That that they gave Non exclusive examples for the human capital measures, but they didn’t require a specific one in their in their announcement. And so that’s where some of the pushback is, I’m going to wait until somebody gives me a requirement. You know, it might be too late. I’d much rather be upfront around this, I would rather be advising my managers and my bosses that we should be determining what’s best for our organization. And, and one other piece to this, because there’s two more slides that I want to make sure I met I mentioned. But those non exclusive examples, all came word for word from a publication that was published from a, from a, a paper that was written and published in 2018, which I’ll get to in a second. And the last piece was that as part of this example, they said such measures as that address, attraction, development and retention. So that puts TA, it puts learning, and it puts anybody who’s in charge of retention in, in the, you know, in the sites,

Solange Charas, PhD 11:18
It’s everything,

Gerry Crispin 11:19
It’s everything. So this is the last piece of this. And I want to encourage all of you, if you haven’t downloaded it to go do it, um, that the publication from 2018 is ISO 30414. So if you go to ISO org, you look for 30414, and you have a credit card that will take on $138. You can have this and I don’t get any piece of that, by the way. But I’m sure that the ISO is making a lot of money. With all the people downloading this to try to figure this out, I would think

Solange Charas, PhD 11:57
You would think

Gerry Crispin 11:58
I mean, it’s certainly going to happen shortly. Now, here’s the point about this in this document, there are standard definitions there. Obviously, they have this is a kind of a foundational point of having a conversation, rather than, you know, a fait accompli, these are de facto choices made by 40 countries approximately in agreement, and they came up with 58 human capital metrics, one of which is human capital ROI. And I don’t even know if their definition is similar to yours. Dr. Charas, but I have a feeling it’s close.

Solange Charas, PhD 12:46
It’s exactly the same, because what we’re trying to do is create global consistency. So that when you read in a financial statement, this is our HCR o y, you know that there is a standard way that that has been calculated, like good, an ROI, or an ROI, or an inventory turnover, any financial calculation, what ISO is trying to do and what practitioners around the world are trying to do is create a standard way of calculating these numbers so that they’re reliable, they’re valid, they’re consistent, and you can benchmark against them.

Gerry Crispin 13:23
Right. Good. And so is there a segue for getting in? Go ahead. I’m sorry.

Cathy Hennessy, AdventHealth 13:29
For some reason my video won’t turn on Gerry’s this chart right here a part of that download?

Gerry Crispin 13:37
Um, no, actually, this was this is pulled from that that document. And it comes from a slide produced by one of the folks who actually participated in a guy named Zahid Mubarak, who heads up the ISO committee in Pakistan. I and I think there’s a certain irony that there’s there, there’s, there’s a whole group of people in Pakistan that know more about this stuff, and are working to develop and improve on those standards as we speak. So that’s just, to me, it’s fascinating, but you will get a copy of this deck.

Cathy Hennessy, AdventHealth 14:17
Okay, great. All right.

Gerry Crispin 14:19
So that’s, that’s not a problem. You can, what you’ll see in the document is essentially a a long list of definitions. And and what he did is he pulled from those definitions and brought pull them into the various components that that they had conversations on, but keep in mind, this took two to three years to get to this level.

Brad Cook, Intuitive 14:42
So let me just clarify this, this ISO. This is $1. This document here, this is part of the SEC requirements.

Gerry Crispin 14:51
No, no. So let me let me be real clear. The SEC never mentioned to my knowledge The ISO document, they did, the SEC did was say you need to you need to produce in your filings and your annual report. What matters, okay in how you manage folk. And and here are some examples. And when they describe the examples, they used this document, I would claim that they use this document because I went match word for word some of the stuff. But you won’t find a better I think starting point. Dr. Charas

Solange Charas, PhD 15:36
Yeah, so let me um, it isn’t my turn to talk. Are you done, Gerry?

Gerry Crispin 15:41
Yeah, pretty much. I’m pretty much done unless there’s any particular questions.

Michele Santoro, AARP 15:44
But I have a question.

Gerry Crispin 15:46
Yep.

Michele Santoro, AARP 15:47
Can I ask a question? Oh, thanks. So are we suggesting that what is in this ISO 30 414, which the SEC document references as an example, that if I was a publicly traded company, my ta tm will be part of the evaluation of what investors would want to invest in? Are we suggesting that ultimately, we’re going to come up with how we’re going to be, we’re going to have real formulas for how to calculate 27 through 38, that is going to become uniform? I’m just want to make sure I’m connecting the right.

Gerry Crispin 16:19
I’ll give you my opinion, then we’ll start moving into what Dr. Charas can offer. My opinion, is this. The answer is right now, and we’re talking about it early stage, the SEC is saying every company has to determine for itself, what matters. And if they if they want to claim that humans have nothing to do with the performance of our organization, they can do something. And then they don’t have to show anything. But But I don’t know too many companies that do that. And if they do say that there are some things that matter, then they’re going to have to identify what they are. And they’re going to have to show how they measure that. And they’re going to report that to all those investors out there, who will begin to consume this and start making choices about that. And then what will happen is an iterative process, in my opinion, over the next couple of years, in which some measures will be better than others, some measures may need adjustment, some measures may be more important for some industries than others. And so those things will evolve. And at the same time, some countries who might jump on this, including the US might start saying, you know what, we’re smarter than the companies. And we’re going to require by Fiat, that you do it, you do some some of these measures anyway. And if you look at what some of the states are doing, they’re already building into the law requirements around some of these these issues. So with that in mind, I’m convinced, and that’s one of the reasons why I asked Dr. Chaas to join us and appreciate the fact that she did is that’s the that’s the last slide is, is I would like to I’d like to focus a little bit on some of her work in relation to to all of this because she’d been doing it for a while, and particularly the human capital ROI metric. Okay. And I do think we need to potentially give you capability to share your slides. Is that true?

Solange Charas, PhD 18:40
Yeah, I just have one slide that I want to share. So okay, mine letting me do that.

Gerry Crispin 18:45
Oh, can you help with that Barb? Or do I have to do anything?

Barb Ruess, CXR 18:49
Gerry, if you stop sharing, then she can start sharing now.

Gerry Crispin 18:53
Okay, I did.

Solange Charas, PhD 18:54
So and thank you for asking me to speak to your group. I’m very excited to do so. Just a little background on me. I know that Gerry said a few words about what I’m currently doing. And you know, when somebody says she’s got a really long resume, or she’s, you know, done a lot of things that equals old, so I, I am old, I consider myself to be a junior senior. I’m in the senior category. doorstep. I’m not over the threshold yet. But I’ve done a lot of jobs. And I know it’s not nice for women to say but I’ve been around. So seeing a lot of things from a lot of different perspectives, being a client server and two big four accounting firms being the head of HR for three large organizations. So I’ve seen both sides. Now I’ve served on public company boards as a board director, chairing the non Gov committee. I’ve served boards as a client server. I’ve been on nonprofit boards I’ve been on for profit boards. In a public company boards, I’ve been on private company boards. So I’ve seen this. I’ve seen the role of HR, the impact of HR from every different angle, including being an employee. Right. So we can’t dehumanize it. I’ve also been an employee. So I’ve been around, I’ve seen this, I have been in the human capital analytics space, believe it or not, you guys think it’s a new thing? Right? Oh, human capital analytics, that’s a few years old. I’ve been doing this since 1996. So, like, a long time. So um, we finally are in basking in a few rays of the sunshine that’s going to shine on human capital and human capital analysts, because of what’s going on in the world right now, both from a social perspective, from the human perspective, as well from as the corporate perspective.

You know, another thing that people are probably thinking is, oh, this whole thing about human capital disclosure, that’s new. It’s not new. It’s been going on for a long, long time, we finally got some attention on this because of the SEC. So what I do want to do is I want to share with you something that’s going to be in an upcoming report, published by the Conference Board, which is a report that I’ve researched that I’ve been working on. For the last year and a half. We brought together a working group of Corporate Directors, human capital, experts, legal experts from public and private sector, we brought in investors from like investor community, so institutional investors and individual investors. And we had a series of five meetings with this working group, we had more than 250 professionals participating in these working group sessions, to really understand the question of does human capital management matter for corporate governance. So we’re looking at the intersection between ESG environmental, social governance, which is sort of the evolution of CSR, corporate social responsibility, and human capital management. So if you think about ESG, environmental, social governance, that environmental is easy, you know, looking at carbon emissions, looking at carbon credits, looking at the green aspect of how corporations perform in terms of their responsibility, their governance responsibility. The last part is social. So how do we deal with our communities? And what impact do we have on the social landscape? But that also includes how do we deal with our employees? How do we manage employees? So what we did is we basically looked at a bunch of governance monitoring agencies, because these are the people that were interested in ESG. And you can see across the top, we’ve got a whole bunch of governance monitoring agencies that we looked at that HCMC is the group that Gerry was talking about, that has $3.6 trillion under management. These are the big institutional investors. They are a consortium, the HCMC is called the human capital management coalition. It’s a consortium of large institutional investors, mostly pension investors. The UAW, led by Meredith Miller is the head of the HCMC. But CalPERS calsters is their CalPERS and CalSTRS. Is there. large, large institutional investors, and they all got together and they’ve been working for the last, I’d say, at least seven years. To understand from an investor perspective, which organizations are treating employees well, and which employee employers or not. And is there a relationship between the way employers are treating their employees and a return on investment? And the HCMC came up with the answer that yes, they they, it does make a difference. And how did they know that they started talking to big employers, Coca Cola, GM, Walmart, they went and started talking to big companies to understand their programs around human capital. And they determined that there is a relationship between how employees are treated and whether or not investors are getting a return. That’s when they put together the letter to the SEC. And the letter is 20 some odd pages, which I’m happy to share with you that has about 100 and some odd academic references. So this isn’t just Oh, it’s our belief, it’s actually bringing together practitioner and academic observations. They petition the SEC, back in 2017. And they said, as investors, we believe that we cannot do a good job investing for our members, our pension ears, and less we understand how companies treat their employees, and they treat their employees through their human capital programs. So we actually have to understand whether or not companies are optimizing their investments in human capital by servicing their employees, because that in turn, turns around and creates economic value for the ambassador. The HCMC, which is the first column here is included because they were very prescriptive in their letter to the SEC saying we want to see these metrics, we want to see occupational health and safety performance, we want to see diversity, we want to see training we want to see, you can see the list employee engagement employee benefits. Now HCMC didn’t ask to see employee recruitment, but you can see that others do. They want to see employee turnover, human rights cost. They didn’t ask for information about labor and management relations, but they asked for productivity. So you can see what the HCMC looked looked at IRC, ISO GRI, the World Economic Forum, in conjunction with the Big Four accounting firms, ISS, institutional shareholder service, SAS B, and the UN SDG. Have all asked for information to be reported, so that they have a sense of governance around the ask part of ESG. The S is mostly human capital. So I don’t want you guys to think that the SEC woke up one morning said, oh, maybe we should ask companies to report on how they perform on their investments in human capital, whether or not that’s material, which we all know it is wink wink, nod nod. They didn’t just wake up one morning, there is a wave a tsunami of pressure, that that was building up to the SEC, finally taking a position. So I’m happy to share this slide with you. There is like a 25 page report that’s going to be published from the Conference Board at the end of this year. I don’t think it’s going to I think they’re really going to try to push it out before the end of the year. If not, it’ll be like the first week of January. And you’ll be able to read the report. Let’s see stop sharing, you’ll be able to read the report and see how the how the conference board with that working group actually tackled this concept of human capital management isn’t material doesn’t matter? Who should be looking at it. Who in HR who, in finance, who on the board? What are the resources available to great report. So you know, you can reach out to me, I’ll make sure that you get a copy of it, it’s it’s public, so you’ll be able to access it without paying for it

Gerry Crispin 28:22
me most of most of the folks on this call, by the way their companies belong to the Conference Board.

Solange Charas, PhD 28:28
Perfect than they are gonna get it anyway.

Gerry Crispin 28:30
Well, they may they may not get it, but they should know that their boss’s boss is probably getting it.

Brad Cook, Intuitive 28:35
Um, so a question about timing on this?

Solange Charas, PhD 28:39
Yeah.

Brad Cook, Intuitive 28:39
What’s the timing of something supposed to be done?

Solange Charas, PhD 28:43
Yay.

Brad Cook, Intuitive 28:45
Because if this is if this is like I would have CCP I’ll probably be dead before this happens.

Solange Charas, PhD 28:50
So you should know that the SEC modernize their reporting requirements in August, and the deadline for reporting started November 9. So on November 9, companies that are submitting are filing either their 10 Ks, their 10 Q’s, their proxies, or any information related to rule to rule 101 anything in rule 101 that human capital reporting is in rule 101 c section 101. c.

Brad Cook, Intuitive 29:27
So if there was only but that was only that one, that one human capital metric, though

Solange Charas, PhD 29:32
No, no, no, that one human capital metric has been required since 1934.

Brad Cook, Intuitive 29:39
Right. Okay.

Gerry Crispin 29:40
And that’s was it this is why it’s such a sea change, Brad.

Brad Cook, Intuitive 29:45
So I just got to figure out what what are the metrics that they got a one because I’m sure it’s gonna hit my desk at some point.

Solange Charas, PhD 29:51
Don’t worry about that for the moment because the way that the SEC has framed this requirement is if it is material. So organizations have to determine on their own, whether or not it is mature human capital is material, what aspect of human capital is material. And that’s what you need to disclose. Now, what most companies are disclosing right now is around diversity. They’re not getting sophisticated, they’re not even saying whether or not diversity is driving performance. They’re just now being disclosure forward and saying, This is what our diversity looks like. And most organizations don’t have a policy around human capital materiality. So you want to you want to be thoughtful about this, right, you don’t just want to go out in the world and say, Oh, this is our hc ROI. I mean, I love the slide that summarizes the ISO 3414. It’s a beautiful slide, it gives you a lot of ideas. But that doesn’t mean that you’re going to report on 54 items. And by the way, to create those 54 items, you have to collect 145 data points in your organization. So

Gerry Crispin 31:10
this is a starting point, Brad. But the fact of the matter is, the there has been a significant increase in the number of suits by investors,

Solange Charas, PhD 31:19
Thank you.

Gerry Crispin 31:20
And as a result, if you don’t disclose what is material, and someone out there thinks that that’s that hiding, that is his is a problem, that you you’re now going to see suits that are going to get supported by what the SEC can control. And that now Now you’re going to have a harder time or you’re going to be hiring a lot more lawyers. But I’m convinced that we’re going to see a lot of things driven in the next couple years. So I think that I think the kick for This to me is is the organization selecting what they think is relevant, right. To report out on and and and whether or not what they have selected warrants or justifies a lawsuit or does not justify that lawsuit.

Solange Charas, PhD 32:06
Exactly. So here’s the here’s the key to the SEC disclosure requirement. The key to the SEC disclosure requirement is that it is principles based, right? Which means that every organization is going to view what is material to their organization differently. The SEC absolutely did not want to come out with a cookie cutter approach. They did not want it to be like Sarbanes Oxley or Dodd Frank where it’s a check the box because that misses the point. The point is, this is principles driven, policy driven, not reporting driven. So what I would say is work with your accounting firm, because SAS B has this list of what they want to see, but it’s FAS B, that’s going to drive what gets reported because faz B, the Financial Accounting Standards Board is going to be the one that’s going to be the arbiter of whether or not something is material or not. And your accountant, your accounting firm and your CPA will get be closer to that than you will. Right so my first recommendation to you is get close to your CFO get close to your external, your auditor, your outside accountant, and Ernst and Young my alma mater, and parents ethically the best place I ever worked. Yay, Ernst and Young came out with a document called How to approach the SEC’s new human capital disclosures. They did a paper you can type in in Google, How to approach the SEC new human capital disclosures and Ernst and Young and it will give you a hotlink which will give you this report I don’t have the front page the front page is just a picture. This is the first page of the document. Neri Bucksfan was instrumental in this document and Neri and I did a webinar together with Larry Beeferman. I hope that name sounds familiar to you Beeferman and Bernstein wrote a paper called the Materiality of human capital on corporate financial performance, Bernstein and Beeferman were both Harvard Business School. Well Beeferman is Harvard Law School, I think. Bernstein is Business School, and they wrote a paper about five years ago. The paper is actually a meta analysis of, of academic research that has been conducted in the last 20 years on the materiality of human capital on corporate financial performance. So Beeferman, Bucksfan, and I did a webinar on the materiality and you could, you can probably find that someplace, I think it’s on YouTube. But let me just show you how Ernst and Young is thinking about it. Right. This is the last page in their report. And basically, Ernst and Young is saying, you need to think about three big chunky areas, human capital deployment, which is going to include workforce cost attraction, recruitment and turnover, workforce composition and diversity training, learning and development. That’s one sort of category that could be material. Another category is employee health. So engagement and well being right, that will require that you actually create data, right? Because if you want to understand employee engagement, or absenteeism, or mental health, right percent of employees participating in health and well being programs.

Gerry Crispin 35:57
So let me just ask us a very operational question. If in fact, you have declared that materiality includes understanding and improving engagement of my workforce, and that you’re using x approach, I don’t know, Gallup, whatever to measure that you got, and then you You are one declaring it, but you’re also reporting what the outcomes are,

Solange Charas, PhD 36:24
Right. Well, okay. So here’s where here’s where we have an opportunity to really make a difference. There’s a difference between reporting data, right, and reporting how that performance performance in employee engagement or well being or diversity, right, impacts financial outcomes

Gerry Crispin 36:49
understood.

Solange Charas, PhD 36:51
And I’m going to tell you something about some research that I’m doing also with the Conference Board with but with a different unit, about human capital analytics, as a driver of enhanced performance.

Gerry Crispin 37:05
So that’s, that is a critical issue for me, for you to be able to share.

Solange Charas, PhD 37:10
So let me close this filing cabinet drawer, because let me tell you about the third category, which Ernst and Young calls organizational culture, ethics and integrity, alignment with purpose leading by example, performance and accountability, inclusion and well being. So you can see that amongst this long laundry list, we’ve got things that are very quantifiable, right, that are that are data driven. And we’ve got things that are policy driven. So if you as an organization says which companies that are reporting around diversity, our goal is to have X level of diversity in our organization, then you got to report on that. Right? If you declare a position, you have to actually report on that if you declare that diversity is material. And here’s our goal, you need to report on that. And as Gerry was saying, you don’t have to report if you don’t think it’s material, but if it turns out to be material, and you have not reported, you expose yourself to risk, and what is a board all about managing risk exposure. So you want to, you want to make sure that before you go to the board with a recommendation, you’ve actually tested this out quantitatively, to make sure that it is material to the organization, it has an impact on corporate financial performance. And you’re doing that in conjunction with your advisors.

Gerry Crispin 38:44
And and I think the key issue for those of you who are leaders in talent acquisition or talent development, the real lesson here is that when you’re building a business case, to improve your budget, or to sustain your budget, in order to invest in programs that you think are material, if you will, to the success of what you do and what your corporation does, you need increasingly you’re going to be aligned, if you will, to the work that your corporation has decided, is material. It’s right. And that gives you a context for building business cases in the future that will sustain your budget or improve your budgets to do the right thing. That that hat for the for the corporation as well as the people and I’m just fascinated by this pivot if you will, in having a context a better context to to defend your budget, or improve it based on what your company should be doing. And maybe obviously if they recognize you can help them put that together. It improves your position as well within the corporation.

Solange Charas, PhD 40:04
So let me ask a question and with a show of hands, just tell me whether or not your organization uses human capital data analytics to understand program performance. Right. None, none of your organizations are using data analytics, I

Gerry Crispin 40:29
I think that

Melissa Thompson, Nielsen 40:30
We’re, of course, using data analytics, but kind of the way you phrase the program, the question, several of us just kind of lean forward and said, what is she really saying?

Gerry Crispin 40:39
So So raise your hand if you if you have a data analytics person that is full time in your organization working for either you or HR?

Melissa Thompson, Nielsen 40:49
Both?

Gerry Crispin 40:49
That may not be the the best solution for all of that, but at least you’ve got some kind of professional whose responsibility is HR data analytics kind of thing?

Solange Charas, PhD 41:01
Yes.

Chad Godhard, Assurant, Inc. 41:01
And I think the gap, though, is how is it being applied? Right, right, well, is it being, you know, aligned to those particular, you know, metrics, or it will be down, it will be accurate to the ISO standard? You know, probably not right. Some may be closer than others. But,

Solange Charas, PhD 41:21
And you asked me, you asked a really, really good question. And that’s, and that’s the important question. However, we were doing research now with the Conference Board members, many of you are members, maybe even some of you even filled out our survey, we sent out a survey in February of 2020, right before COVID, which looked at the the survey was asking you to respond to data analytics to inform the employee experience. Right? I don’t know if you any of you remember that survey. We did it in February, we did it again in October. So we’re comparing pre COVID. And during COVID, corporate response, and we’re gonna release that report sometime, maybe early second quarter of next year, because we’re just doing the data analysis now and the writing that let me tell you what I found. So it’s really kind of interesting that we’re looking at data analytics as the survey topic. And the way that the Conference Board does their own analysis of surveys, is really by looking at prevalence. And what I decided is, this is an a data analytics survey, a data analytics report, we are actually going to apply data analytics to our data. So instead of just feeding back prevalence, we’re actually doing diagnostic and predictive analytics on the data that we got from the surveys. We got about 100. And some odd, a little over 110 respondents company respondents, of which 80 were public companies. And I’m interested in understanding company performance, financial performance. So what we did is we started looking at the data. And what I was interested also interested in is does having a dedicated data analytics function in your organization matter. And what we learned is it does so based on the survey responses that we got, plus curating financial information from public companies, so we’re used financial, you know, statement data. Here’s what we learned. We learned that them the hc ROI. And we can calculate that because it’s a standard calculation. It’s embedded in the ISO 3414. But I’ll tell you what it is right now. So you’re not in the dark. hc ROI is calculated by taking your company revenue, subtracting from your company revenue, company operating expenses, but you need to adjust the operating expenses by your total human capital cost. Right. So you’re going to take all expenses, and you’re going to subtract out human capital related costs, the majority of which are going to be comp benefits and retirement, that’s probably going to be between 80 and 90% of your total spend on people. So if you don’t have the whole number, just subtract out comp and benefits and pension expense and you’re close enough. So you’re going to adjust total expenses by human capital expenses, subtracting it out And that’s going to be your numerator. So your numerator is revenues minus operating expenses adjusted for human capital costs. And you’re going to divide that by human capital cost. So what you’re really seeing is a true return on human capital investment. Every dollar you spend, what’s your hc ROI? And that formula will help you calculate that. It’s going to change from industry to industry, because certain industries are very human capital intensive, and others aren’t. So for example, a real a real estate investment trust has a lot of revenues, a lot of assets, and two or three people, right. Whereas a financial services firm like JP Morgan Chase, or Morgan Stanley, it’s going to be very human capital intensive, where probably 70 or 80%, of what their total expenses are, is human capital related. Right. So it varies by industry. What we found in our survey is organizations that don’t have human cap dedicated human capital analytics, right, they’re not using data to inform their decisions have an average HD ROI of about seven and a quarter. So for every dollar, they invest in people, they get about a $7 $7 and 25 cent return. Now, also, let me just give you a little you know, the Conference Board members are typically large company, so our, our average market capitalization was about $100 billion. So these are large companies. Yeah. So just so you get a sense, we’re not talking about mid cap or small cap companies, we’re talking about large, large companies. So they’re on average, and again, this is all across all industries. Their average hc ROI was about $7.25. Companies in our survey that had reported had a dedicated human capital analytics function. Their average hc ROI was about nine tene. dollars 19. I wrote over this number, about $19.75. It’s about 270%. More hc ROI for organizations that had dedicated eight human capital analytics functions. Now, also think we’ve got an our average market capitalization is about $105 billion 100 billion dollars. These companies don’t have dedicated human capital analytics functions. That’s a little odd. But it’s true. There are organizations that don’t see any value in human capital analytics, and they’re paying the price for that. So the first thing we saw was HC ROI goes up. Why? Because whatever you measure improves, right. That’s Michael Porter. If you’re not measuring, how do you know how you’re doing? So this makes sense. The other thing that we thought was really, really interesting, is efficiency. Right? So it’s one thing to get a return on investment. But it’s another thing to improve overall efficiency. Right? How how efficient is every dollar being spent? So we’re actually prioritizing where we’re investing, and we’re getting efficiency out of that not necessarily return but efficiency. And what we found was that organizations that had dedicated hc ROI functions are about 14% more efficient than companies that don’t, what does that mean? That means that their total their the intensity of their investment in human capital does not have to be as high as organizations without human capital analytics functions to achieve the same outcome, the same productivity outcome or the same profitability outcome. And we put this in a structural structural equation model, structural equation model. We did predictive analytics, and this is what we found, we found a very strong correlation between predictive and, you know, predictive indicator that companies that have dedicated human capital analytics functions are more profitable, and their employees are more productive. So don’t necessarily worry about the insights that you’re getting. That’s really important worry that you have At dedicated hc func hc analytics function, and then use what you’re finding in those analytics to inform the way that you make decisions around people programs, and people investment. Brad, you had a question?

Brad Cook, Intuitive 50:17
Yeah. Everybody knows me, I’m jumping through a lot of things in my head. Yeah, going back years ago, Cisco, we’re always doing a to b and employee. Yeah, this is 15 years ago. And I’m still struggling to draw a correlation to that argument of having a dedicated analytics team, which organizations have have had that. And if I now apply the same principle, at intuitive were very lean machine. Anyway, irrespective of the HR data side of things, I’m still trying to grasp, an organization that’s naturally lean, is gonna have a higher ROI. Anyway, whether we do or don’t have hcm analytics, I’m still struggling, I need to go and read this report to say what else is there.

Gerry Crispin 51:06
But you’re also here, here’s one thing that that is independent of this. And that is the attention that the CEO will give to human capital metrics, has to go up in a public Corporation, in which he or she has to now report to financial investors, some kind of set of measures that will probably evolve over the next X number of quarters, they will pay much more attention to it. So if you’re making a claim, that there are programs in which we could improve our focus on how we invest in our people, they’re going to be paying much more attention to how that aligns to the measures that they’re going to be reporting. And so what I see is much more alignment, if you will, and attention being paid at the c level, to the into what you want to do to improve the organization. Right.

Brad Cook, Intuitive 52:17
And I don’t I don’t disagree, whatever gets measured gets focus. Absolutely. But if you think about, yeah, five or six years ago, when the Googles The, the the Facebook started even talking about publicly, then diversity data, Has anything changed in that? Probably not, we talked about it that we already know, it hasn’t really moved the needle. So I get it may get attention. But until something happens on the other end, that’s gonna force the hand like, yeah, I can fast forward and say, well, you look at the profitability of a company and invest based on this. That’s a pretty interesting metric when you start thinking about investing in companies.

Solange Charas, PhD 52:54
Yeah. And if you think about what the HCMC was saying, and again, I am happy to share that 24 page paper that they sent to the SEC, because that was sort of like the foundation. And then they actually the SEC actually opened it up for comment. And that comment website stayed open for about a year. And you should see the comments that actually drove the SEC to saying, Yeah, we probably should ask companies to disclose on human capital, but we are not going to be the ones to tell you what to disclose. What they basically did is there they defaulted to the investor community, the investor community is going to now say we want you to sit we want to see HD ROI, we want to see attrition, we want to see diversity, we want to see equity performance, that investor community is going to be the 600 pound gorilla in the room, not the SEC.

Gerry Crispin 53:57
Yeah, they’re going to consume this information and make their own judgments. And that feedback of the judgments they make is going to inform you how you’re going to operate. From that point of view. I do want to point out that when I first saw Dr. chera, she was giving a case study in which she was examining over the course of several quarters, the hc ROI of a given company again, it’s an anecdotal thing rather than a large statistical thing of a lot of companies. But in this particular case study, she was showing or demonstrating that, that a company that was reducing its investment in people was still showing some interesting good financial growth, but not anywhere near the growth that the industry was getting. And so they were improving their performance, but not at the rate of their competitors who were making higher investments in the people within the organization. And if I were an investor man. Having data like that would certainly help inform me which stock I’d be placing my bets on. So I think that has a pretty interesting impacts.

Brad Cook, Intuitive 55:12
And I’d love to see that report if we’re able to share that that’d be

Solange Charas, PhD 55:16
I can share, I can share the graphic that I think Jerry was, is referring to that, what can we anticipate with a Biden Harris administration? Right. And I think that it’s everybody is asking about that. So the first thing is, we know that the SEC was influenced by the ISO, but influenced by the HCMC. And they basically said, we’re not going to do something prescriptive, because that doesn’t work. We seen that that doesn’t work, we’re going to let the investor community determine based on what how they view investments, what they’re going to ask companies to disclose. And it’s going to be companies like Calstiers, and Callpers, and Uber’s. And, you know, Walden financial man in the State Street and BlackRock, they’ve all already come out and said, We want to see ESG information. But the idea is we we as hc, people have to become very financially literate. We can’t just say, Oh, we’ve got good culture, and we’ve got good, you know, engagement, that’s not going to cut it, what’s going to cut it is HCROI is improving. HCBA is improving our human capital market value is improving, you have to actually speak a financial language, so that the CEO and the CFO will understand what you’re talking about, because they don’t understand culture, they don’t understand engagement.

Gerry Crispin 56:41
I think there’s going to be some interesting sets of issues. I do want to be respectful of the time, because we did plan for about an hour. Um, I do want to do one thing. Well, Dr. Charas just explained that that particular

Solange Charas, PhD 56:57
I’m happy to stay on for a little bit longer, I’ve got another call coming up. But I can stay just a few more minutes. But this is a client that is in our human capital, our hc Moneyball platform called hc metrics. And these are the kinds of things that we allow users subscribers to create for themselves, the blue bar because that legend is too small, the blue bar is the clients EBITDA performance month by month, the orange bar is the EBIT performance of a filtered set of competitors that that that subscriber wants to look at. So we’ve got all public company, and they filter it based on si si code based within the si si code based on size, revenue, size EBIT de size. So they get to pick the competitor group against which they benchmark themselves. And you know, you can see that their EBIT, does going up month by month, any CFO, if they’re just looking at the blue lines would say, yay, we’re, we’re good, we’re doing well. But if you compare it to the orange bars, you can see that they’re dropping behind their competitor groups pretty quickly. By the end of the year. They’re they’re lagging. And the two lines, the purple line is the competitor, group, hc ROI. And the gray line is the subscribers HD ROI. So their HD ROI went from $4.60 down to about $4.10, which doesn’t sound like it’s a big problem. But you can see that poor hc ROI performance is dragging down their EBITDA performance. And we know that they’re related because we use the same numbers to calculate. Right. So this is a visual representation, that will be very useful in the boardroom. Right. And that’s what we’re saying is that we’ve got to change the way we communicate and interpret what we’re doing.

Gerry Crispin 59:04
I you know, I really appreciate the time that you spent with us, Dr. Cherish I think it’s fascinating

Solange Charas, PhD 59:10
We are down to people in this room. So

Gerry Crispin 59:11
I know we’re we’re kinda ending it, but I think what we’re committed to doing is helping to educate our members on some of the opportunities and in our alumni and friends on some of the opportunities that are out there and where they’re going. So appreciate all your time and effort in relation to this. I look forward to chatting with you in the future.

Thank you very much..

Thank you very much.

Solange Charas, PhD 59:38
I enjoyed speaking to all of you thank you and thank you for participating your questions were great.

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