Principles & Framework to Measure Human Capital Value in Today's Time

As companies look to reset their people strategies in response to the COVID-19 pandemic, they must grapple with the lack of adequate metrics for valuing talent and return on human capital investment. Such metrics matter for deepening stakeholder engagement and to help drive and track decision-making in companies under pressure to operate more efficiently and become more resilient.

Under current accounting systems, workforce investments are reported as a direct hit to earnings with no recognition of the value created, while reductions receive favourable treatment and are excluded from core earnings. This creates a perverse set of incentives that encourages management to reduce investment in the workforce and treat talent as disposal.

Willis Towers Watson and the World Economic Forum have 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 to reshape human capital accounting as part of the Great Reset.

From this new publication, here are seven guiding principles to help organizations shift their thinking on how human capital is valued:

An accounting framework for human capital that incorporates these guiding principles needs to go beyond existing metrics. We propose a three-part framework that can help companies better understand how work and talent can create value in a post-COVID-19 workplace. Here are the

The employee experience plays a vital role in motivating all talent, from full-time employees to contingent workers, to create value for an organization and its stakeholders. Willis Towers Watson has developed an evidence-based model of employee experience based on organizational surveys of workers that identifies the most important experience factors, including connection with company purpose and colleagues, and contribution to work and rewards.

Using this model, it is possible to gauge employee sentiment regarding the quality of specific experiences at work in comparison to those of high-performance companies. Willis Towers Watson research shows that companies with a high-performance employee experience outperform their peers in top-line growth and bottom-line profitability.

Given the changing nature of work, companies need a holistic measure that accounts for today’s many options for getting work done. This requires determining the “Total Cost of Work” by capturing the cost and productivity of all types of talent (e.g. employees, gig, outsourced) and automation on a like-for-like basis and using the resulting output to measure the value gained or “The Return on Work”.

If the workforce is to be treated as an asset rather than an expense or liability, it is essential to have a metric that captures the total value of the workforce and accounts for factors that can cause a shift in that value. The “Total Workforce Value” metric will help organizations achieve this objective by first determining the market price of all talent (employees and non-employees) and then assessing factors that can add value, such as training and development, as well as factors that can reduce value, such as skills redundancy.

These three metrics should be tracked and reported with senior leaders and boards held accountable for their investment in people.

Policy-makers, chief human resources officers (CHROs) and boards all have a role to play in incorporating these metrics into their business decision-making.

If properly integrated into an organization’s decision-making process, this framework and its underlying principles will help a company manage the return on its investment in human capital in much the same way it measures returns on financial capital, while building resilience and a more equitable relationship with all its stakeholders.