As the competition for talent grows amidst global economic uncertainty, businesses are looking for new ways to improve their long term sustainability and capacity for growth.
In turn, investors want new indicators to persuade them that human capital management is being taken seriously. Progressive companies are now beginning to realise that the engagement and wellbeing of employees and the resilience of an organisation as a whole are key contributing factors to long-term sustainable performance. This is also having an impact on investor decision making.
The difficulty in putting a valuation on employee engagement and wellbeing is one of the main reasons why this has proved challenging in the past. Amanda Young, Head of Sustainable and Responsible Investments at Standard Life Investments and member of the Principles for Responsible Investment (PRI) employee relations working group, raises the difficulty this has posed for investors as a result: "Investors are often told by companies how their employees are their most important asset.
"Yet, the lack of corporate disclosure on employee issues provides little support for such statements. Companies are good at accounting for their other assets in their businesses. So why not for their 'most important asset'?
"For investors seeking a better understanding of how employees' issues are managed, effective metrics need to be developed to measure employee relations, wellbeing and feedback. In our view, companies have yet to provide a really useful account of how these issues are managed."
At October's PRI global conference in South Africa, the investor community addressed this issue.
Anna Pot, Senior Sustainability Specialist at Dutch investment group APG, pointed out that developing valuable metrics for human capital management is crucial for helping to determine how well managers are performing within an organisation. This in turn constitutes a key indicator for company performance. APG is a prime example of an investment group that is leading the way in procuring progressive strategies to judge how businesses are managing their human capital.
"There is growing appetite from the investment community to have more information from companies on this area", Young said. "Companies should expect an increase in investor demand for greater public disclosure.
"The wellbeing of employees helps ensure productivity, a stable work environment and safeguard the intellectual property of companies. This should help deliver long-term shareholder value and enhance a company's investment proposition for asset managers."
In response to increasing demand from investors, Business in the Community's (BITC) Workwell campaign has been working to develop better metrics for investors looking to assess business' commitment to improving employee engagement and wellbeing.
Young represents the PRI taskforce on employee relations as a member of BITC Workwell's steering group on public reporting. This expert group has been responsible for developing human capital management public reporting guidelines - and BITC Workwell's inaugural benchmark questionnaire of the FTSE 100s - to help inform investor decision making.
Frank Fox, Head of Occupational Health at Anglo American and also a member of the BITC Workwell steering group on public reporting, pointed out that some of the key factors to assessing a company's baseline strategy include finding out whether a head of HR sits on the executive committee, the percentage of staff covered by collective bargaining agreements or the number of strike days or worker accidents that have taken place within a given timeframe.
Fox made clear that "these steps demonstrate the fundamental shift that is taking place in our approach to employee engagement and wellbeing. Yet the investor community in particular has more work to do in using their influence to encourage quicker progress.
"Investors should be doing more to challenge companies failing to report publicly on the wellbeing of their workforce and encouraging them to disclose more of their HR data. Figures from Bloomberg suggest that only 23% of companies currently disclose figures on employee turnover, and it's here that we need to see a marked improvement. Initiatives such as BITC Workwell provide concise public reporting guidelines that are a useful starting point for many organisations, and will support businesses to demonstrate their commitment to disclosing this data."
The consensus from investors is clear: businesses that do not adopt a progressive approach towards employee engagement and wellbeing will lose out in the long term.
Companies that demonstrate a commitment to sustainable growth will strengthen their position as viable investment options in the long term. BITC Workwell is working to facilitate the collaboration between investors and business leaders, helping organisations to put effective strategies in place for the future.
Louise Aston is Director of Business in the Community's Workwell campaign.