Would Reporting HR Metrics to Investors and the Public Help or Hurt the HR Profession?

5/4/12

Recently SHRM published a Draft American Standard suggesting that firms must report a variety of metrics pertinent to the human capital of the firm (available here). The report suggests that firms should be required to publicly report metrics regarding six general areas: spending on human capital, ability to retain talent, leadership depth, leadership quality, employee engagement, and Human Capital Discussion and Analysis. Under each general area the report lists specific metrics to report. As an academic, I have to say that making public such data would spark a whole lot of research on the link between human capital metrics and firm performance (however, I might note that the research might not find what we want it to find). I can also see how this would be boon to consultants specializing in human capital metrics. On the other hand, I worry that the idea is neither in the best interests of organizations nor in the best interests of the field of HR.

From an organization's standpoint, I fear that such reporting may drive dysfunctional decision-making. For instance, the first category of reporting revolves around items like "total amount spent on employees (salaries, benefits, taxes), total amount spent in support of employees, total amount spent in lieu of employees, total amount invested in training and development, and total headcount and total FTE at the end of the period. " Let me ask the first question of interpretation: is more better? Is overpaying employees a good thing? Is overspending on training desirable? Is increasing headcount always a positive? I certainly don't think it ever is for investors, and in the long term, it's not in employees' interests if it makes the firm less competitive (see the U.S. auto industry for an easy example).

Second, from the field's perspective, what if a lot of these metrics are not positively related to firm financial performance? This is a definite possibility, for three potential reasons. First, it could be that the data quality is suspect. For instance, it would not be long until metrics like "percent of defined positions that have an identified successor" would quickly congregate around the number 100%. Firms will just loosely define what "identified successor" means. Second, the whole process assumes that data quality is reasonably good. I remember an HR executive in charge of the HRIT implementation as saying "$200 Million later, I now know how many employees I have...almost" Anyone close to HR information knows that data quality and data integrity are far from perfect. Third, we know that poor data (i.e., restricted range and unreliable), may lead to lowering the observed relationship between our variables and performance. So, what happens to the field if all of us academics drill down and find little or no relationship between human capital metrics and financial performance (not because human capital is unrelated, but because the previous two problems distort the relationship)?

While I applaud SHRM's attempt to increase the prevalence and use of HR metrics in organizations, I am not at all sure that this strategy will be effective, and may, in fact, be ill-conceived and ill-advised.