Harnessing Big Data Is The Key To Smarter HR Insights

Preparing for the next economic change

The SEC recently announced a petition for human capital disclosures that requests additional information on the way public companies report their workforce investment. Simply put, “The Working Group On Human Capital Accounting Disclosure Petition For Rulemaking” wants more information to examine and analyze how companies invest in their people.
 

According to the report, only 15% of companies disclose labor costs, yet there is an increasing segment of these businesses deriving much of their value from intangible assets – the people who make it all happen. Additionally, an increasing number of companies report a loss for accounting purposes, making analysis of operational costs (where the largest line item is likely their people investment) critical to understanding value. Everyone (regulators, investors, etc.) is realizing that a company’s most valuable asset is people, and as such, wants businesses to become smarter on their total people investment.
 

Rethinking the Approach to People Investment

According to estimates, about 75% of knowledge-based companies’ spend is on people – easily the biggest single investment. However, most companies struggle to validate that their investment is making its intended business impact, whether increasing employee retention, managing costs, justifying individual offerings, or all the above.

It is a high-cost budget item that cannot be ignored. More so, if the SEC’s proposed reform is approved, that would require businesses to provide a more detailed breakdown of income statements to give investors more insight into workforce costs. All eyes are on this decision related to the impact on employee experience, productivity, and satisfaction. However, when businesses know what questions to ask, they can be smart about how that spend is determined.

How to Collect Data

Even the savviest HR organizations must rely on an array of transactional systems to manage people data. It is how those systems work together – or do not – that determines whether the company succeeds at transforming data into true insights and outcomes. Operating people programs with siloed data stuck in disconnected systems makes it hard to see the bigger picture and understand how people investments impact the bottom line.

To uplevel systems to meet the requirements of a decision impacting human capital management, HR systems should be securely integrated with the payroll, HRIS, equity administration, and benefits administration systems in an HR tech stack. The result is a seamless and flexible way to manage human capital investment as the business grows and changes.

Ultimately, businesses need to unify people data, program designs, utilization metrics, benchmarking, and more under a complete and holistic strategy that addresses the entire lifecycle of human capital investment.

How to Interpret Data

HR leaders are particularly challenged to evaluate a company’s investment in its people and analyze where their compensation, equity awards, bonuses, and benefits stand in relation to the rest of the market. Traditionally, getting to a basic level of understanding of benefit competitiveness has been a tedious, time-consuming and imprecise process. HR teams had to parse benchmarking information (if it was even available) and pull volumes of employee data spreadsheets to determine how much they can and should be offering team members across the organization. And often, by the time the data is accumulated and analyzed it has become dated.

To unlock the potential of human capital investment, it is critical to connect programs to outcomes validated by data and seen through a unified lens. Analyzing information across numerous business dimensions through a holistic view is the key to understanding the needs and outcomes of a business, making up-to-date and digestible data critical.

How to Apply Data

The working group says investors need to be able to distinguish between labor costs and investment in the workforce, saying labor needs to be treated in the same way as R&D. Part of improving a business’ total people investment strategy (and providing an additional level of reporting) is having deeper insights into the ways a company invests in its employees, and being able to slice that data by role, demographics, departments, and more, so they can uncover gaps and opportunities to improve their people investment.

Today, technology solutions are aimed at bringing holistic and actionable people data to the fingertips of HR leaders for daily decision-making and now, depending on the outcome of the Commission mandate, accurately value the business. The proposed disclosure requires a breakout of total compensation by category, including salary, bonus, pension, stock and options and more.

Forward-thinking people teams will be enabled by dashboards that bring together an unprecedented amount of people-related benchmarks and datapoints unique to the business, including workforce analytics, pay and equity data, benefits and wellbeing cost and utilization, and forecasting and modeling capabilities. People teams can work smarter, with more accurate data, to provide insights not only to governing bodies, but to support critical activities, such as board meeting reports, executing projects, and effective collaboration with the C-suite.

Conclusion

The SEC’s petition is a response to the trend over the past few decades of the lack of transparency of “human capital firms,” organizations that generate value due to the knowledge, skills, competencies, and attributes of their workforce. Yet, despite the value generated by employees, companies are suffering from a lack of data that led to a call for information disclosure.

For many, this looming decision can have far-reaching ramifications, but companies cannot revert to one-size-fits-all fringe benefits and must deliver rewards tailored specifically to each employee’s financial, physical and overall wellbeing. The employees will not just benefit, but the business will too. Learning how to fully optimize a company’s spend now will ensure it is prepared for the next economic change.

Author Bio

Kyle Holm is VP, Total Rewards Advisory, at Sequoia. Connect Kyle Holm