New ISO for human capital metrics: compliance does not equal insight

Businesses worldwide will soon be experiencing more pressure to openly share metrics related to areas such as ethics, total workforce costs, and workforce diversity.

That’s because the International Organization for Standardization (the world’s largest non-government organisation for developing voluntary international business standards) recently released new guidelines regarding human capital management.

The guidelines for internal and external human capital reporting calls for companies to publicly report on 23 core metrics, which range from simple workforce diversity measures, such as age, gender, and disability to slightly more complex metrics, such as the ratio of income to human capital. The goal is to increase transparency around an organisation’s human capital contributions.

Treat this voluntary standard as a requirement now

While compliance with the standard is not mandatory, business leaders should take them seriously. Investors may ask about the human capital metrics during earning calls, for example, and CEOs will be left in the lurch if they don’t have the right numbers.

More importantly, under the World Trade Organization rules, governments are required to base their national regulations on standards produced by organisations like the Organization for Standardization (ISO). This means that, should the Securities Exchange Commission (SEC) move forward with human capital reporting regulations, it would likely use the new guidelines as a starting point.

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The sooner organisations prepare for this probable outcome, the better. When SEC regulations went into effect requiring publicly traded companies to calculate and disclose a number called the CEO Pay Ratio, for example, this simple calculation sent organisations scrambling, throwing money at consultants, and diverting resources to meet this data-based requirement.

Those organisations that had a way to centralise and transform data into a model designed to support all potential queries, however, could handle the new regulatory requirement with confidence.

Go beyond the standard

While it’s important to follow the standard as a way to ward off future regulatory headaches, another key takeaway for business leaders is this: compliance does not equal insight.

Reporting on the simple metrics outlined in the new standard won’t help organisations make meaningful changes that will drive employee engagement, boost productivity, or reduce voluntary turnover. To create business impact, go beyond the standard and analyse cause and effect relationships in workforce data.

Take something like diversity — which continues to be a top priority for CEOs around the world — as an example. In the ISO guidelines, gender diversity is to be reported as the percentage of females or the percentage of males in the overall employee population.

Reporting on the proportion of the overall population that is female is an excellent place to start, but it’s not going to help businesses make better decisions in terms of how to attract, retain, and develop females so that they will stay and grow with the organisation. A key insight for business leaders to gain, for example, is how the proportion of females changes across leadership levels.

Furthermore, complying with the standard may lead to more reporting, but raw compliance reports aren’t useful for decision-making. To start, these reports are generally only seen by the person generating them and the agency it’s being filed with.

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Advanced data analysis is a much more powerful business transformation tool than reports could ever be. The best people analytics platforms connect data in a way that facilitates exploration, displays patterns and trends through visuals that enable understanding, normalise data to facilitate comparisons, and derive new values that boost insight. This can help organisations understand where to focus their talent efforts to attain broader business goals.

To gain a leadership position in people analytics, organisations need to treat the standard as a simple baseline for measuring corporate health. They must take additional steps from a data analysis perspective — developing the capacity to answer strategic workforce questions, connect workforce decisions to business outcomes, and use future modelling and projections.

The results are worthwhile: A CEB analytics survey found organisations moving from median to leadership in workforce analytics improved their talent outcomes by 12%, leading to a 4% improvement in gross profit margin and experiencing savings of roughly $12.8m for every $1bn in revenue.

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The value of good people decisions

The new ISO standard highlights the need for organisations to do two things: One, review the guidelines and take action now to future-proof the business from a regulatory and investor relations perspective.

Secondly, go beyond those reporting requirements. Focus on building the right infrastructure for people analytics, partner with senior leaders and business units, and create a data-driven culture where security, privacy, and accuracy of data are expected norms of performance leading to business success.

More than ever, the business strategy is dependent on the people strategy. With the right people analytics approach, executives, managers, and HR leaders can gain the insights needed to be strategic — and more than just compliant.

Written by Ian Cook, VP people solutions, Visier

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