A Human Capital Framework for inclusion in Company Annual Reports - A South African perspective

Abstract

A company’s ability to support its business strategy with it’s Human Capital is an important indication of the company’s future business performance. No standard or framework to enable the inclusion of Human Capital information in company reporting to demonstrate the effect on performance currently exists. Traditional HR metrics fail to report on the level of performance, knowledgebase or value of Human Capital, making it virtually impossible for stakeholders or valuators of companies to take this most important asset into account in valuing the company against it’s competitors. This exploratory study has been commissioned to add new theory which would span further research with the objective of improving the reporting systems and/or methodologies to value Human Capital for South African industry. The study poses the following questions: 1. What insight should investors and other external stakeholders have into the Human Capital employed by a specific organisation? 2. How best to ensure that Human Capital is reported and the information is trusted by investors and other stakeholders as seen as relevant, reliable and consistent, adding value to shareholders? 3. Which Human Resource Management components can form a basis for comparative external reporting on Human Capital (if any)? The study created an innovative framework for reporting which, is viewed as an improved, practical and theoretical approach and method relating to Human Capital and value creation for Human Assets. Triangulation was used to include a number of different metrics used by HR, linked to a framework that allows those who uses it to link quantitative calculations to Human Capital dimensions. Further testing may be required due to the limited insight and knowledge of current practitioners which may have skewed some of the results. This framework also links to a number of business questions and metrics which in turn, link to broader HR strategic themes and recommendations for reporting as part of company annual reports and which Human Capital aspects should be included as standard in such a report. The study provides Human Resource practitioners with the ability to counter the one-sidedness of viewing people as purely costs, demonstrating the value of Human Assets in quantitative terms.