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Setting Standards

A fierce dispute has erupted within the HR community over the creation of standards aimed at enabling investors to better understand the value of the HR function. Critics say the effort will add a costly mandate that will mostly benefit "companies that are seeking to make an acquisition, raid talent or apply competitive pressure."

Thursday, May 31, 2012
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The Society for Human Resource Management's efforts to develop an "investor metric" standard to "help the investment industry determine the value of human capital and report on it easily" has come under fire by some in the HR community.

The proposed standard would have companies disclose almost every corporate cost associated with the hiring, retention and training of employees and contingent workers, plus detailed information regarding how the company is organized and staffed, says Dan Yager, president and general counsel of the HR Policy Association, a Washington-based membership group that represents HR executives at 335 large employers. 

"In our letter [to SHRM], we point out that the investor community is not asking for this information," Yager says, who notes that HRPA's member companies are public companies and would be "the main target for this standard."

"The concern is, while there is certainly value to HR metrics, this is not the place to try to fashion them and then turn them into something that would really be of no use to investors," he says. "The only use of the data will be either for companies that are seeking to make an acquisition, raid talent or apply competitive pressure."

Both the HR Policy Association and the American Staffing Association have asked SHRM to drop the effort to create an investor-metric standard.

Their opinions were sent by letter during a 45-day comment period -- that ended May 24 -- following the release by SHRM of a first draft of the proposed standard on April 10.

SHRM, which began the process at the request of the American National Standards Institute, has worked with a task force of 166 HR practitioners, line managers, academics and consultants, from public and private organizations nationwide, to create such an investor-metric standard.

 

SHRM says the work group is merely guiding the process for the formulation of standards -- not creating the actual standards. The criteria for the standards are created by ANSI, says Lee Webster, director of HR standards at SHRM.

Among other metrics, the initial draft proposes a "formula for spending on human capital," including data on direct cost of employees (salaries, stock options, pensions, payroll taxes, etc.), costs "in support" of employees (housing, communications, etc.) and costs "in lieu" of employees (contingency workforce, outsourcing, etc.), combined with direct costs of training and development.

There are also data metrics requested for costs associated with talent retention, leadership depth, leadership quality and employee engagement.

Webster says the SHRM task force has a dual role in the process.

One is to act as the designated HR Standards Secretariat body for ANSI. In that role, SHRM has process or oversight responsibility, mainly to ensure that the process for formulating ANSI standards is followed.

"We are agnostic of the content, but concerned [with] how the standards are created," Webster says.

In its second role, SHRM represents just a single entity among the 166 individuals on the work group -- which represents many organizations.

"What we have is a single point-of-view, one vote," Webster says. "The letters [from HR Policy and the ASA] are fine when talking about the HR point of view as to why they don't want these metric standards, but when they went into what investors want, it's not their area of expertise."

Webster says the effort to create an investor-metric standard is not some "reckless attempt to throw more stuff on the table," as it was portrayed in the letters from HRPA and ASA.

In addition, he adds, the process is far from over, as there will be another 45-day public comment period following the next draft.

"If, through all that process, the work group cannot achieve a consensus, then the project will not go forward," he says. "But it's doubtful that will be the outcome. Those who are against these standards are invited to participate as members, where they can have some meaningful input into the process."

Webster adds that ANSI designated SHRM as the exclusive U.S. developer of human resource standards in early 2009.  

In 2011, SHRM partnered with ANSI to release a workplace-violence prevention and intervention standard. And the cost-per-hire standard, released in 2012, is the first American national HR standard.

All told, standards on employee and labor relations, staffing and workforce planning, compliance and regulatory, and metrics and measures are in the process of being developed, he says.

"All SHRM-sponsored HR standards are developed with the involvement of those who are affected by the standard," Webster says. "Even if we were to walk away from it from a SHRM standpoint -- which would be tough to do -- the international community is very supportive of this effort as well. It is going to happen; Pandora's Box is opened."

Webster says the real issue is whether ASA and HR Policy and its members want to be part of the standard formulation "or do they want to keep throwing stones at the process?"

Yager says, however, that HRPA believes the true value of metrics is for internal purposes only. Plus, the human capital data being required under the proposed standards is so unique -- needing to be "put in a context" for each employer -- that it is worthless for investors.

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"Our concern also is that, while voluntary, this will be turned into a mandate -- a rigid mandate -- ... that is extremely hard to do and has very little value to anyone," he says, comparing the investor-metric standard concept to poorly thought out federal legislation.

"We are going after the premise of the whole exercise," he says. "It would be like legislation on Capitol Hill, where the legislation itself is objectionable on face value. What we are saying is to not go forward with this process. The fundamental premise is flawed."

When asked if he polled the HR Policy membership on the metric-standard effort, Yager says he has not heard from anyone who has supported it.

"Not a single member company has said it is a good idea," says Yager, who notes that HRPA often works closely as "strong allies" with SHRM on employment issues.

"Many members, of course, support the development of metrics for internal use. And I believe the other efforts SHRM has been undertaking for those kinds of purposes have been very valuable. But, even if these are voluntary in the beginning, they will become expected. And that could turn into a mandate."

In addition, Yager says -- and it is stated in HR Policy's letter to SHRM -- that what the group also finds objectionable is how "self-serving" several of the proposed requirements for the metric are. In particular, many of the standard's requirements appear to be written primarily for the benefit of consulting organizations that sell HR services to HRPA member companies.

Bottom line, Yager says, companies disclosing the information would be placed at considerable competitive disadvantage relative to organizations seeking to raid their talent; competitors trying to gain insights into how they are organized, staffed and structured; and hedge funds and other entities seeking financial prey.

"Also, there would be a tremendous cost burden added to HR, which has enough to manage right now as it is," Yager says. "While the information might be of interest to certain segments of the investor community, the cost of developing this data would far outweigh its benefits."

Webster counters by saying that employers already are or should be capturing this data anyway.

"We are not trying to create some new thing, but trying to normalize what we should be creating so investors can compare companies fairly and equitably," he says. "In the end, it will be important for public companies to have these metrics in place and keep them up to date. Investors are interested in financial stability."

SHRM's position going forward, Webster says, will be to continue to work with the other members of the task force and review all comments. He also sent a letter to ASA and HR Policy, thanking them for their comments and asking them to participate in the effort.

"We are going to adopt the ANSI standards and present the final draft to our members," he says. "We may even ultimately disagree with the standards, but it has to be done via the ANSI process. We want it done well, done right."

ANSI Note of Clarification

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