Better understanding the value of human capital
Late last year, we partnered with our grantee Just Capital to issue a request for proposals for research related to human capital management (HCM).
Human capital is one of the most profound drivers of corporate value, and corporate disclosure can hold incredible promise for businesses, shareholders and workers. We sought projects that would help investors and other stakeholders understand the impacts of workforce management and compensation on company performance as well as in other domains.
While the recent uptick in climate-related disclosures is encouraging, only 15% of public companies in the United States disclose wage data, and even fewer report on benefits costs, worker retention and training initiatives.
This is a problem. In the U.S., 90% of the value of S&P 500 companies derives from “intangible” assets like brand reputation, intellectual property and, critically, talent. Yet, our accounting standards reflect the “tangible” economy that existed when they were created nearly a century ago. In practice, this means investors, consumers, and regulators, among others, are using a 20th-century lens to examine 21st-century enterprises. By maintaining an antiquated frame of reference, this system does a disservice to investors, regulators and myriad stakeholders as they attempt to evaluate companies. The tight labor market of the past few years, fraught with staffing shortages and turnover, has only made this challenge more salient.
HCM disclosure makes intuitive sense: Shareholders and others should be able to see how companies manage this mission-critical, value-generating asset. But it takes a high volume and quality of data to change standards, practices and regulations. Together with Just Capital, we created a proposal that would lead to research contributing to this evidence base.
We expected to receive about a dozen proposals—and we received 80, which we believe reflects the pent-up interest in this topic. Our expert review committee, which included leading accounting academics, a former regulator, asset managers and nonprofits, landed on seven proposals:
- Shiva Rajgopal and Steve O’ Byrne will expand their research on calculating employee value-add and publish such estimates for S&P 1500 companies based on their past article titled “Employee Value Added: A New Measure of Gain-Sharing between Labor and Capital”
- Ellen Frank-Miller, the Founder and CEO of WORC, will measure the effect of frontline workers’ job quality on the financial and human capital management outcomes of private equity-owned companies
- Alex Edmans, Caroline Flammer, and Simon Glossner will study the effect of diversity, equity, and inclusion and its links with firm performance
- Boshuo Li and Wei Shi will research the costs and benefits of human capital management transparency, using job compensation postings
- Professor George Georgiev will expand research on his article, “Human Capital as a Mission-Critical ESG Factor: New Evidence & Legal Implications,” and analyze new evidence from firms’ disclosure of information under the SEC’s 2020 HCM disclosure requirement
- Ifeoma Ike, the Founder of Pink Cornrows, will study how diversity announcements within companies impact performance, satisfaction, morale and health outcomes
- Professor Lenore Palladino will examine the impact of corporate policies and behaviors towards employee freedom of association as part of their approach to human capital management
Individually and collectively, we believe this research will advance our understanding of critical HCM issues. We look forward to learning from these researchers and helping them share their findings with one another and the public.