I love metrics. I've spent my entire professional life measuring things, running quantitative analyses, and trying to figure out the real-life implications of the numbers I calculate. So it might come as a shock to hear me say... we've officially gone too far with metrics.
What catastrophic event has caused me to rail against my beloved HR and compensation metrics? ANSI is getting involved...
ANSI, the American National Standards Institute, is the "voice of the U.S. standards and conformity assessment system" and the force behind such management systems as ISO 9000 and ISO 14000. They're teaming up with SHRM, the Society for Human Resource Management, to develop a standard for reporting human capital metrics that are "relevant to investors and can readily be audited." The proposed standard centers around six key metrics:
- Human capital spending, including employee salaries, benefits and taxes; number of full-time equivalents and total headcount; spending on employee support; spending in lieu of employees; and training and development.
- Employee retention, measured by voluntary and total turnover and a calculation of the number of terminations during the period divided by average active headcount during the period.
- Leadership pipeline, measured as a percentage of defined positions with an identified successor and the percentage of open defined positions filled internally during the period.
- Leadership quality, measured using an index of questions from employee surveys and information on response rates and methodologies.
- Employee engagement, measured using an index of questions from employee surveys and information on response rates and methodologies.
- Human capital discussion & analysis, providing a narrative context and discussion of the reported metrics to help readers better understand what is being reported, while also disclosing any material risks or information related to human capital.
Let me first say that I'm glad there's an interest in quantitatively evaluating what's going on in the workplace, and I understand that having a standardized system of reporting can facilitate comparisons.
But let's be real about this - are investors going to choose to put their money in Company A rather than Company B because A's employee retention is a few basis points higher?
How to you standardize a measure of leadership quality? Alan Murray said that all great leaders exhibit a paradoxical mix of arrogance and humility. No "magic" ratio of arrogance and humility exists for all companies in all industries at all points in time. The required mix shifts, depending on the circumstances.
Employee engagement is also a shifty area. You can't hold a caliper up to the employee psyche and measure engagement, and employee surveys are a less-than-perfect proxy for calipers. But even if we could use calipers, employee engagement can vary on a daily basis. Engagement is dependent not only upon the workplace, but also upon things unrelated to work. We have arguments with our spouses and our children, we allow ourselves to get overtired and overstressed, we step in dog poo on the way to the office. All of these things affect the way we feel about ourselves, our jobs and our colleagues. If I'm having a bad day today, I may not be engaged. But if you catch me tomorrow when I've got a clean pair of shoes, I might be the most engaged employee here.
When HR and compensation metrics become tools of demonstrating value to shareholders and stop being about the employees, bad things can happen. We keep a handful of really bad performers on board - even though their departures would be good turnover - just so our standardized retention metric doesn't drop and cause us to lose Wall Street's favor.
Our compensation decisions become driven by the need to keep our human capital spending metric within the "investor-tolerated threshold" rather than being driven by what's best for the company and the employees.
We fail to take advantage of great ideas and great talent that lie outside of our organization, but desperately want to come in. We close the door on happy accidents and exogenous shocks that can push companies and employees to new heights of personal and professional achievement - because we want to keep our leadership pipeline in line with investor expectations.
For all of these reasons, I think we've finally gone too far with metrics. Human capital metrics are about people - wonderful, messy, nonstandardized people. Their purpose is to maximize the potential of each person in the organization, not to maximize the profits of day traders.
Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert quantitative analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer. Follow her on Twitter at proactivemployr.
I'm stoked to see more detail. I understand some of your reservations, but I think the opportunites this will provide to benchmark (other than internal trend) and the dialogue it will create in vetting apporpriateness (and pitfalls) of the standards will be invaulable.
Joe
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Posted by: Joe | 06/11/2012 at 08:51 AM
Yeah, so I take back my comments. I just read the current draft and don't like the direction they are going. Looks like little standardization, a lot of headache, and a lot of money for consulting firms.
Posted by: Joe | 06/11/2012 at 09:34 AM
The problem is not the metric, but the concept that may become a rule. Measurement alone is not the issue, but the application of the measurement is questionable. Not to mention the great distraction of time and expense required to collect, analyze and report the completely relative results. Since they are so bold as to measure "engagement", I'm surprised they didn't also set a "task, condition and standard" for creativity and imagination, too. Maybe those are still to come.
That said, it should provide excellent points of departure for those enterprises clever enough to diverge from the lemmings and find better untrod paths. Remember that the power to set universal standards is the first step towards homogenization and mediocrity.
May the great God in her wisdom see fit to save us from engineers.
Posted by: E. James (Jim) Brennan | 06/11/2012 at 11:14 AM
I cannot see how good things will come of this. I can see how bad things will come of this. ugh
Posted by: Dan Walter | 06/12/2012 at 08:07 PM