Global Trend

Human Capital

Investing in employee wellbeing

A growing number of global companies are beginning to grapple with the challenge of effectively investing in one of their most important assets — employees.

Unaddressed mental health and addiction challenges, poor stress management, and lack of flexibility in work schedules are impacting both the wellbeing of workers, and companies’ bottom lines. The investment community is also increasingly focusing on human capital management as a key risk for portfolio companies. SEC Chairman Jay Clayton recently stated that he wants public companies to provide more extensive information about how they manage employee attraction and retention. However, one of the biggest challenges that stands in the way of greater progress is effective metrics. Investors, companies and other stakeholders are increasingly paying attention to this important topic but so far they have failed to reach alignment regarding how to define, measure and value  human capital.

2020 Forecast

As awareness of the financial impacts of human capital grows in 2020, and investors become more focused on the topic, we expect to see more companies prioritize their investment in human capital. A growing number of companies will look into ways to go beyond basic healthcare services and benefits, trialing new approaches to wellness and work/life balance that help employees thrive in the workplace. The efforts to define and measure human capital will also accelerate, and we expect to see greater consolidation and awareness of the emerging frameworks. We will see companies focusing more strongly on accurate data collection and reporting to meet increasing stakeholder expectations around transparency.

Signals to Watch

  • A company’s intangible assets, which include human capital and culture, are now estimated to comprise on average 52% of a company’s market value.

  • The World Health Organization estimates that untreated depression and anxiety lead to approximately $1 trillion in global productivity losses each year.

  • Microsoft recently trialed a four day working week in Japan, which resulted in increased employee productivity.

  • Target recently followed in the footsteps of IKEA by expanding its family leave policy for 350,000 employees at its stores, warehouses, and headquarters — regardless of whether they are full-time or part-time, salaried or hourly.

  • To recruit high school students, Walmart has said it will pay for free SAT prep and initial college credit courses once they graduate from high school. Walmart began offering $1-a-day college to its workforce in 2018.

  • Cheap fast fashion continues to hurt the livelihoods of garment workers. A 2018 study by the Fair Labor Association found the average garment worker in Bangladesh would need an 80% pay raise to begin earning a living wage.

  • Companies including Hennes & Mauritz AB, Inditex (parent company of Zara) and PVH Corp (the owner of Calvin Klein and Tommy Hilfiger) have signed on to use their purchasing power to enable better working conditions and push for industry-level wage agreements secured through collective bargaining.

“Creating a happy, healthy and equitable workplace provides increased access to investment capital, as well as builds social capital across stakeholders and helps attract and retain human capital. The challenge for companies is around the breaking down of traditional silos. In today’s market, Human Resources, Investor Relations, Legal, Sustainability and Environment, Health & Safety teams need to actively collaborate on human capital related issues.”
Mike Wallace, Partner, BrownFlynn, an ERM Group company and North American Strategic Director, Capitals Coalition

Advice for Business

  • Paying a living wage to all employees offers benefits to business and is set to become critical to a company’s social license to operate. Companies not yet paying living wages to all employees should use the body of evidence available on its advantages to present the business case to the Board.

  • Businesses need to offer complete employee support services that cover work flexibility, family leave, mental health and social support, and identify how to better enable their employees to thrive over the long term.

  • Collecting more comprehensive data — whilst being highly sensitive to privacy — on employee health and wellbeing can help companies better understand the needs of staff and whether programs are delivering on these needs.

  • The Social and Human Capital Coalition Protocol can help companies better incorporate social impacts and dependencies into performance management and decision-making.

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