Communicating metrics to boards ofdirectors

Workforce data in theboardroom

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

Workforce data in the

boardroom
Communicating metrics to boards ofdirectors
In 2004, the government of the UK established an Accounting for
People taskforce, which sought to establish a standard set of human
capital metrics to be published in public companies financial reports.
The groups rationale seemed relatively straightforward, i.e., firms should
be held to a standard of human capital metrics that can enable greater
visibility into, and comparability across, measures of workforce
performance and productivity, just as standard accounting metrics
offerinsights into a firms financial standing.
Despite vociferous support from numerous companies, financial analysts and accounting firms, the
taskforce was disbanded prior to publishing its findings the Chancellor of the Exchequer, Gordon
Brown, claimed that the standards would result in stifling, bureaucratic burdens for public
companies. What hampered the taskforce most, however, was its inability to determine which
metrics should be reported out to shareholders and how to establish metric validity and reliability
(through the use of predefined standards, for example).1
Fast-forward to 2011 in the past 12 months, several high-profile articles have been published in
the Harvard Business Review and McKinsey Quarterly2 that have spurred debate on the role of
workforce data in establishing a competitive advantage in talent management, and how such data
should be made available to senior executives HR chiefs, CEOs and boards of directors.
The last group poses the most intriguing questions. While CEO scorecards have become de rigueur
in how HR leaders present updates on the state of human capital, less is known about what type
of data should be shared with the board of directors, a collective body possessing unique
information needs by virtue of its charter as conduit to shareholders, rather than an internal
management team.
Here, we ask three questions for the boards of directors:
What challenges lie in the way of the effective use of workforce data?
Is there a right set of metrics to periodically share?
How should those metrics be presented?

 Human Capital Evaluation Getting Started, Chartered Institute of Public Directors, Spring 2006; and, Accounting for People A report of
the Task Force on Human Capital Management, October 2003.
 Competing on Talent Analytics, Harvard Business Review, October 2010; and, Question For Your HR Chief Are We Using Our People
Data to Create Value? McKinsey Quarterly, March 2011.

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

What challenges could potentially limit how the board

utilizes workforce data?
The role of the board of directors in corporate oversight has changed significantly in the last five years,
due in no small part to regulations instituted by the U.S. Sarbanes-Oxley Act. In many organizations, the
board directors commitment (as measured by the number of hours devoted to board meetingson
average, 20 hours per month3), engagement, and involvement in key organizational decisions have been
amplified. That said, the primary role of the board is to protect the long-term interests of shareholders
with specific responsibilities, including selecting, compensating, and evaluating the CEO, advising on
matters of strategic and financial importance, and suggesting courses of action. In so much that they do
not possess full knowledge of day-today business operations, boards of directors will seek out different
information to help them fulfill that role.
Our hypothesis is that while boards are now more sophisticated in their understanding of nonfinancial data, significant inconsistencies remain in how boards receive, consume, and apply
workforce data to strategic oversight activities.
Reasons for this include:
1. Human Resources is viewed as a administrative rather than a strategic function
In situations where HR is seen primarily as a service provider, administering the basic blocking and
tackling of personnel management, boards may not be conditioned to expect quantitative analysis
from the HR function.
2. Board meetings feature a crowded agenda
Given the extremely broad oversight role played by boards, meeting agendas can cover a host of
operational reviews, risk assessments, marketing plans, and strategies for new products. Human
Resources may be fortunate to own 10 to 20 percent of the agenda and be asked to provide
operational updates in conjunction with other support functions. Consequently, this situation
limits the opportunity to present extensive workforce metrics, many of which will require additional
explanation.
3. Human Resources lacks definitive metrics standards
As we saw in the preceding discussion of the UKs Accounting for People taskforce, no clear
consensus exists on the most appropriate metrics to report out. While our perspective is
that metrics should be closely tied to organizational strategy, and will, therefore, differ from
company to company, the absence of generally accepted accounting principles (GAAP) (and
associated benchmarks), certainly inhibits some HR functions from confidently presenting
metrics to the board.
4. Firms offer lagging, not leading indicators
Human Resources should be in a position to provide board-level analytics at the same level
as those offered by Marketing or Finance. However, much of the data (termination rates, exit
surveys, etc.) captured in HR systems is backward-looking, requiring significant analytical effort
to position for predictive modeling. Compounding the problem is the shifting nature of board
agendas. According to Walter Skowronski, former president of Boeing Capital Corporation,
The issue facing HR when providing regular board updates is that the metrics chosen depend
heavily on that years strategic objectives. Some are unique to the current year while others are
holdovers from prior year agendas, with ongoing adjustments to meet present goals. Whether
its cost reduction, productivity, or other objectives setting metrics to measure these are
thechallenge.4

3
4

What Directors Think, Corporate Board Member Magazine and PricewaterhouseCoopers, 2009.
Research interview, April 27, 2011.

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

5. There is measurement overload

As a corollary to the last point, and given advances in technology to aggregate and publish workforce
data, HR functions are certainly not short of measures to provide to the board. In fact, we have seen
clients put together 50-page briefing books that continue to expand as new, desired metrics
are added. It is difficult, therefore, to know which measures matter the most.

Is there a right set of workforce metrics to present to

the board?
Before any discussion of the right metrics proceeds, it is critical to understand that no two
companies will be similar in the measures they report out. Metrics have to be tailored to the firms
corporate and/or business strategy, economic and competitive climate, and talent management
priorities.
For example, several years ago, we ran a metrics selection workshop at a major retailer, the
purpose of which was to identify the 10 to 15 most important workforce metrics that the firm would
focus upon in the coming year. As we began to illustrate the breadth of measures commonly used
by Fortune 1000 firms, a participant asked, Why dont you just save us a lot of time and tell me
what should be my number one metric? This participant clearly preferred that we just simply (and
blindly) apply the most popular key performance indicator to his firm.
While every organizations number one metric should be different based on the criteria listed
above we believe that there are several groups of metrics that HR leaders should contemplate
when deciding what data to provide to the board. This concept was reflected in the comments
made by one local government workforce analyst we spoke to: I think there is value in taking a
standard set of workforce measures to the board of directors each month, but not in isolation to the
other disciplines. There should be a balanced scorecard approach in which the workforce measures
are just one component of the overall scorecard.
Group #1: Core workforce facts: These metrics are important for understanding basic
attributes of the current workforce and may also cover significant changes to workforce structure
(through a merger, for example):

Head count/full-time equivalent (FTE),

Terminations,
Diversity, by gender and ethnic background, and
Workforce age profile.

Group #2: Financial workforce metrics: With the assistance of analytical tools and models,
quantifying the financial impact of workforce data has become significantly easier and crucial for
senior management reporting. Examples of such metrics might include:

Operating revenue per FTE,

Operating profit per FTE,
Return on human capital investment ratio, and
Cost of turnover.

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

Financial Profile

Profit Per FTE

$2b

$2b

$80k

$1.5b

$1.5b

$60k

$1b

$1b

$40k

$500m

$500m

$20k

$0

2008

Operating Revenue

2009
Operating Income

2010

2012

Operating Expense (Other)

2014
Total Cost of Workforce

$0

2008 2009 2010

Profit per FTE

Total Operating Expense

2012

2014

$0

Operating Expense
Operating Revenue

Example 1. Financial metrics included in board of directors reports.

Group #3: Productivity and performance: Ultimately, every HR process, system, program,
and intervention is designed to maximize performance for the duration of the employee life cycle,
and in an era marked by doing more with less, measures of choice include:
Workforce productivity (measured in outputs relevant to the specific firm),
Workforce availability/absenteeism, and
Executive compensation/pay comparison.
Group #4: Talent development and succession: A perennial feature of board responsibility is
ensuring leadership performance and succession; extending that to other talent pools ensures a
more robust discussion of key talent:
Leadership quality (current and bench),
Staffing rate high performers, and
Staffing rate high potentials.
Group #5: Human capital risk: While other metrics might surface as potential risks to strategy
execution, the following are examples of risk-specific measures. More so than any other category,
this group will be heavily dependent on the type of firm publishing the data (software start-ups will
likely face very different human capital risks compared to manufacturing powerhouses):

Succession risk (absence of ready-now successors),

Staffing shortages in critical roles,
Current versus future competency gaps,
Churn (hires versus terminations) rates, and
Knowledge & transition risk (of an aging workforce).

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

How does the Termination Rate of all of my employees compare to the Termination Rate of my High Potential Employees?
Termination Rate vs. Termination Rate High Performers
8%
6%
4%
2%
0%

2009 Dec

2010 Jan

2010 Feb

2010 Mar

2010 Apr

2010 May

Termination Rate

2010 Jun

2010 Jul

2010 Aug

2010 Sep

2010 Oct

2010 Nov

2010 Dec

Termination Rate High Potential Pool

Example 2. Succession planning data.

As examples of tailoring metrics to specific organizations, lets briefly contrast two organizations and
their board-level metrics:
1. High-growth global financial services firm
Profitability metrics, an indicator of a high-performance work culture, are of paramount importance to the board, reflecting the firms focus on driving performance improvements.
2. SuccessFactors
At our own company, the Board Compensation Committee has been renamed the Compensation
and Leadership Development Committee, elevating the status of talent management and
signaling the boards commitment to talent development. In this capacity, the board examines the
extent to which the firm has the right executives in place, maintains a strong succession plan,
and monitors executive attrition and performance.

Deciding how to present workforce data to the board

How should HR leaders convey the insights derived from a set of workforce metrics to their board?
Several factors come into play:
1. Regular reporting is a must
The socialization of workforce metrics is a slow and steady process, and organizations must often
engage in countless debates over formulas, definitions and findings. Avoiding a repeat of
challenges to data credibility is significantly improved with consistent, frequent presentations of
workforce data.
2. Balancing breadth and depth
At the global financial services firm referenced earlier, board-level reporting reflects strong
demand for ad-hoc, issue specific reports; in contrast, reports provided to leaders across the rest
of the organization tend to offer analysis of perennial trends. With areas of focus changing from
board meeting to board meeting, HRs task is to drive better understanding and complexity of
knowledge, then start looking for correlations between workforce issues and operational, financial,
and strategic outcomes (a notion consistent with the definition of workforce analytics). That said,
efforts to present extensive workforce scorecards will not satisfy a board that prefers to see a
couple of key metrics tied to a current business problem.

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

3. Combining data and analysis

To avoid the oftseen situation in which boards are presented with extensive reams of data that
lack context, the ideal board report combines a set of key performance indicators and issuespecific analysis, with interpretation of the findings, progress towards targets, and possible
recommendations of interventions. Context can be gained through comparison to internal and
external benchmarks, labor market trends and economic factors. There is certainly nuance in how
this data might be presented, according to a director of research at one leading research firm, In
comparison to C-suite presentations, in which HR can be much more concrete in making
recommendations, boards should be presented with data and insights, but will independently
derive conclusions on how the information will shape their advice.

Leveraging best-of-breed technologies

With so many HR systems at organizations fingertips, filtering through all of the available data can
present a real challenge. Technology can play an integral role in this process, specifically by
enabling: (1) the automation of data production, and (2) value-added reporting strategies. For
example, the SuccessFactors Workforce Analytics and Planning application integrates multiple data
sources (HR, talent, financials, operations, etc.) into a centralized data warehouse, specifically
positioned for end-user analytics. Avoiding time-consuming manual data dumps which suffer
from inconsistent business logic and the absence of built-in content expertise analysts can more
readily provide boards with holistic insights into the state of their organizations workforce. An
automated workforce reporting process thus offers the potential for more frequent, insightful and
actionable scorecards.
That said, and despite advances in such technologies, firms should not overlook the need to
develop HR leaders capabilities in telling the story with data, especially when presenting to such
senior audiences. While the modern HR executive is often well-versed in the analysis of data,
functions seeking to build a culture of data-driven decision making would be wise to utilize
consulting and training when interpreting and communicating workforce data in addition to selecting
a technology partner.

Conclusion
The reality is that little consensus exists on what talent data is appropriate for boards of directors to
view. While it is tempting to seek to boil down workforce metrics to one or two key questions such
as, Is our workforce adequately staffed in terms of head count and skills to execute our business
strategy? the preferred approach is to provide a small set of metrics that are clearly linked to the
organizations strategy, are presented with context and analysis, and offer the opportunity to go
deep on areas of most interest to the board. Armed with greater transparency into workforce
performance, development and financials, boards of directors will be better able than ever to
accurately measure the success of their people.

SUCCESSFACTORS / WHITE PAPER

WORKFORCE DATA IN THE BOARDROOM

About the authors

Mick Collins is a principal consultant with SuccessFactors responsible for supporting the global
sales of the companys Workforce Analytics and Workforce Planning products. He divides his time
between sales strategy/execution, product marketing, and thought leadership. Previously, he served
as strategy consultant for several SuccessFactors workforce analytics and planning clients, in
which he partnered with senior HR leaders to deliver executive presentations, conduct original data
analysis, provide change management consulting, and facilitate training sessions. Collins has
conducted speaking engagements at events hosted by SuccessFactors (across North America,
Europe, and Asia-Pacific), IHRIM, The Wharton School, The Research Board, Institute for HR, and
the Talent Management Alliance. He has authored articles for IHRIM, Talent Management, and
Workspan magazines. He has a masters degree in Political Science from Virginia Tech and a B.A.
(Honors) in Economics and Politics from the University of Leeds, England. He can be reached at
[email protected].
Regan Klein is a senior consultant with SuccessFactors, responsible for advising clients on how to
strategically leverage their workforce analytics and planning programs for maximum impact. Prior to
this role, she served as a talent management consultant at Warner Bros., where she analyzed and
presented HR data to executive leadership. Similarly, as the workforce planning subject matter
expert at Health Net, she was responsible for developing and implementing strategic workforce
strategies through research, analysis of data, and talent management processes. Lastly, her
previous work experience includes conducting research on the Armed Forces for the U.S.
Department of Defense, and she has coauthored and presented several reports on satisfaction,
retention, and workforce analytics at numerous conferences. She has a masters degree in
Organizational Sciences from The George Washington University, and a B.A. in Psychology from
The Pennsylvania State University. She can be reached at [email protected].

2014 SuccessFactors, Inc. All rights reserved.

SuccessFactors
Global Headquarters
One Tower Plaza
South San Francisco, 94080

TOLL FREE 800 845 0395

PHONE 650 645 2000
FAX 650 645 2099
EMEA +45 33 349 349
APAC +612 9238 6680
www.successfactors.com

No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of
SuccessFactors. The information contained herein may be changed without prior notice.
Some software products marketed by SuccessFactors and its distributors contain proprietary software components of other
software vendors.
These materials are subject to change without notice. These materials are provided by SuccessFactors and its affiliated companies
for informational purposes only, without representation or warranty of any kind, and SuccessFactors shall not be liable for errors
or omissions with respect to the materials. The only warranties for SuccessFactors products and services are those that are set
forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as
constituting an additional warranty.
SuccessFactors products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of
SuccessFactors Inc. (and SAP) in the United States and other countries.
v. 03 2014