Whether it’s from investors or the SEC, companies are under increasing pressure to quantify and measure their organization’s “human capital” — the value of their workforce’s knowledge and skills.
Yet in our conversations with more than a dozen companies, we’ve learned that managers frequently struggle to define what they mean by human capital, and few have developed measures to determine whether their employment strategies are effective.
We’ve sought to make headway on the issue of human capital measurement by focusing on one important aspect of employee management that should matter to stakeholders ranging from executives to shareholders to employees to the government: documenting the quality of the jobs that companies create. In other words, we ask whether we can help companies identify and separate dead-end jobs from those that lead to a fruitful career.
To that end, we have spent the past two years working with large U.S. companies across industries to develop actionable metrics that document internal employee mobility to understand the quality of jobs that firms are creating. While we believe — and plan to document — that effective professional development of employees will result in better financial performance, we focus on internal mobility because creating clear paths to high-quality jobs has important societal implications.
Income inequality in the United States continues to grow, and the Covid-19 pandemic has worsened this gap, with frontline workers bearing the great risk of infection but missing out on the rewards of the booming stock market. Now that the labor market has tightened, and employers are having difficulty filling entry-level roles, it’s becoming apparent that managers need to think of these workers as investments in their operational success.
With that in mind, our research has resulted in the following questions we present to companies that allow them to easily create metrics that track whether these investments are effective at improving job quality:
Job quality
- What percent of workers earn the local living wage?
- How many workers have health care?
- How many new jobs are created each year where pay is above the local living wage?
Job mobility
- What percentage of workers that started below the living wage moved to jobs that paid above the living wage each year?
- What percentage of the lowest-paid workers left the company before their one-year anniversary? How many are left before the two-year mark?
Job equity
- What is the demographic composition in the company’s high-wage occupations? How does it compare to that of the local pool of potential labor?
- What is the difference in mobility rates in each of the company’s wage quintiles for different demographic groups?
These metrics document not just how people move through and grow within the organization, but also who’s growing and who’s being left behind. Importantly, the metrics can help managers create a roadmap for developing their workforce and creating meaningful jobs.
For example, we worked with a food services company that is one of the largest employers in the world to examine how training and job opportunities are created within the company. With more than 15,000 current job openings at the company, recruitment and retention is a constant focus. Training employees to create career paths for them in this low-wage industry is an important part of the retention strategy.
An initial examination of the data showed that training expenditures were highest among low-wage workers at the company, yet when those low-wage workers changed jobs within the company, more than one-third soon left, and almost half saw almost no pay increase. Digging deeper, we found that only 17% of low-wage workers saw a significant pay increase.
These outcomes did not jibe with the firm’s commitment to training. Further analysis showed that when we removed compliance-related training expenditures from the data, we learned that most other training expenditures were directed at higher-wage workers and that these workers were more likely to take advantage of training benefits offered by the company.
This analysis helps explain the disconnect between training and retention at this company. It also suggests that offering training without offering the time to take advantage of that training may be counterproductive. These takeaways can also provide management with a roadmap for how to improve training to mitigate turnover and offer workers a clearer path to promotion.
Concerns about internal mobility are not unique to companies with large numbers of blue-collar workers. Bank of America has reported an uptick in turnover in 2021, approaching 11% after falling to its lowest level of 7% in 2020. Aware of the costs of turnover, the company created an internal tool to map potential careers for all employees. For example, an entry-level sales hire can see a potential path to a position in wealth investment. Simply put, the company wants to provide all employees with the tools they need to identify and obtain their dream jobs within the company.
These examples show the challenges and benefits of thoughtful human capital strategies that create opportunities for both employees and employers. Our metrics are designed to help managers make internal decisions. Should firms choose to disclose them publicly in the current absence of regulation, these outcome-based measures can also be of interest to investors who focus on ESG issues. Still, our primary goal is to develop measures on worker well-being that reflect society’s challenges and workers’ aspirations.
With measures of worker wellbeing in hand, the next step in the roadmap for developing firms’ workforces is to experiment and tinker, as we’ve begun seeing in our examples above. Different companies may have the space for interventions at a different scales. Regardless of the level of flexibility, managers will quickly discover that improvements to their workers’ wellbeing will fall into two types: those that prove material to the firm and those that don’t.