Human capital must be on balance sheet in 2017

Businesses must add human capital to balance sheets in 2017

Companies must tackle the longstanding problem of putting a value on talent, if they’re to become truly people-centric organisations.

That’s the advice from Oliver Shaw, CEO of Leeds-based Cascade HR, ahead of the start of 2017.

The statement comes following decades of business owners claiming employees are their greatest asset. But if they’re truly so imperative, why aren’t they accounted for on a company’s balance sheet, asks Oliver.

“In an increasingly knowledge-based economy, people metrics need to be measured and included within financial records,” he explains. “Organisations readily talk about the worth of customers and ‘goodwill’, but why should employees be any different?

“When a company is positioned for acquisition, the value of human capital is crucial in the purchaser’s decision making process. So why not calculate and disclose that figure in annual financial statements?”

With International Financial Reporting Standards (IFRS) rules now stating that accrued holidays need to be reported on as a liability, the significance of employee time is certainly in the spotlight. But the value of an individual’s contribution – and the cost of their absence – is so much more complex than a simple salary calculation.

“If you divide turnover by the workforce headcount, you reach a potential contribution figure per employee,” explains Oliver. “But if you multiply this by tenure, to reflect factors such as experience, intellectual property and dynamism, an individual’s true value soon starts to become apparent.

“Yorkshire businesses need to recognise and make provisions for how much the workforce is worth, and they need to do it quickly, especially if the war on talent is to continue into 2017. Otherwise, with so much talk about Brexit and focus on the economics of business, the real lifeblood of organisations risks being overlooked.”