The SEC Just Put "People" Over Profits — Here's What It Means For Your Job

For decades, public companies have reported their “health” through the lens of just one thing: financial metrics. 

But for all the balance sheets presented to shareholders each quarter, they’ve largely ignored a reality that’s becoming increasingly apparent to customers and investors alike: the factors that make or break a company aren’t just found in the financial data, but also in people data. Now, a recent ruling from the Securities and Exchange Commission is finally setting a higher standard by requiring public employers to report human capital metrics, too. 

These metrics go beyond simple headcounts to provide vital glimpses into the factors that materially impact business operations — everything from recruitment and retention, to workforce demographics, worker health and safety and pathways to promotion. The SEC’s ruling is a tentative step to get public companies to reflect a shift in public opinion that gauges a company’s success by its environmental, social and governance impacts rather than by financials alone. 

In the process, public companies may soon discover what private investors have long known: a company’s most telling indicators of health aren’t found in bank statements, but in information about the people who work there. 

The overlooked value of people metrics

Private equity firms and venture capitalists have long done their due diligence in asking for human data as a way to protect their investments. Knowing the company you’re backing is fully staffed with an adequately trained and compensated workforce is like knowing your airline pilot has the required amount of flight hours. It’s a baseline indicator of competency that public shareholders, with pension plans and retirement funds at stake, have a right to know.

Until now, public companies have been largely let off the hook of having to invest in people analytics. The SEC ruling means they can no longer look the other way. With plenty of tools available to streamline tracking and provide actionable insights, there’s no excuse not to collect good quality people data. But deciding which metrics are relevant to a company’s health depends on the industry.  

In tech, for example, aggressive growth targets and competition for talent mean that employers often struggle to fill roles fast enough. Visibility into open positions, not to mention the experience level of people on staff, can be exceptionally illuminating, and serve as an early warning indicator of future problems.

Just look at Tesla. When the company launched the standard-range Model 3, stocks skyrocketed, and thousands of people paid the deposit to be added to the waitlist. However, hiring and training engineers to build cutting-edge cars takes time, and some customers found themselves waiting up to three years for vehicles they’d been promised within weeks. Transparent human capital reporting would have raised red flags for investors about the likelihood of receiving the product on time, and could’ve saved frustrated customers some money.

Absenteeism is another key performance indicator, leading to productivity losses that cost U.S. employers $225.8 billion annually. Especially in fields like health care, employee absences can be the canary in the coal mine, indicating overworked, burnt-out shift workers. The stakes are even higher in a public health crisis when absences can mean a degradation in essential services. But harnessing predictive analytics to crunch historical data and predict future absences can better inform staffing, allowing companies to plan ahead and avoid gaps in quality of care. 

Regardless of industry, keeping track of human capital pays dividends for business operations and the bottom line, especially when it comes to employee satisfaction. Happy employees work faster, are more productive and positively impact customer loyalty. At the organizational level, human resource departments that focus on workforce analytics to inform their people decisions are more effective, generating an average of $775,364 in revenue per employee. That outperforms the average revenue of all U.S. organizations by 19%.  

Meeting the demand for socially conscious business   

The relationship between employee satisfaction and business performance has long held true, but 2020 has accelerated an existing shift toward a corporate responsibility to serve all stakeholders. 

Gone are the days when addressing social issues was considered idealistic. Millennials have driven a cultural shift towards values-driven companies with 40% saying they’d take a pay cut to work at an environmentally friendly company. Generation Z is following suit, ranking a company’s positive societal impacts as a top priority when job hunting. The Black Lives Matter movement has called on companies to be accountable to their diversity and inclusion metrics –– and called out those that aren’t. And the coronavirus has increased scrutiny of how companies support their employees — or don’t — in times of extreme hardship. 

Stakeholders and investors are paying close attention. We see this in a shift towards socially responsible investments (SRIs), to the tune of $26 trillion in assets. Fiduciary firm BlackRock has already halted investments in companies that aren’t adequately addressing the climate crisis. We may soon see institutional investors pull money from companies that can’t prove they have their employees’ backs, as well.

Reporting on people data is a first step in meeting these heightened expectations. But it also increases pressure to go beyond the numbers and actually deal with things like toxic managers and systemic bias that perpetuate persistent inequality in the workplace. The better an employer’s understanding is of its human capital, the better equipped it is to introduce workplace conditions, policies and benefits that meet individual workers’ needs, whether that’s flexible or relaxed sick leave policies for frontline service workers or addressing issues like burnout and isolation for remote workers.

For companies that haven’t previously tracked human metrics data there will be some catch up involved — and the system isn’t perfect. The SEC ruling still leaves it up to companies to decide what metrics they view as “materially important” to organizational outcomes, at least for now. But with some reporting of human metrics required, more companies will likely discover the value of tracking their people as closely as they count their pennies. 

This was originally featured in Forbes. Keep up with my latest articles by following me here or on Twitter.