The report, produced in partnership with the PLSA and investment fund Railpen, analyses the quality of workforce disclosures in the 2021 annual reports across the FTSE 100. We examined how these businesses reported on seven key people themes: workforce cost and composition, employee relations and wellbeing, reward, voice, skills, capabilities and recruitment, and response to COVID-19. It takes into account both metrics and narrative reporting and provides insight around what people information the investor community finds most useful.
The good news
First the good news: there is now, on the whole, more space in annual reports dedicated to workforce reporting, something that should, in itself, be recognised and celebrated. However, the quality of the reporting remains low in most cases – with sweeping statements without evidence or data to back them up. What is critically missing in many reports is the strategic link between the people information presented and value creation. People might be that most important of assets, but it’s not exactly clear why and how this is the case.
Take inclusion for example. While 93% of companies provided evidence of investment in inclusion and diversity, only 22% reported the ethnic breakdown of the workforce, making it challenging for investors and other interested stakeholders to judge how effective and impactful these investments have been. Only nine companies chose to disclose their ethnicity pay gap, another meaningful measure of the impact of I&D strategies. However, it should be noted that this is a marked improvement on 2019, when only three companies reported their pay gap and only 10% reported the ethnic breakdown of their workforce.
What needs to be improved
The way in which companies reported on contingent workers is another area ripe for improvement. With many organisations shrinking their core workforce and relying more heavily on services delivered through the supply chain, the contingent workforce represents a significant cost and risk to businesses. Yet very few organisations reported the cost of their temporary and contract workers - something arguably material to investors - and only 14% of companies disclosed the number of contingent workers they use.
There is an increasing acknowledgement in the corporate and investor world that poor treatment of workers constitutes a business risk. The pandemic has thrown this fact into even sharper perspective, with debates raging over unsafe workplaces, wellbeing and inadequate sick pay. In the summer of 2020, I remember hearing from one CPO in the food manufacturing industry that there had been hardly any COVID-19 outbreaks among the workforce - something they put down to the enhanced sick pay they had in place. In stark contrast, one organisation in the same sector - which offered only statutory sick pay - suffered multiple breakouts which were reported in the mainstream press and impacted on company reputation. With UK organisations currently feeling the effects of a labour shortage, there are clear business benefits to improving employment practices.
‘What gets measured gets managed’ is another business cliché as groan-inducing as ‘our people are our greatest asset’ but reporting on workforce matters is critical to helping leaders make more informed, responsible decisions, helping external stakeholders like investors to do the same and, where necessary, holding businesses to account. At present, narrative reporting dominates discussion on people matters. It’s not hard to see why, as human capital metrics can be hard to define and are notoriously subjective but, without a consistent baseline of understanding, it is challenging for investors and other interested parties to assess the quality of employment practices and get a true picture of organisational culture.
What can be done to improve the situation?
That’s why we are calling on the Financial Reporting Council (FRC), investors and companies to come together to agree a baseline framework for workforce reporting. Doing so would help improve the consistency and quality of company disclosure on the people issues that we know are central to creating more sustainable, responsible and productive organisational cultures and working practices. Any framework should clearly outline the narrative and areas of workforce data that require reporting. It would also serve to underpin the workforce reporting element of new global sustainability-related disclosure standards being developed by the International Sustainability Standards Board.
Adding more rigour to the reporting of people matters reflects the increased appetite from boards and investors to understand company culture and working practices. Some of this is thanks to changes to reporting requirements under the Corporate Governance Code that ask listed organisations to report on culture and how they are capturing and responding to employee voice. Taking workforce reporting seriously means taking the treatment of, and investment in, the workforce seriously. It should be welcomed by the people profession and, in particular, HR leaders.
Our recommendations
In our report, we recommend organisations to invest in fit-for-purpose HR information systems to help them collect the right information, in the right way, at the right time, and in the right format. But people professionals need to be equipped to understand these systems and what the data is telling them. Upskilling the profession around analytics is critical, not just around data collection and analysis, but in asking the right questions and engaging with internal and external stakeholders such as the board and investors about what people information would be most useful. It’s not about measuring everything in sight and overwhelming the board with data, but about creating a compelling and accurate narrative around people issues, backed up with evidence.
Workforce reporting mustn’t be seen as a chore - yet another task for overstretched HR departments to take on after a draining and challenging couple of years - but as an opportunity to influence at the very highest level. Encouraging and enabling meaningful people reporting places the profession and its expertise not only at the heart of value creation but also at the heart of building more responsible and sustainable businesses.
