Advancing the human capital agenda

Employees are often a company’s most valuable asset – and a company’s approach to working practices and employee benefits are a critical component in recruiting, retaining and motivating, and thus maximising the productivity and value of this asset. Now more than ever, given the prevalence of social media in our lives, employees offer a window into the culture of a company. And for investors, employee job satisfaction and engagement offers important clues to the health and future performance of a company.

In the US, companies need to focus on human capital

The provision of decent jobs is one of the most fundamental ways in which businesses support economic growth. Indeed, we spend more time with our colleagues than we do with our families. As a result, our relationship with our employer and our colleagues has a profound impact on our financial and mental well-being.

In the US, fewer statutory rights are granted to employees than in other developed nations, for example:

• only 76% of workers have access to paid leave¹ and the median number of days provided is eight² (compared to a minimum statutory entitlement of 20 days in the European Union³;
• maternity leave is strict, with the US the only OECD country to not mandate paid leave for new mothers⁴; and
• the US is the only industrialized country without a national paid family-leave policy⁵.

The absence of some statutory employment rights, we believe, puts more paternalistic responsibility on US employers: it provides great opportunities for such companies to distinguish themselves from their peers in the competition for talent and the maximisation of their workforce’s productivity. With low unemployment, wage pressure on the rise and skills shortages growing in many areas, monetary and non-monetary benefits can make the difference between retaining or losing talented staff as well as reducing healthcare costs and improving output.

While there are many great examples of good employers, in aggregate many US companies are perhaps shying away from making necessary long-term investments in their people. In recent years, with corporate profits high, US firms have bought their own stock with extraordinary zeal. Last year, stock buybacks – when a company buys back its own shares from the broader marketplace – averaged $4.8bn a day, double the pace of the previous year⁶. This practice can be seen as a sign of short-termism among company management, boosting immediate shareholder value. Importantly, it draws available money away from long-term investment – for example, investment in employees to ensure future skills gaps are avoided.

In addition, companies must learn to accommodate a multi-generational and more diverse workforce. With unemployment dates shifting back for many companies and demographics in some areas continuing to change rapidly workplace environments will need to adapt accordingly. Furthermore, today, the youth unemployment rate in the US is at least twice the national average and 5.5m US youth (aged 16-24 years) are not in school or work⁷. Many young people are looking for work that they can’t find, often because they simply do not have the skills required by employers. These skills can however be transferred to younger workers by more experienced members of staff.

US companies are thus uniquely placed to have a transformative impact on people’s lives and help support achievement of the Sustainable Development Goals (SDGs).

Why action is needed 

For US employers, unplanned employee turnover is expensive, both in terms of the explicit costs of recruitment and training new staff and the less explicit opportunity costs associated with reduced productivity and diverted management attention.

Although employers monitor labour costs and productivity ratios closely, there are more significant costs associated with absenteeism and presenteeism: according to two studies conducted by the Journal of the American Medical Association, on-the-job productivity losses resulting from depression and pain is roughly three times greater than the absence-related productivity loss attributed to these conditions.

The continued shift in working population demographics exacerbates recruitment challenges. While older workers bring vital, often hard to replace, skills and depth and breadth of experience, they typically also cost more in terms of both salaries and health insurance costs. Conversely, younger workers increasingly expect greater flexibility and, it is suggested by some, potentially exhibit lower company loyalty, dis-incentivising investment in their development.

What is clear, however, is that company workplaces now commonly need to accommodate a multi-generational and diverse workforce. This likely necessitates investment in ergonomic equipment to prevent and manage chronic diseases as well as in initiatives to support employees’ mental and physical well-being. Such investment should be a positive, with programmes designed to reduce absence rates by ensuring employees are equipped with necessary skills and resilience.

What’s more with the growth of social media and the emergence of review sites, such as Glassdoor (a website where employees and former employees anonymously review companies and their management), employees can increasingly become powerful advocates for a company’s brand.

Creating value through human capital management

In recent years, more companies have started to use employee benefits and related initiatives as a differentiator when competing for talent and demonstrating leading-edge thinking in terms of their overall employee value proposition (see example practices adopted by companies globally below). Such companies tend to experience lower levels of employee turnover.

Indeed, we believe there are a number of tangential benefits that US employers are able to provide which can further participation in the labour market and support many of the necessary ambitions around health and well-being that are encapsulated by the SDGs.

For example, the addition of new benefit programmes or the reconsideration of leave policies is becoming a significant priority for many companies, in part in response to the shifting priorities of younger workers and the increased caring needs which are falling on both older and younger workers.