Measures & Metrics Taskforce: Report from the Investor Workgroup January 25, 2012

Today’s Agenda Overview of Investor Metrics draft standard – Objective – Guiding principles – Process – Proposed standard – Known issues – Discussion & questions Next Steps

Objective Provide a standard set of HR metrics that will help investors make a start in using human capital information to evaluate firms’ prospects

Guiding Principles The standard has to be “easy to love” by investors and corporations: Investors--speaks in their language, easy to understand Corporations--easy to implement, makes sense We are seeking a standard that is practical, useful, and reasonable (not perfect) – it is a foot in the door. The proposed metrics are meant to open an inquiry (‘why is turnover high?’), they are not meant to provide answers on their own. The standard will evolve over time.

Voluntary Compliance Compliance with our proposed standard will be voluntary

Our Process Met monthly throughout 2011 Four discovery teams (whose roles evolved and “merged”): – Relevant Research – Related Efforts – Making the Standard Stick – Human Capital Indices Defined Draft standard was passed in early December

The Draft Standard 1.Spending on human capital (including T&D) 2.Ability to retain talent 3.Leadership depth 4.Leadership quality 5.Employee engagement 6.Human capital discussion & analysis

Known Issues There are good HR metrics that are not included – We excluded some good metrics because we couldn’t find a good way to articulate them, because we needed to keep the standard short, and because we know this is not the final word, just a foot in the door. A “low” score (e.g. limited leadership depth) is not necessarily bad. – This is not a problem, investment analysts know how to make sense of data. The impact of the HR metrics on firm performance is still controversial – It’s controversial because there has not been good data, the standard will lead to good data and then investors will learn definitively which metrics are really useful and which are not. Some of the metrics (like engagement) are not entirely standard since different organizations use different methods. – This is a disadvantage but it is unavoidable since we can’t tell firms to use one consultant’s engagement score. It is not fatal since the most important indicator is how a firm’s score changes over time. Furthermore investors, where they think it is important, will pressure firms to use methods where there is some normative data. 8

The Draft Standard 1.Spending on human capital (including T&D) 2.Ability to retain talent 3.Leadership depth 4.Leadership quality (David Creelman) 5.Employee engagement 6.Human capital discussion & analysis

The Draft Standard 1.Spending on human capital (Brad Pierce) 2.Ability to retain talent 3.Leadership depth 4.Leadership quality 5.Employee engagement 6.Human capital discussion & analysis

The Draft Standard 1.Spending on human capital (including T&D) 2.Ability to retain talent (Dave Carhart) 3.Leadership depth 4.Leadership quality 5.Employee engagement 6.Human capital discussion & analysis

The Draft Standard 1.Spending on human capital (including T&D) 2.Ability to retain talent 3.Leadership depth (James Harvey) 4.Leadership quality 5.Employee engagement 6.Human capital discussion & analysis

The Draft Standard 1.Spending on human capital (including T&D) 2.Ability to retain talent 3.Leadership depth 4.Leadership quality 5.Employee engagement 6.Human capital discussion & analysis (Ron Adler)

Next Steps Your feedback – If there are other metrics that you’d like us to consider, we’d like to hear them. Please write up the idea as a fully fleshed-out proposal (no “thought grenades”) and submit it through KAVI. We’ve run into situations where an idea is sound, but difficult to measure. Example: We know risk is important but couldn’t figure out a good metric. Wordsmithing – Crafting the wording and examples used in the standard so that it is clear and friendly and appealing. Beta-testing – We need help finding firms to beta-test and friendly investors for feedback. Sources of funding – It would be great to have a university do ongoing research on these metrics, but that requires that we find someone to fund it. 14