Human Capital Management

Human Capital Management
Course Instructor
About Markus...
Originally trained as a lawyer, Mark discovered

what has become a career long passion for
people development, especially in the area of
leadership. Once responsible for HSBC’s senior
management training, he went on to found
two successful international HRD businesses,
developing renown for creating innovative and
impactful methodologies. He wrote a business
bestseller (Will the Real Leader Please Stand
Up?), spoke at conferences worldwide, and
advised the UK Government on national
development initiatives. Mark holds a law
Markus Starmer degree from the University of Hull (UK) and a
Masters in Human Resource Management
Director, Leadership Training from University of Canterbury (NZ).
and Development
Corporate Finance Institute®

Learning Objectives
Define Human Capital Management Understand the impact that HCM has Identify common HCM practices and
(HCM). on company performance and issues that impact stakeholders.
corporate identity.
Explain financial risks and performance Compare key HCM metrics and how Recommend effective HCM solutions.
risks associated with HCM. they are used to evaluate a company.

Introduction to Human Capital Management
What is Human Capital Management
There is no single accepted definition of Human Capital Management across regulatory bodies, companies, or even
HCM practitioners.
Companies Individuals
It is crucial to be able to Gain an ability to derive

understand the insights and provide
underlying concepts that actionable
make up HCM. recommendations.

There is no single accepted definition of Human Capital Management across regulatory bodies, companies, or even
HCM practitioners.
Common Definitions Include…
“The practices used to recruit, retain, and improve the performance of employees.”
“The economic value of employee’s experience and skills.”
HCM
“How a company engages, educates, and empowers its people.”
Implicit within these definitions is the notion that taking care of employees will optimize corporate performance.

Just Capital is a publicly available ESG rating agency that assesses a company’s performance with respect to
creating shareholder value.
Just Capital Just Capital’s 2021 Poll Showed…
Environment
In 2021, the #1 issue Americans
cared about was the treatment of 10%
Customers Workers
employees.
11%
39%
HCM has become one of the
highest-profile ESG issues, largely
due to a series of converging 19%
historical events. Shareholders &

Governance
20%
Communities

2020 SEC Decision
Disclose HCM in annual reports
Stakeholder Demands
Global Reckoning on Racism
The S in ESG – How corporations
DE&I gets front and center
trust their people
Industry 4.0, IOT, Digital Revolution COVID-19 Pandemic

Focus on skill development Employee welfare and safety

There are numerous examples available about the financial implications of how a company ensures the welfare
and effectiveness of its people.
Labor Walkouts Employee Activism Whistle-Blowing
These poor HCM practices hurt companies reputationally, operationally, and financially.

Supply chain breakdowns are another consequence of poor HCM practices.
Inadequate staffing due to COVID-19 A single company’s poor HCM

outbreaks, family care practices can negatively impact the
requirements, or those leaving the entire downstream value chain due
workplace can inadvertently impact to interdependent relationships in
supply chain operations and the the logistics chain.
finances of an organization.
These may be resolved through contract negotiations, public relations initiatives, or changes in procurement practices.

There are a lot of chronic, longer-term outcomes that can impact an organization and can be very destructive
without easy fixes.
Boycotts
Investor Activism
(Consumer & B2B)
• Facebook was aware of mental health

damage it was causing to young people.
Meta • The company was publicly boycotted by
the world’s biggest brands.
Both consumer and corporate boycotts are a very real risk that can result from poor HCM practices.

ESG ESG ESG

Environmental Social Governance
Human Capital Management

DE&I
An inability to meet these rising expectations will inevitably result in unfavorable shareholder voting
activity, among other activist-type pressures, including board removal.

HCM & Financial Performance – Employee Welfare
Compensation Governance &

& Benefits Succession Planning
Health & Employee Human Capital Corporate Talent

Safety Welfare Performance Management
Management
Job Growth & Corporate

Opportunities Culture

Compensation
& Benefits
Wages
Health & Employee

Safety Welfare
Companies should also consider bonuses and
employee ownership plans.
Compensation at a firm for the most vulnerable

workers has become a core component of HCM.
Job Growth &

Opportunities

Compensation
& Benefits
Benefits and Employee Status
Health & Employee

Safety Welfare
Traditional employee benefits include sick leave and
health coverage.
‘Gig-economy’ business models such as ride-

sharing depend on cheap contracted labor.
Job Growth &

Opportunities Employee welfare is being increasingly considered
by workers, employers, and financers.

Compensation
& Benefits
Non-Monetary Benefits
Health & Employee

Safety Welfare
Includes education, up-skilling opportunities, on-
site childcare, and family planning services.
Other value-added benefits like health spending

accounts are also important.
Job Growth &

Opportunities

Compensation
& Benefits
Health and Safety
Health & Employee

Safety Welfare
Workplace Safety Covid-related

Conditions Procedures Protocols
Job Growth &
How has an organization supported its most vulnerable
Opportunities
workers throughout the pandemic?

Compensation
& Benefits
Health and Safety
Health & Employee

Safety Welfare
• Are there discrimination and

harassment policies?
Workplace • How easy is reporting

Conditions workplace issues?
Job Growth &

Opportunities

Compensation
& Benefits
Job Growth and Opportunities
Health & Employee

Safety Welfare
Career Personal Full-time

Job Growth & Advancement Development Employment
Opportunities

HCM & Financial Performance – Corporate Performance
Compensation Governance &

& Benefits Succession Planning
Health & Employee Human Capital Corporate Talent

Safety Welfare Management Performance Management
Job Growth & Corporate

Opportunities Culture

Governance &
Corporate Culture Succession Planning
Corporate Talent
Performance Management
Employee Employee Overall

Engagement Retention Communication Corporate
Culture
“The beliefs, behaviors, and shared values of a group”

Governance &
Employee Engagement Succession Planning
Corporate Talent
• A deeper connection with the organization improves

employee morale and performance.
• In 2021, Gallup’s annual survey revealed that only 34% of Corporate
employees were feeling ‘engaged’ at their workplace. Culture

Governance &
Employee Retention Succession Planning
The costs of finding and training a replacement

employee are estimated to be as high as 200% of the Corporate Talent
outgoing employee’s salary. Performance Management
Corporate
Culture

Governance &
Employee Retention Succession Planning
Hidden Costs Include:
Corporate Talent
Recruiting Lost Productivity IP Leakages
Corporate
Culture

Governance &
Communications Succession Planning
Internal vs. External Corporate Talent

A strong corporate culture has active, transparent,

and consistent communication.
Consistency in the general messaging of Corporate

internal and external communications. Culture

Governance &
Talent Management Succession Planning
Corporate Talent
Corporate
Training & Recruitment Labor Culture
Development Management

Governance &
Training and Development Succession Planning
Corporate Talent
Improving the performance of employees at the

individual, group, and departmental level.
How a company improves the effectiveness of
its workforce directly influences a company’s
Corporate
performance in today’s global talent wars.
Culture

Governance &
Recruitment Succession Planning
Corporate Talent
What does a company do Performance Management
to attract the best talent?
Corporate
Entrepreneurship Free-lancing Remote Work Culture

Governance &
Labor Management Succession Planning
Corporate Talent
Distinction between
management and the
workforce
There has been an uptick by employees in ‘higher-

skilled’ industries calling to unionize.
Corporate
Culture

Governance &
Governance and Succession Succession Planning
Planning
Leadership development refers to building the

capabilities for non-executive management.
Corporate Talent
Board development speaks to enhancing the
capabilities of the executive leadership team
and its board.
Human resource planning is a process used to

determine personnel needs in order to achieve
company goals. Corporate
Culture

Corporate Pressures on HCM
Organizations are facing an increasing number of external pressures related to HCM practices.
Disclosure of HCM Talent war emerging Diversity, equity, Business continuity

intentions on regular in today’s hiring and inclusion in the & maintaining
reports landscape workplace operations
Talent Development ‘Future-proofing’

The growing pressure corporations face on HCM has led to an increase in proactive reporting and disclosures.
Workforce composition Compensation and benefits
Corporate values & culture Talent development
Employee engagement and

Governance of HCM
safety initiatives
DEI initiatives Recruiting and retention
Disclosure is driven by the ongoing evolution of stakeholder expectations.

Stakeholder expectations take many forms as they relate to HCM practices.
The Corporation Stakeholders
Different stakeholders (i.e., investors, customers, suppliers, regulators, NGOs, and local communities), along
with the corporation itself, benefit from HCM efforts.

Stakeholder Expectations on HCM
The rising importance of HCM across stakeholders is evident in the 2022 Just Capital List of the most important
business topics.
Just Capital’s 2022 Poll Showed… Worker Treatment Issues…
Environment Compensation
10%
15.6%
Customers Workers Other
11% Health & Safety
39% 7.2%
Work-life
6.2%
Balance
19% 61.0%
6.2%
Shareholders & DE&I
3.9%
Governance
20%
Workforce
Training
Communities

HCM, ESG, and Competitive Advantage
HCM and ESG Performance
ESG, at a high level, is a framework for managing the risks and opportunities of a changing world.
HCM speaks to how a

company manages the risks
and opportunities related
to its people.
HCM
Competitive ESG
Advantage

Diversity, Equity, &

Employee Engagement Community Impact
Inclusion
Human Rights Labor Management

Some of the leading and most widely recognized ESG rating and ranking bodies all use HCM within their rating
systems.
Corporate HCM performance directly impacts perceptions of ESG performance, maturity, and overall risk
management.
Specific Skills, Domain New Roles, Adapting a Business

Knowledge, & Responsibilities, & Model based on ESG
Capabilities Performance Indicators Risks and Opportunities
These factors heavily If a company has low The company's approach

influence a company’s organizational resilience, will influence how
approach to HCM. it will be difficult to execute effectively it can pivot the
any ESG strategy. business model.

HCM and Financial Performance
Top Ranked
Culture 60% higher than median companies
Median
200% higher than bottom quartile companies
Bottom Quartile
Corporate Culture
Strong corporate cultures have better levels of innovation, employee engagement, and perceptions of corporate
behavior than their conventional counterparts.
Corporate culture directly influences management’s ability to maintain a competitive advantage.

Diverse teams statistically make better decisions in increasingly complex situations.
Companies with diverse and inclusive Executive teams in the top-quartile are 21%
teams make better business decisions 87% more likely to have above-average profits
of the time. than fourth-quartile companies.
Global customer bases have made cultural knowledge and competency a key driver of market penetration and
revenue growth.

Analyzing public information on a company’s HCM policies can provide insight into how HCM is being addressed.
Give direct insight into how enthusiastic, committed, and willing

Employee employees are.
Engagement
Statistics Research from Gallup and other think tanks validate that employee
engagement levels directly influence customer satisfaction and retention.
Retaining the best talent

has a direct impact on the
bottom line. Flexible Work Career Corporate
Options Development Purpose

In 2015, Google released a seminal study on team performance across 180 teams.
1
The best indicator of team
2015 study across performance and employee Replicated by
180 teams on team retention was researchers at CMU
performance “psychological safety” and Union College
Behaviors that promoted interpersonal risk-taking – such as proactive sharing of opinions, encouragement to learn
from mistakes, and a shared sense of sensitivity and collaboration around problem-solving.

In 2015, Google released a seminal study on team performance across 180 teams.
Improved performance, Reduced sick days, Higher levels of

innovation, and better mental health confidence in senior
resilience and well-being management

Key Considerations on HCM for Companies
Talent Brand &

Development Reputation
Innovation &
Growth
Internal External Stock Price
Company
Employee
Attraction &
Retention
Corporate Potential
Integrity Litigation

Talent
Development Talent Development
Innovation &
Growth
Internal
Employee
Attraction &
Retention
Learning Development Corporate HCM
Corporate Opportunities Budget Efforts
Integrity

Talent
Development Innovation & Growth
Innovation &
Growth
Internal
Employee
Attraction &
Retention
Corporate Training and Receptiveness
Corporate Culture Development to Innovation
Integrity

Talent
Development Employee Attraction & Retention
Innovation &
Growth
Internal
Employee
Attraction &
Retention
Compensation Comprehensive Stewardship
Corporate & Benefits HR Manual activities
Integrity

Talent
Development Corporate Integrity
Innovation &
Growth
Internal
Employee
Attraction &
Retention
Health & Wellness Employee Corporate Giving
Corporate programs Satisfaction Practices
Integrity

Brand &
Brand and Stakeholder Reputation Reputation
External Stock Price
External Brand HCM Resources HCM Approach Potential

Promise & Customers Litigation

Brand &
Stock Prices Reputation
Influence on Market Documents and Potential

Stock Price Perception Reporting Litigation

Brand &
Litigation – Investor & Customer Reputation
Litigation from Local Employee Disclosure Potential

HCM Issues Regulations Regulations Litigation

Key Considerations on HCM for Investors
HCM Stakeholder
Engagement Perceptions on HCM
Stewardship Communication
Internal External
Priorities on HCM Practices
Investors
HCM Issues and Client

Decision-making Mandates

Assessing HCM Performance
Corporate HCM Metrics, Goal-Setting & Reporting
HCM performance can be assessed using a variety of quantitative and qualitative data, which is derived
primarily from publicly available information.
2020 Disclosure Update
Regulatory SEC
HCM disclosure requirements are Item 101(C)(1) requires description

often “principles-based” of human capital resources
Metrics regarding company culture, compensation, employment, DEI, talent development, and performance
should always be included.

For company culture, there are a variety of metrics that issuers may choose to report results on.
Company
Culture
Employee Engagement Frequency of Annual Staff Percentage of Percentage of

Scores (NPS scores) Pulse Checks Turnover Employees Trained Vacation Days Used

%
The Percentage Cost of
the Workforce
Benchmarked using industry

research through vertical
Compensation
SCR =
Salary Competitive
Ratio (SCR)
Average Firm Salary
financial statements Average Competitor Salary
A ratio greater than 1:1 indicates a

reasonable level of competitiveness

For company culture, there are a variety of metrics that issuers may choose to report results on.
Employment
Full-time Employees Average Termination Retention Hires New hire 90- Average time to
vs. Contractors Tenure Rates day failure rate fill job vacancy
Issuers that take ESG disclosure seriously should also be breaking these out by employee levels.

For diversity, equity, and inclusion, we often see some combination of:
Diversity Equity
& Inclusion
Number of DEI
Number of diverse Procurement spend on
trainings and Pay Equity
employees diverse businesses
participation rates

Talent
The Number of Development ROI on Training
Training Programs
Participation rates of these Cost reductions, improved

programs are often measured satisfaction, and retention rates

Performance
Percentage of viable Internal promotions Performance of new Performance of newly

job candidates vs. external hires hires promoted employees

HCM reports frequently present historical results and goals, which are forward-looking targets.
S M A R T
Smart Measurable Achievable Relevant Time-bound
“40% of all technical “100% pay equity in salary for women and “50% of all candidates will
leadership roles will be led men across Verizon and with respect to race / be diverse candidates by
by women by 2025” ethnicity in the U.S by 2025” 2023”
Intel Verizon Hilton
Each commitment has a specific figure to achieve, as well as specific number of years.

There are three core concepts the analyst community must be aware of when evaluating a company’s HCM
performance.
Measurement and
Goals Business Case
Management
Are there explicit near-term Are the intent and the Are there clear protocols to
and longer-term goals, key desired outcomes behind ensure effectiveness and
performance indicators the HCM effort put in the oversight in measuring
(KPIs), and associated context of the business and progress and programmatic
timelines for achievement? its stakeholders? implementation?
If these items are not addressed by an issuer, there may be greenwashing going on in the firm's disclosure
practices.
Public issuers typically release this information in a variety of different places.
ESG or HCM- Governance Reports

Annual Reports and
specific Reports and Policy
Proxy Statements
and Disclosures Documents
If none of these resources mention HCM or HCM issues, the company’s efforts at likely minimal.

Context is critical when assessing HCM performance; an organization’s practices are greatly impacted by a given
industry.
HCM Performance Checklist
Knowledge Workers vs. Laborers

Industry
Services vs. Manufactured Products
Key Resources Natural vs. Intellectual Resources
Future / Growth Acquisition of more physical assets (PP&E)

Strategy Innovation or increases in intellectual property?
HCM and How widely available are the HCM requirements?

Scarcity
Ability and capacity to build the existing workforce

Making Recommendations on HCM
After assessing HCM performance, the next step is interpreting results and making recommendations.
Policy
Organizational
Programs
Systems
Performance Indicators
Goals
Resource Corporate Available Information
Resource Requirements
Allocation & ROI Transparency Proactive Communication
Desired Outcomes
Without proactive communication efforts, it can be difficult for external stakeholders to assess performance.

HCM Within the Finance Industry
HCM Risks and Opportunities for Financial Services
The financial services industry’s responsibilities around ESG and HCM don’t end at analyzing other public
issuers.
Financial Services Firms
1 2 3
Enterprise-level Legal and Strategic
Financial Risks Reputational Risks
Risks

Wells Fargo serves as an interesting example of when HCM risks and issues converge to create a firestorm.
In 2018, management paid Fraudulent sales practices

$3 billion to resolve civil and caused insurmountable
criminal probes reputational damage
Hidden costs of
organizational change to
try and rebuild trust
Governance ineffectiveness and a toxic corporate culture are indicative of poor ESG and HCM practices.

Enterprise-level financial risk can include instances where a lack of ESG investment criteria and protocols
create risks.
Example
An asset management team manages a fund
1 with a specific ESG mandate but invests in

companies contrary to these stated criteria.
Enterprise-level This may result in enterprise-level financial

Financial Risks problems and hidden costs.
Cash Penalties Hidden Costs

There are a variety of legal risks posed by HCM failures.
Risks Include:
Lawsuits including discrimination or
2
improper terminations.
Legal and Class-action lawsuits where consumers

Reputational band against anticompetitive firms.
Risks
Legal action arising from not adhering to
proper disclosure requirements.

The biggest strategic risk is how a firm and its management team will be able to satisfy stakeholders’
expectations around ESG?
Risks Include:
ESG capabilities are critical for pension
3
funds and college endowments.
Strategic Banks with retail operations face

Risks expectations to become change agents.
Strong and effective oversight of HCM

strategies is paramount.

Financial Services HCM Practices
When hiring or training staff, financial services firms need to build capacity in three key pillars.
Portfolio Identification of ESG ESG investment

Construction Risks and Opportunities Frameworks, Scorecards,
and Reporting
Portfolio construction in Identify and extrapolate Having teams with

accordance with an ESG how ESG factors present expertise in global ESG
mandate and the risks and opportunities for investment frameworks like
integration of ESG issues a given firm. the UNPRI should be high
into firm strategy. priority for HR groups.
Companies that build these capabilities will be best positioned to compete in today’s age of ESG.
Financial services are facing broader skills gaps that extend beyond ESG-specific capabilities.
Shortage of mid-career candidates
Challenges retaining millennial talent
Industry-wide culture challenges
In 2021, Bank of America piloted a In 2020, Morgan Stanley launched

VR training program to help the Institute for Inclusion to
upwards of 50,000 employees better support diverse employees
practice a range of tasks. and diverse customers.

A significant challenge being experienced across industries is that of digital transformation.
Internet of Things Artificial Intelligence Blockchain

(IoT) (AI)
Digital
Transformation
The largest firms are setting up internal training operations in order to meet increasing demand in these areas.

Case Study
HCM Case Study
Let’s translate theory to practice in a case study that reflects real scenarios you could find yourself in as a
financial analyst.
Background Task
You are an analyst being asked to assess the risks
Your firm is determining whether to invest in
associated with the human capital management
Microsoft, Zoom, or HubSpot. Your management
(HCM) performance of three different investment
team asks you to determine the HCM risk exposure
opportunities. This is the first time your firm is
for each company, as well as provide
considering HCM in the investment and due diligence
recommendations on what issues and specific
process. You have been tasked with identifying risks
inquiries you would engage the management team
and providing engagement inquiries
on.
recommendations to your management team.

HCM Case Study
First, enter ‘Just Capital’ into a Google search, and click on the company website result that pops up.

HCM Case Study
Next, click on the rankings tab in the top right corner and click on the company side-by-side comparison switch.

HCM Case Study
Type Microsoft into the compare companies search bar, add the remaining companies Zoom and HubSpot
afterwards.
3 4

HCM Case Study
Here we can see some general information about how these companies compare against each other across a variety
of different HCM metrics.
5 6

HCM Case Study
To fill out the figures in our industry averages column, we will need to dive into a number of these issues to find
specific ratings on topics such as DE&I policies or Health and Safety Policies.

HCM Case Study
We can find the industry average number by hovering over the orange bar in each section. To find more specific
metrics indicated on our Excel sheet, click the view details button.
6 7

HCM Case Study
Click view details on Worker Health and Safety and then observe that the average rating for a software company is
33, which is comparatively low to Microsoft’s own score of 79.
7 8

HCM Case Study

Course Summary
Learning Objectives
Define Human Capital Management Understand the impact that HCM has Identify common HCM practices and
(HCM). on company performance and issues that impact stakeholders.
corporate identity.
Explain financial risks and performance Compare key HCM metrics and how Recommend effective HCM solutions.
risks associated with HCM. they are used to evaluate a company.

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Originally trained as a lawyer, Mark discovered

Corporate Finance Institute®

Corporate Finance Institute®

It is crucial to be able to Gain an ability to derive

Corporate Finance Institute®

Common Definitions Include…

“The economic value of employee’s experience and skills.”

“How a company engages, educates, and empowers its people.”

Corporate Finance Institute®

Just Capital Just Capital’s 2021 Poll Showed…

historical events. Shareholders &

Corporate Finance Institute®

Industry 4.0, IOT, Digital Revolution COVID-19 Pandemic

Corporate Finance Institute®

Labor Walkouts Employee Activism Whistle-Blowing

Corporate Finance Institute®

Inadequate staffing due to COVID-19 A single company’s poor HCM

Corporate Finance Institute®

• Facebook was aware of mental health

Corporate Finance Institute®

ESG ESG ESG