The tip of the iceberg: human capital reporting

New reporting requirements may have been scrapped by the chancellor, but there are plenty of other reasons to report on human capital management, our study finds.

Key points From financial years beginning 1 April 2005, listed companies were to have been required to produce an Operating and Financial Review (OFR), in which employment issues to be covered were "material" the past and future performance of the business. The chancellor recently announced his intention to abolish this requirement, but the Department of Trade and Industry now says that companies will have to produce a simpler, non-audited "business review". The Accounting for People report concluded that there was no set of common indicators for reporting on human capital, but an Investors in People-led group looks set to revisit this issue and see if further progress can be made. Corporate responsibility reporting has different objectives from human capital reporting, and is more concerned with accountability to stakeholders than demonstrating a link between responsibility and performance. However, it does enable companies to report the kind of detailed analysis of workplace issues that may be inappropriate in an annual report.

"At the heart of company law is a simple bargain - companies enjoy limited liability in return for making public certain information, mostly financial in nature, about their affairs," a recent MORI briefing on non-financial reporting states¹. "But," it continues, "this bargain was struck in the 19th century and needs updating."

Quite how the "bargain" needs updating is still very much open to debate, and perhaps in no respect more open than when it comes to people management, an area where both public disclosure - and investor interest in what information has been disclosed - has traditionally been minimal. The Accounting for People (AfP) taskforce, which sought to raise the profile of human capital reporting, offered guidance and examples for organisations seeking to prove the value added by effective people management, but steered clear of setting a prescriptive approach for how companies should report on people management.

One of the actions recommended by the taskforce to government was that companies should report on human capital in the Operating and Financial Review (OFR) that the government wanted listed companies to produce, in order to give a fuller picture to shareholders of their firms' performance. However - shortly before this issue of IRS Employment Review went to press - the chancellor announced in a speech to the CBI that the government would "abolish this requirement". Now the DTI has suggested that listed companies will instead be required to produce a simpler "business review", with no requirement that it be audited.

Despite the current confusion, preparation for the anticipated OFRs has in itself led to a proliferation of activity and guidance in the area of reporting on people management issues. The negative reaction from a wide range of investors' and business bodies to the announcement indicates that there is a strong appetite from both businesses and investors for higher standards of reporting in this area. In this feature we provide an update on the current state of play in human capital reporting and seek the views of HR professionals, investors and experts on doing it effectively.

The story so far

When the AfP taskforce, which was commissioned by the government to consider current best practice in human capital reporting and champion the business case for doing so, published its report in November 2003 it proposed that the way forward was through an "evolutionary approach"². Its consultation found that there was neither a single set of indicators nor practices that were widely accepted as "best practice" in either the management or reporting of human capital reporting. Rather than specifying such a framework, the idea was that the collation of best practice examples, and the momentum created by the taskforce, would in themselves "encourage buy-in" among employers to begin to manage and report on human capital more systematically - and stimulate a "thirst for human capital information" in stakeholders.

Before the AfP taskforce, the DTI's Company Law Review had recommended that UK listed companies would be required to produce an OFR as part of their annual report and accounts, giving an account of the board's understanding of the factors material to the organisation's performance. One of the more specific recommendations made by the AfP taskforce was that, "Directors of companies producing OFRs and all public and other bodies that produce OFRs or reports with similar aims, should include within them information on HCM or explain why it is not material."

Many HR professionals expressed their disappointment when the regulations setting out requirements for the OFR, making it mandatory for listed companies' reports on the financial year from 1 April 2005, did not contain an explicit requirement for companies to report on human capital management (HCM). But they did specify that "employment information" must be included "where relevant" to the principal objectives of the OFR, and contain some fairly detailed guidance about how HR matters might be handled in the proposed reviews.

These proposals have now been watered down further. On 28 November, the chancellor told the annual CBI conference: "I understand the concerns about the extra administrative cost of the gold-plated regulatory requirement that, from April 2006, all quoted companies must publish an operating and financial review… so we will abolish this requirement and reduce the burdens placed upon you." The CBI welcomed the announcement but other business groups were not so impressed. The Chartered Institute of Management Accountants (CIMA) commented that: "Confusing the OFR with a reduction in bureaucracy risks losing the benefits it will deliver to all stakeholders … that would be the wrong step and a fundamentally bad one."

Shortly after the chancellor's announcement, the DTI hurriedly proposed that listed companies will be required to produce a "business review", which should cover "information relating to employee, social and environmental matters where it is material", reflecting the fact that the OFR was designed to implement an EU Directive that requires companies to ensure that they report on non-financial matters more fully. However the story unfolds, it seems that there will be some form of mandatory requirement for listed companies and pressure for more meaningful reporting on non-financial issues.

Building on internal reporting

As a recent Chartered Insitute of Personnel and Development guide to internal human capital reporting states, "good-quality internal reporting is the cornerstone of good-quality external reporting"³. Organisations that have no processes in place to measure, or insufficient, data about what actually happens in their organisation will be hard pressed to provide a convincing external account of what value is added through people management. A recent survey of 460 HR professionals⁴ suggested that many organisations do not know basic statistics about their organisation's workforce. It found that nearly half could not give the cost of recruiting staff in their organisation, one-third do not have absence data for their employees and more than one-third did not know their employees' average length of service. While there is now a wide range of models available for human capital reporting - from the balanced scorecard to economic value added (EVA) methods - the survey suggests that having systems in place to gather and analyse data is still a barrier for organisations wishing to move to better measurement of human capital.

There is, however, a small but growing number of organisations that do have established systems to measure human capital, with a strong focus on internal rather than external measurement and reporting, although some report on key performance indicators (KPIs). One of the best known is The Royal Bank of Scotland, whose human capital model we reported on in Human capital reporting: proving the value of people. Since the launch of its human capital strategy three years ago, the bank has developed an HR toolkit as the next stage in its development, which enables HR professionals to access and analyse data from across the bank's global workforce. Earlier this year, the bank established a "human capital board" to push initiatives that will help the organisation get the most out of its people.

Another leading example is the Genome project at Nationwide Building society, explained in the company's 2005 "Better society" report. The report has been developing for the past three years in order to better understand the link between employee commitment and customer commitment, and enabling the company to calculate "the monetary value that increasing employee commitment has on member commitment and business performance". The project identified pay, length of service, coaching, resource management and values as the key drivers of employee commitment levels (see Banking on performance in the financial services sector).

Other organisations are looking to develop systems that are better able to capture the contribution of people management to their business. For example, Centrica has set up an internal working party to develop HCM processes and is sponsoring a PhD student who is helping to design an HCM model for the company. Its objective is to: "deliver a robust HCM process as part of the wider human resources transformation programme to improve our systems and data capture"⁶.

Indicators: comparable or flexible?

One of the key arguments around human capital reporting remains whether there should be common measures to enable comparisons between organisations. In 2003, a review of current practice in human capital reporting by FTSE 200 companies in the UK, commissioned as part of the AfP review, noted that although indicators are used internally, very few indicators are used externally.

A new group has decided to take a further look at whether some common measures of human capital can be developed. Ruth Spellman, chief executive of Investors in People (IiP), has confirmed to IRS Employment Review that IiP has decided to "initiate a working group to investigate how best to measure the value of an organisation's human capital". She said that the planning for the project is still "in its early stages" and that there are no set terms of reference. "In order for the group to be a success it cannot be led purely by HR professionals, although obviously their input is vital," she said. Chief executives, accountants and financial directors will also be invited into the group. She acknowledges that there "may not be a single, 'off-the-shelf' series of measures that employers can apply in the same way, at all times, irrespective of their size, sector or circumstances", but is keen for the group to explore the issues and "identify candidate indicators for further discussion".

What measures are companies using?

A glance through the annual reports and corporate responsibility reports of major organisations gives some idea of the scale of the challenge the IiP-led group faces if it is to identify commonality between the varying indicators that companies use to report on human capital. Some key performance indicators do emerge, but they tend to be more effectively linked to business performance where they are explicitly tailored to that company's business objectives, and are therefore not easily comparable to other companies.

Taking the example of workforce diversity, most companies that produce detailed corporate responsibility reports, or include a significant amount of employment information in their annual report, provide a breakdown of the diversity of their workforce. Many have indicators which seek to increase it. But these indicators of performance at three different companies illustrate company specific approaches:

• Tesco has introduced a KPI on inclusivity and diversity for 2005/06 of, "no statistical difference by age, sex or ethnicity in answer to the staff Viewpoint survey question 'I look forward to coming to work'";
• Camelot introduced an indicator for 2004/05 of, "Staff agreement score to 'Camelot treats employees equally and inclusively with respect to gender, age, disability, ethnicity, etc' (%)"; and
• Shell uses three KPIs to measure progress on diversity in its external reporting framework. A first indicator measures the proportion of women filling senior management positions and the proportion of local staff (ie from the country in which Shell is based) filling the senior Shell representative position across the company, against targets for both. A second indicator tracks employees' views on how inclusive their workplace is, and a third measures the proportion of Shell's operations that have adopted its Diversity and Inclusiveness Standard.

Measuring turnover and retention is another area where indicators are difficult to compare. At Tesco, for example, a KPI for 2005 is to exceed 80% retention of experienced staff, defined as those with more than one year's experience. At news agency Reuters, the target for 2004 was to lose no more than 3.5% of employees whose performance was rated as exceptional or superior. As an example, we have looked at the indicators and commentary on training and development that some companies provide in their annual or corporate responsibility reports, and the results for 10 companies are contained in table 1. One indicator, the average number of training hours per employee, is commonly reported (it should be noted that training days or hours per employee for the financial year, reported by grade, occupation or employee group, is one of the core indicators under the Global Reporting Initiative, below). However, not all companies see this quantification of training as useful; Shell argues in its latest corporate responsibility report that this indicator is not reported "since it is not meaningful at [a] global level".

Corporate responsibility indicators

It is important to note that most companies report primarily in their corporate responsibility (CR) or corporate social responsibility (CSR) reports, rather than in their annual report. The objectives of CSR reports are different from the objectives of human capital reporting as expressed in the AfP report. The main objective of a CSR report (now often called a corporate responsibility report) is usually to communicate the fact that an organisation is both responsible and accountable to stakeholders (who might include customers, investors, employees, potential future employees) and, where relevant, NGOs and interest groups such as trade unions. A recent guide to corporate responsibility reporting by Business in the Community (BITC) acknowledges that at present, "corporate responsibility reports say a lot about what the company does (its core business) but little if anything on the company's strategy or the potential for that strategy to succeed"⁵.

The most commonly used guidelines for CSR reporting are those of the Global Reporting Initiative (GRI)⁶, a new version of which will be released in 2006. They are designed to be compatible with organisations of all sizes and sectors, and contain 12 core performance indicators that relate to employment issues. Another widely used tool are the indicators contained in the BITC's report, Winning with integrity, a core set of which appears in Indicators that count, published in 2003.

While the objectives of CR reports may be different to human capital reporting, CR reports are clearly here to stay and provide a valuable way in which companies can report to their stakeholders. According to Katherine Sharp, senior corporate responsibility reporting manager at BITC, "a company's wider duty of care to report to stakeholders is important, and the OFR should not be a replacement for full corporate responsibility reporting". In a question and answer briefing on its website, PricewaterhouseCoopers suggests that there may be the emergence of a trend towards "much more targeted reporting that is aimed narrowly at particular stakeholder groups and designed to provide the level of assurance those groups want on specific issues. The financial community may expect a 'true and fair' financial reporting-type approach, while other stakeholder groups may feel more comforted by seeing an ethical pressure group confirming that it thinks the company is doing a good job in CR-related areas." But perhaps this will depend on the extent to which organisations are in a position to incorporate a financial reporting-type approach on human capital management into their annual reports.

Articulating the link with business performance

Comparable indicators are only one part of the picture, and a link between human capital and business strategy and performance can be articulated through narrative as well. A glance through listed company annual reports reveals that very few mention employment issues in the context of their business strategy and results. However, many include a very short reference under a "corporate responsibility" section with reference to fuller material in a CR report. And a number articulate the principal reason why their HR strategy is key to meeting business objectives. "We want to be one of the most admired financial services organisations in the world," states Barclay's corporate responsibility report. "Having engaged and motivated people, who enjoy their work, is critical to achieving this aspiration."

Microsoft provides a good example of a company that draws shareholders' attention to an HR issue as a risk factor in to the business review section of its annual report. "Our business depends largely on our ability to attract and retain talented employees," the report states. It goes on: "The market for highly skilled workers in our industry is extremely competitive. We are limited in our ability to recruit internationally by restrictive domestic immigration laws. If we are less successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful products and services may be adversely affected."

What now for OFRs?

Two-thirds of listed UK companies already produce a report that they refer to as an OFR, but this is voluntary and usually focuses on a financial overview of each part of the business. The Institute of Employment Studies found that only 6% of companies currently report on people practices and policies in their OFR⁸. The principle behind the new OFR as set out in regulations earlier this year, was that it was intended to be a vehicle for the directors of a business to provide a full and comprehensive report to the members, or shareholders, of the business. The reporting standard published by the Accounting Standards Board described it as: "A narrative explanation, included in the annual report, of the main trends and factors underlying the development, performance and position of an entity during the financial year covered by the financial statements, and those which are likely to affect the entity's future development, performance and position."

Although the government has announced that the OFR is to be abolished, that is by no means the end of the story. The OFR was partly designed to implement the EU Accounts Modernisation Directive, which says that annual reports should "to the extent necessary for an understanding of the business" include "where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters". The need to comply with this directive has led the DTI to propose that, instead, there will be an obligation for listed companies to provide a business review, which will not have to be audited, as an OFR would have been. This will still have to include "information relating to employee, social and environmental matters where it is material".

Some of the key principles of the OFR are likely to remain in guidance on the proposed "business review" and will be relevant for HR practitioners looking at the kind of input they might make. These are that the review should be:

• Focused on matters that are relevant to the interests of members. The ASB notes that the review may well be of interest to other stakeholders, but it should not be used as a replacement for other forms of reporting that is addressed to stakeholders.
• Forward-looking in orientation, identifying the trends and factors relevant to current and future performance of the business, and progress towards longer-term objectives.
• Comprehensive and understandable. This does not mean it needs to cover everything - as the guidance states, "the objective is quality, not quantity of content". But it does mean that directors need to consider whether the omission of something might influence significantly the assessment made by their members.
• Balanced and neutral, dealing even-handedly with good and bad aspects.
• Comparable over time, enabling analysis of the main factors over successive financial years.

The HR perspective

As BITC's Katherine Sharp comments: "The OFR is a significant step forward in asking companies to talk about their future plans. It is difficult to see how long term trends such as changing demographics, the ageing workforce [and] skills shortages won't be material to the future of major companies."

What this means in practice will clearly depend on the company. But the advice of the OFR working group, which was commissioned by the DTI to come up with some guidance on what might be "material" to the performance of a company, strongly implies that people management will usually be a factor that is too important not to include. Its guidance states that: "It is difficult to envisage a situation where the directors of any business that employs people would take the view that this topic was irrelevant to an assessment of the company's potential to execute its business strategies successfully⁹."

However, the guidance advises that, "the detail of employment policies and practices, and the associated metrics, will depend on the nature of the business. For example, a company in the business of delivering large, long term, technically complex projects will regard low staff turnover in key areas of the business as extremely important. Customer handling skills, by contrast, may be essential to a much more limited extent.

But high volume, high throughout retailing may regard staff turnover as of less significance, and customer handling skills as the key core competence for many of its staff."

The current implementation guidance provided by the ASB gives further insight into the kind of matters that companies might look to report. This suggests that the following areas, along with relevant performance measurement, might be helpful:

• employee health and safety;
• recruitment and retention;
• training and development;
• morale/motivation; and
• workforce performance and productivity.

The guidance encourages the use of KPIs, and gives an example to illustrate what a KPI might look like (see document extract).

Where to start

In its guide, Operating and Financial Review, an opportunity for human resource executives, Saratoga, the human capital measurement arm of PricewaterhouseCoopers, argues that the OFR "presents a huge opportunity for HR Executives to place the human capital agenda and its overall business contribution in front of directors and investors"¹⁰. Saratoga provides a useful checklist for HR professionals wishing to assess how they measure up to the demands of the OFR (shown in box 2). It advises that HR professionals need to obtain board sponsorship and buy-in before developing a blueprint human capital report and benchmarking it, identifying gaps in information and supporting systems and developing an implementation plan.

The Chartered Institute of Management released a guide in April 2005 that seeks to help organisations find measures to provide information that is understandable for stakeholders¹¹. It suggests that HR practitioners think about the following principles in relation to their contribution to an OFR:

• Measure what makes a difference: workforce measures should focus on issues with a direct bearing on performance.
• Identify clear links between measures and strategy: strategic goals can only be achieved if measures are used as the basis to plan and manage activity.
• Ensure that measures remain dynamic: revisit the chosen measures are regularly to check that they are still the key drivers for assessing value.
• Produce simple measures and demystify the jargon: measures are there to be used, so make sure they are easy to understand.
• Focus on the value to the business, not legal compliance: emphasis should be on the value of the chosen measures in helping to manage the organisation more effectively. If information is collected that helps monitor and manage the organisation, compliance will follow.

1. The rise and rise of non-financial reporting: How to use research to measure your reputation, MORI, 2004.

2. Accounting for People, available at www.accountingforpeople.gov.uk.

3. Human capital reporting; an internal perspective, CIPD, 2005.

4. Eyes wide shut: HR's blind ambition, Snowdrop, October 2005.

5. A Director's Guide to Corporate Responsibility Reporting, Business in the Community, 2005.

6. For details visit www.globalreporting.org .

7. Reporting Standard 1: Operating and Financial Review, Accounting Standards Board, May 2005.

8. "Open for business: HR and human capital reporting"; Vic Hartley, Institute of Employment Studies, People Management, January 2005.

9. The Operating and Financial Review, Practical Guidance for Directors, Department of Trade and Industry, May 2004.

10. Operating and Financial Review: An opportunity for human resource executives, Saratoga/Pricewaterhouse Coopers, 2005.

11. Getting the basics right: a guide to measuring the value of your workforce, Chartered Institute of Management, April 2005.

Table 1: How 10 companies report on training and development

Company	Quantitative indicators?	Issues covered in narrative
BAE systems	Total training days over the year and by employee.	Summary of programmes, eg e-learning, professional development, leadership development, virtual university; employee opinion survey results on training; and IiP accreditation.
Unilever	-	Learning academies for professional skills training and establishment of international management training centre.
Barclays	Total training days over the year and per employee.	New learning centres opened, new induction processes, Emerging Talent team.
Tesco	KPI for 2005 was that 95% of retail staff be trained to "bronze level".	Number of people who progressed into management positions; apprenticeships created; personal development plans; Tesco academy; in-house training recognised by QCA so NVQs can now be awarded as part of apprenticeship scheme; debut retention scheme for young people; and in-store management training scheme.
Camelot	Indicators: number of training days per employee per year.	Use of employee opinion survey data; new performance management process; and 2005/06 objectives, including renewal of IiP accreditation, continue to embed performance management and monitor its impact.
Cadbury Schweppes	-	Overview of performance management, tools and processes to support personal growth and career development.
Reuters	-	Objective-setting process for business units and individual staff aligned to business strategy; performance review process, new learning and development programmes.
Centrica	No KPIs but objectives tracked, eg results since introduction of management talent review process: 180 moves made during 2004 (21% of internal moves related to managers who were identified as "high potential"; lateral or upward promotions equated to 44%; and 56% of moves were developmental).	Summary of continuous learning policy; and development and talent management section include: induction, engineering and customer service academies, graduate development programme, IiP, leadership development.
Serco	Objectives for 2005 include the completion of a "skills for you" assessment for 20% of staff.	Summary of management training, leadership development, local basic skills initiatives. More detail on best practice centre, leadership development, business improvement and other initiatives on website.
Marks and Spencer	Reports on priorities for previous year and sets priorities for next. CSR report notes that: "We have reviewed different ways of measuring the impact of training. This has not yet resulted in a suitable measurement."	Priority for 2005 is to continue to align all training activity to business priorities. Two priorities during 2004/05: improving customer service and supporting business change programmes.

Sources: Annual reports and CSR reports, 2004-05.

Box 1: An investor's perspective Are investors interested in effective people management and its contribution to company performance? To get some answers, IRS Employment Review spoke to Rob Lake, head of corporate engagement at Henderson Global Investors, an investment management firm that manages both SRI and non-SRI funds and employs around 900 people worldwide. Lake was a member of the DTI working group which produced guidance on "materiality" in the Operating and Financial Review. The HR contribution Investors and HR professionals are interested in the same thing - namely the success of the company", says Lake. "So we are trying to understand the HR contribution to the business." Henderson recently held a seminar attended by investors and senior HR people from FTSE 100 companies at which the difficulties of quantifying and reporting on the HR contribution to company performance became apparent. "What was very striking", Lake recalls, "was the range of ways that different companies think about this issue, and the lack of a common approach." Second, Lake says that it was surprising that there was "virtually no mention" of the kinds of performance issues that are now the staples of CSR reports, such as diversity, health and safety or training. Instead, discussion was centred on "culture and values, and HR's role in creating a culture, a set of values and employee commitment to those values which is conducive to business performance - important but difficult to quantify and compare". Beyond that point, Lake recalls, there was only one company which stuck out as systematically being able to "track very clearly the link between different HR approaches in the business and sales performance", and also had a "crystal clear way" of articulating it. This was an exception rather than the rule, says Lake, while emphasising that he does not underestimate the difficulties that this entails. Indicators and benchmarking "Having quantitative key performance indicators which prove something meaningful and could be compared across companies would be ideal," Lake thinks, but does not believe that there will be easy answers. "It could be that HR does not lend itself to very much of that," Lake acknowledges, "and quite a lot of reporting might be qualitative and narrative." Another key factor for investors is keeping the focus on future performance. "We are looking for leading indicators that tell you about the future," Lake says, "as well as safety statistics, for example, that tell you about past achievements." Investors like to see evidence of good performance in the past, which "might mean a good sign for the future - but not necessarily", he comments. Lake gives the example of BAA, which was not affected by the "catastrophic breakdown in industrial relations" at Gate Gourmet earlier this year in the way that British Airways was - despite the fact that both BAA and BA employed people from the very same communities who might be friends or relations of the workers embroiled in dispute at Gate Gourmet. "After the event, you can see that there must be something very different and important about industrial relations in those two companies," Lake says. "But the holy grail for us is being able to understand that in advance, and recognise that one company is more likely than another to be affected by that kind of problem." Beyond the OFR Lake welcomes the introduction of the OFR, which he believes will be useful to companies and investors alike. But he stresses that "if a company puts something in its OFR and just sits back waiting for the share price to go up it may have a long wait". Instead, communicating the HR factors that contribute to future business success needs to be built into routine communications with stakeholders. "If the chief executive meets investors after a results announcement, for example," Lake says, "and talks to them about the HR strategy as a key thing influencing future success that investors need to understand, then it will be taken seriously." Lake goes on: "Too often companies don't include HR in their standard presentation or pack for investors because they assume that they are not interested. If they never mention it we don't necessarily think it's important, and so the information gap is perpetuated and widened." He concludes: "Putting material HR factors in the OFR, picking out the main themes from your OFR in your results announcement and the standard pack that you take to your meetings with investors, and in what you put on your website, and in every speech the chief executive makes - that might start to be more effective."

Box 2: Saratoga: The human capital checklist 1. What are the priority business challenges facing your company in the next two years? 2. What human capital actions are required to maximise the opportunities required to guarantee business success? 3. How will you make these actions happen? 4. What are your KPIs and how are these related to the business challenges? 5. What data is required to measure human capital performance? 6. Are you fully informed and/or involved in your company's OFR response plans? 7. What human capital management information will be most useful to your shareholders and in what format? 8. What information gaps exist and how to you intend to fill them? 9. Are information systems advanced and flexible enough to respond to all recognised demands? 10. Are you satisfied that the information you produce is robust and can withstand scrutiny? 11. Are you conversant with key human capital subjects and major global trends that may be raised by shareholders? 12. Is there a direct link between what the HR function does and what the board wants it to do? Source: Saratoga/PricewaterhouseCoopers; Operating and Financial Review: An opportunity for human resource executives, 2005.

Box 3: Company case study: Yell Yell - whose best-known product in the UK is the Yellow Pages directory - was listed on the UK stock exchange two years ago. It employs 3,600 people in the UK and 5,200 in the US. The company produced a corporate responsibility report this year for the first time, which was shortlisted for the "people reporting" category of the Building Public Trust Awards 2005. Phil Barr, HR director at Yell, says that human capital management at Yell is based on individual performance and development. With nearly two-thirds of Yell's workforce in sales roles, Barr explains that "continuing to develop the capability of the sales force through training and development" is a priority for his department, as well as improving the recruitment process for these roles. Second, the company is introducing an improved performance management process for non-sales staff such as marketing or head office functions, whose performance is more complex, to measure and manage. By using performance indicators based on the meeting of targets and objectives, and by measuring employee perceptions of training and development at Yell, Barr believes that the company can monitor the impact of training investment and its impact on company performance. He is confident that both shareholders and customers are interested in "what we are doing to develop people capabilities in order to meet the needs of the business". Externally, Yell provides people management information in its annual report and Corporate Responsibility Report, produced for the first time this year. It defines corporate responsibility reporting as being "about providing our shareholders and other stakeholders with confidence that Yell is a well-managed and responsible company". HR inputs into a wider corporate responsibility programme within the company, which is responsible for "identifying key social, ethical and environmental issues, reviewing strategy, policy and performance, and setting objectives and targets". Barr says that the issues and indicators reported on are the result of an ongoing dialogue with stakeholders about what they want to know about the company. Yell's report covers employee retention, training and development, equality and diversity, and health and safety. It provides information on retention rates (broken down by sales/non-sales roles), average training hours per person, accident rates, the proportion of women by job role and a breakdown of employee opinion survey data. Much of the information in the report is externally verified against a variety of UK quality standards, backed up by IiP assessment. The company was also externally assessed last year against the European Foundation for Quality Management's Business Excellence Model.

Document extract: ASB implementation guidance example: employee morale A professional services company may measure "employee satisfaction" in order to monitor employee morale, as decreasing levels of morale indicate higher levels of leavers in the future. Required disclosure would need to incorporate the following information: Definition and calculation: Employee satisfaction on a scale of one to five where one is low and five is high. Purpose: A professional services company needs to ensure that it retains its best and brightest employees in order to properly service clients. Source of underlying data: Annual employee surveys in the UK, France and Germany, representing 85% of the client facing employees. Quantified target: For 2006 to achieve a rating of 4.5, with the populations surveyed to cover at least 95% of client facing employees. Quantified data: Employee satisfaction graph showing comparatives, eg 2004 - 4.1 rating, 2005 - 4.4 rating. Comparability: The 2004 survey results were based on surveys in the UK and France, representing 65% of total client facing employees. Source: Operating and Financial Review Reporting Standard 1, Accounting Standards Board, 2005.