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Human Capital Management: What is the Board’s Role?

Human capital refers to the overall economic value of a worker’s skills and experience. This can include the employee’s overall experience, training, and abilities. Although HR departments have a strong implication in the management of human capital, the board also has a key role to play in ensuring that human capital is a priority throughout the organization.

Human Capital Management: The Board's Role

What is human capital?

According to Investopedia, human capital is defined as “the economic value of a worker’s experience and skills. Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.”

Encompassing these many different aspects, human capital should be a top priority for organizations as it has a strong link with positive economic outcomes, better crisis management, more competent and skilled employees, and overall company performance.

In the past, boards have struggled to define their role in managing human capital. However, with the pandemic shedding light on the importance of managing employee well-being, safety and morale, boards cannot afford to step aside when it comes to human capital management.

Main human capital management challenges in 2022

Human capital management is less straightforward than it may seem, with new and complex challenges arising over the past two years. Talent retention has become a paramount problem exiting the pandemic, as a large section of the workforce has changed professions or left the workforce all together.

Organizations are struggling to retain talent, let alone acquire new talent. The competition for talent, particularly talent with specialized skills, has become incredibly fierce.

For companies to have an edge, they must be able to offer competitive compensation, room for evolution, and perhaps most importantly, the ability for flexible and remote work. For this continued evolution and survival, organizations must continue to keep up with new workforce demands. It’s time for businesses to go beyond employee perks, and really focus on creating an environment that fosters employee development and job satisfaction.

To successfully achieve this, the board must ensure that these conditions can be achieved and that the right policies and structures are in place.

Boards: What is their role in human capital management?

While its role in regard to HCM hasn’t always been clear, it is important for the board to be implicated in implementing the overall vision and strategy. For example, the board has a large influence in the organization’s compensation management, general oversight, and implementation of workplace policies. All of these factors play a part in human capital management in addition to the overall workplace culture.

Additionally, the board should also be able to disclose their HCM strategy to investors to maintain transparency and open communication.

These disclosures relate to various topics such as:

  • Overall number of employees
  • Turnover rate
  • Skills gap
  • Bonus metrics
  • Diversity

How human capital will evolve in the years to come

There has been a large emphasis on work-life balance after the widespread rollout of remote work during the pandemic. Employees are demanding more flexible work conditions and guidelines. This shift in work culture has put pressure on organizations to allow for remote work as well as implement more employee-forward policies.

In 2022, human capital management should be of the utmost importance to all organizations, with boards taking a leading role in directing, managing and assessing its many components. With proactive human capital management, companies will be better equipped to weather the impact of any crisis that may arise and foster a better employee experience and retention.

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