In today’s world of technological innovation, it seems like there is a constant stream of news about the latest unicorns (privately held companies that are less than ten years old and valued at $1 billion) and companies filing for their initial public offering (IPO) on one of the world’s prestigious stock exchanges. To reach these milestones, companies must invest a lot of time and effort in planning, restructuring their Board of Directors and management teams, collecting data, and complying with various regulatory bodies.
As part of this process, US publicly traded companies must comply with the Sarbanes–Oxley Act of 2002 (SOX), which regulates how companies report financial results and disclose executive compensation. In addition, all public companies are also subject to annual audits, which include presenting up-to-date people data, such as headcount, employee turnover, new hires, attrition, and financial reporting, including full disclosure on compensation data.
That’s where HR comes in. Collecting this data and ensuring that it is accurate and up to date comes under HR’s domain and speaks volumes about the company’s current state. Let’s look at each of these metrics individually to understand their meaning and significance.
1. Employee headcount
Employee headcount refers to the number of people employed by a company at any given time and provides crucial insights into an organization’s health and operational power. A company with a growing headcount is hiring more people than are leaving, indicating company growth.
An employee headcount report usually contains more than just the number of employees. It also outlines information on job status (which employees are currently active or inactive), whether employees are full-time or part-time workers, job titles, and positions.
Providing real-time data about employee headcount is essential when preparing for an IPO and facing annual audits as a publicly traded company. Regulations sometimes stipulate that this data includes new hires that have not yet started at the company.
2. Employee turnover
Since August 2020, the Securities and Exchange Commission (SEC) requires US public companies to provide details on their turnover rates to their investors as part of a description of “human capital resources,” which also includes data on diversity and details regarding employee training and safety.
Employee turnover is the HR metric that measures the rate that employees leave a company, either voluntarily or involuntarily, over a specified period. A high turnover rate with high numbers of employees leaving can signify a toxic work environment. In contrast, a low turnover rate might reflect a positive work environment where employees see opportunities for growth.
To calculate the % Turnover Rate, use the following formula:
(The number of leavers over the designated period / the average number of employees over that same period) X 100
3. New hires and employee attrition
Measuring new hires is a straightforward process involving a simple count of all new employees that joined the company over a specified period.
Employee attrition refers to the naturally occurring, voluntary departure of employees due to resignation, cutting a position, retirement, sickness, or death. Whereas employee turnover measures the rate that employees leave a company—both voluntary and involuntary, attrition refers only to when an employee leaves voluntarily and the company does not refill the role.
The level of employee attrition can reveal insights about the current state of a company. By choosing not to replace an employee, the company essentially eliminates the position, which reduces overall headcount costs. A high employee attrition rate can indicate that a company is under financial stress, a hazard warning for potential investors.
4. Employee compensation data
Financial reporting is a critical aspect of filing for an IPO as investors and shareholders want to have the full picture of the company’s financial position. While much of this does not involve HR, a core part involves providing compensation data, such as detailed information on employees’ salaries, bonuses, and equity— particularly for the executive team, such as the CEO, CFO, legal counsel, and other divisional heads. This data reveals valuable information about the company and whether its executives and employees are fairly compensated, which can help predict satisfaction, and ultimately, performance and turnover.
Providing compensation data is a requirement of annual audits; therefore, companies need to be meticulous in their record-keeping to fulfill all requirements.
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5. Transparent data on human capital
As part of new SEC requirements, publicly traded companies seeking securities in the United States are asked to disclose data on their human capital. While not clearly defined, this requirement includes providing employee data such as changes in job titles within the company, pay equity, diversity by age, gender, disability, new performance management processes, and employee engagement scores.
Currently, companies can decide what and how much data to disclose. Therefore, the SEC has seen a considerable disparity between companies providing in-depth human capital data and those offering minimal data. While the consequences of this are not yet clear, it could reflect the value that companies place on their human capital.
This new requirement by the SEC reveals that investors are becoming more interested in how companies treat their employees, in addition to their interest in their financial data. Therefore, being able to present accurate and detailed data is advised.
Modern companies need a modern HRIS
The process of filing for an IPO is an arduous one but must be done with the utmost diligence to satisfy all requirements and comply with all relevant regulatory bodies. This process can be extremely challenging for companies—just locating all of the data, which is likely scattered across numerous spreadsheets and saved on several different systems—can be a massive headache. Then HR has to ensure that all of the data is up-to-date.
A modern HRIS can ease the process, providing HR with real-time people analytics, such as headcount, employee turnover, terminations, attrition, and compensation data required for investors or audits. Plus, having a modern HRIS helps companies manage their people and processes seamlessly and efficiently, easing the day-to-day tasks of HR leaders everywhere.