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Which companies spend most on workers? Japan to launch metrics

  • June 19, 2022
  • , Nikkei Asia
  • English Press

DAISUKE MARUYAMA, KOHEI SAKAI and TAKASHI TSUJI, Nikkei staff writers

 

TOKYO — The Japanese government will soon push businesses to disclose so-called human-capital metrics over four categories, aiming to give investors a more accurate picture of companies’ strengths and weaknesses.

 

Human capital is a concept that views employees as value-generating investments rather than simply as a cost. Shareholders are embracing it as a way to evaluate a company’s growth potential.

 

For example, such an investor will give greater weight to whether a company spends enough on training employees instead of taking the scale of labor costs entirely at face value.

 

These nonfinancial disclosures have become a challenge for many in the Japanese business community. To encourage companies to disclose human-capital measures, the Cabinet Secretariat will finalize guidelines in late July.

 

Companies will be called on to organize and classify 19 data points across four standards: value improvement, risk management, uniqueness and comparability.

 

An investment would have its purpose categorized as value improvement or risk management. Investment in employee skills would be seen as something that raises enterprise value, while compliance training would be an investment to guard against business risks.

 

Whether a data point can be quantified will be determined from the standpoints of uniqueness and comparability. A company’s training program does not necessarily lend itself to a direct comparison against those of other businesses, for example, and will thus be deemed unique.

 

Other metrics, such as the ratio of women in management positions, the share of men taking parental leave, and the wage gap between genders, are indicators of workforce diversity. It has become essential to measure such elements numerically. These three data points are considered amenable to apples-to-apples comparisons among companies. The Financial Services Agency will mandate their inclusion in securities filings as early as fiscal 2023.

 

The government will let companies choose data points to disclose from the list of 19, based on their business formats and strategies. They will have to clearly state the management policies behind their choices.

 

By being told to disclose human-capital data, the companies will be pushed to develop business strategies highly valued in the market.

Even with investors increasingly interested in nonfinancial disclosures, businesses are not uniformly enthusiastic. Among listed companies with 1,000 or more employees, only 56% of respondents to a Persol Research and Consulting survey said they have discussed human-capital disclosures as a topic of high priority in board or managerial meetings.

 

In this emerging age of digitalization, employee creativity can make or break the quality of services. A company’s competitiveness can hinge on the ability to field a diverse workforce, build up employees’ skills, and foster an environment that generates the next big idea.

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