New analysis of FTSE 100 annual reports finds that while workforce reporting has improved in the past two years, the quantity and quality of disclosures still varies significantly and remains very poor in places.
The new report, 'How do companies report on their ‘most important asset’?, from the CIPD, the PLSA and Railpen, analysed the quality of workforce disclosures in the 2021 annual reports of FTSE 100 companies against seven key themes: Workforce cost and composition; employee relations and wellbeing; reward; voice; skills, capabilities and recruitment; and response to COVID-19.
It found that most of the FTSE 100 covered these seven key themes in their narrative to some extent, but the quality of reporting was generally low, and the use of data to evidence comments was ad-hoc.
In response to the findings, the three organisations are urging employers to provide greater transparency over how they recruit, invest in and manage their workforce. They are also calling on key parties - such as the Financial Reporting Council, investors and representative business groups - to come together to agree a baseline framework for workforce reporting. This would help improve the consistency and quality of company disclosures on key people issues that are central to efforts to create more inclusive and productive organisational cultures and working practices.
This type of framework could also inform the workforce element of the new reporting standard being created by the International Sustainability Standards Board, which the UK Government supports as part of the push to achieve a net-zero economy.
Key findings from the analysis include:
- Inclusion/make-up of the workforce: While 93% of companies provide evidence of investment in inclusion and diversity, only one in five (22%) FTSE 100 employers reported the ethnic breakdown of their workforce, up from just 10% in 2019. Nine companies disclosed their ethnicity pay gap, up from three in 2019. Just 6% of firms provide information on the cost of their contingent, non-permanent workforce.
- Skills and training: Almost all companies (97%) mention investment in skills or training, but only a few provided concrete evidence of this. Only 37% reported their number of apprenticeships and internships, 35% disclosed hours of training, and 16% disclosed the cost of training. Only 11% provided data on their internal hire rates, an important indicator of how well companies train and develop staff.
- Reward: Overall, there is a lack of reporting on pay and reward beyond gender and ethnicity pay gap reporting. Only 15% of employers discussed their pension policy in the people section of their annual report, despite pensions being a key part of the employment offering.
- Wellbeing: Only 13% of annual reports discussed mental wellbeing in relation to health and safety or risk assessments. This suggests that mental health and wellbeing is still not treated as seriously as physical wellbeing, and its link to stress, absenteeism, productivity, as well as the importance of supportive workplace cultures, is not widely understood.
Peter Cheese, chief executive of the CIPD, the professional body for HR and people development, said: “The pandemic and rapidly changing world of work mean that workforce matters have become even more important to understand. We need organisations to show how they are responding to demands for more responsible, productive and sustainable businesses, and how they are investing in the workforces and cultures they need to thrive in a more uncertain and changeable future.
“There is already strong momentum behind wider corporate reporting across environmental, social and governance (ESG) but it’s clear more needs to be done on the ‘S’ part of ESG. Now is the time for more transparency and action, but this requires more guidance and clearer frameworks for reporting. The creation of an accepted baseline framework for workforce reporting would help organisations report how they manage and invest in their people in a clear and consistent way and improve reporting practices over time. In turn, this would improve key outcomes such as staff development and retention, employee inclusion and wellbeing, and enhance organisational performance.”
Caroline Escott, Senior Investment Manager, Railpen said: “COVID-19 has shone a spotlight on the important role of an engaged, motivated and fulfilled workforce to sustainable corporate success and re-opened the company-investor dialogue on workforce treatment in the ‘new normal’. In our engagements with companies, we have welcomed executives’ increased willingness to discuss the challenges they have faced in supporting their workers during the pandemic. Investors also have a responsibility to speak proactively and honestly to firms about material workforce issues and their expectations around decision-useful disclosures. We believe our report offers a vital contribution to the debate, helping companies, investors and policymakers understand what useful workforce reporting looks like and ultimately bringing us closer to ensuring the fair workforce treatment that will support long-term success.”
Joe Dabrowski, Deputy Director Policy, PLSA, said: “You often hear companies say that ‘people are our greatest assets’ and yet, in many cases, the reality fails to match the well-meaning words. The PLSA is a firm believer that high-quality workforce reporting is key to better outcomes for companies, investors and workers. These are not new issues and improvement has been slow, but events over the last two years have clearly highlighted that social factors matter. As such, it remains vital that investors and regulatory bodies continue to push companies to provide better transparency in these areas, which are core to how their overall approach to ESG will be judged.
“The PLSA supports better quality reporting from companies on workforce issues through a number of initiatives and this new report – How do companies report on their ‘most important asset’? – that we’ve produced alongside our partners at the CIPD and Railpen highlights several key themes that need addressing. With this – and our soon-to-be published Stewardship and Voting Guidelines 2022 – we must take this conversation forward into a post-pandemic world.”
The report outlines four key areas that the workforce reporting framework should cover: workforce composition, employee relations and wellbeing, reward and recognition, skills and capabilities (see report for full details). Collectively, these four areas are material to all organisations in terms of their culture, their role in value creation and in identifying risks associated with people and the workforce.
