Active ownership tackles human capital management

Why do we engage?

Human capital management refers to people working within the direct operations of a company and includes the practices to recruit, retain and develop human capital. We identify human capital management as a priority issue for engagement, noting that people in an organization are a significant source of competitive advantage1 and that effective human capital management is essential to drive innovation and long-term value creation.2 We also recognize a number of links between high standards of human capital management and the achievement of the Sustainable Development Goals (SDGs).

Do human capital risks differ among companies?

Not every company is exposed to the same human capital risks or exposed to an equal degree. There are also significant regional differences in human capital management expectations which we consider in our engagement and expectations of companies. Schroders’ people strategy aims to develop an agile and diverse workforce as we continue to attract, retain, develop and motivate the right people for our current and future business needs. This is outlined in our Annual Report.

What does Schroders prioritize?

We prioritize five key sub-themes within the broad topic of human capital management:

  1. Corporate culture and oversight of human capital: We have seen that negative organizational culture has featured prominently in numerous corporate failures in recent years. We engage with companies to develop an understanding of the desired culture and oversight of the workforce in place to drive all other aspects of human capital.
  2. Investment in the workforce: 19% of the world’s wage earners, 327 million workers, are paid at or below their country’s minimum wage.3 This excludes workers in the informal economy. Evidence shows that paying workers a living wage leads to better health outcomes, and increased ability to recruit and retain staff, and increased productivity.4,5 We encourage companies to go beyond compliance with local minimum wages to pay a living wage that allows for workers to live a decent life free from poverty. We also encourage companies to consider employee compensation and benefits holistically to ensure the broad financial wellness of the workforce, recognizing that basic wage levels are not the sole driver of worker financial wellness. Moreover, almost one third of jobs will need to reskill by 2030.6,7 We therefore engage to ask that companies invest in the development of the workforce and aligning workforce skills with long-term strategy.
  3. Engagement and representation: There is evidence that strong employee engagement contributes to increased profitability8 as engaged employees support innovation and growth. We engage to ask that companies proactively solicit input from their workforce and monitor their engagement and motivation.
  4. Health, safety and wellbeing: Almost 2 million people die from work-related causes each year.9 Employers have a duty of care to their workers; we therefore engage to encourage companies to provide safe and secure working environments for workers in terms of both physical and mental health.

Deep dive: how do we engage?

In blue are the three priority human capital actions for our engagement with large and medium companies.10 Where appropriate, we have aligned our engagement expectations with those of the collaborative initiatives we are part of, including the Workforce Disclosure Initiative (WDI) and Human Capital Management Coalition (HCMC).

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Find out more about Active Ownership.

 

1https://hbr.org/2007/03/maximizing-your-return-on-people

2https://www.icgn.org/human-capital-management-why-investors-should-care-and-what-they-should-look-corporate-disclosure

3https://www.ilo.org/infostories/Campaigns/Wages/globalwagereport#minimum-wages

4https://www.livingwage.org.uk/sites/default/files/IWFM-Living-Wage-Guidance.pdf

5https://www.qmul.ac.uk/geog/media/geography/livingwage/docs/FINALReportLWFsurvey2013.pdf

6https://www.weforum.org/agenda/2020/01/reskilling-revolution-jobs-future-skills/

7https://www.weforum.org/agenda/2020/01/reskilling-revolution-jobs-future skills/#:~:text=As[(20jobs) was not found]20are[(20transformed) was not found]20by,jobs%20 are%20expected[(20to) was not found]20change 

8https://news.gallup.com/poll/188144/employee-engagement-stagnant-2015.aspx

9https://www.who.int/news/item/16-09-2021-who-ilo-almost-2-million-people-die-from-work-related-causes-each-year

10There is no standard definition for large and medium companies and significant regional variation in what is considered large, medium or small. We recognize that smaller companies face greater resource and financial constraints than larger companies and therefore may need more time to meet our desired outcomes. When assessing company progress against our expectations, we generally compare the progress of similar-sized peers based in the same region.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.