It is becoming harder and harder to find talent with key skills, while redundancies and severance expenses are mounting. Investment in internal training can help tackle these issues, but companies often do not prioritise such initiatives owing to cost, time, the unclear return on investment, and the risk that employees will leave.
Accounting frameworks are a barrier
United States Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) do not allow businesses to estimate the value that human capital investments have on the company or recoup any expected returns. If training can only be listed as a cost, businesses wishing to appease shareholders lack incentives to invest in the long term.
Making intangible value real
Alternative reporting frameworks, which show the connection between intangible value investments – such as human capital – and profit, are gaining ground with companies and stakeholders. Yet these do not yet sway corporate decisions.
Accounting and related taxation changes are a key part of the solution
Alternative accounting and investment models can help change how expenses for human capital investments are capitalised over time. Three models are discussed in this report to inform and inspire change, including considerations around implementation, with the recommendation that the Employability Account represents the greatest potential bene t. However, making a change to official accounting standards – which extends to rethinking related tax incentives – is a laborious a air, and is best driven by political and business action.
On a high level, the three approaches we discuss in this paper are:
Training fund model
Employers set up a foundation exclusively for re-/upskilling, nanced through a percentage of payroll costs, with no set nal bene t per employee. When employees leave, they can take their share with them to support continuous learning.
As part of a nationwide approach to re-/upskilling, individuals are allocated a personal, portable and transferable training account, out of which they can pay for re-/upskilling- related training. From an accounting perspective, companies pay a percentage of employment costs into the Employability Account using money that would otherwise be used for severance costs.
Employers pay for an employee’s re-/upskilling, capitalising it as an asset, a er which he or she is required to stay for a set number of years, re ecting the amortisation period of the asset.
It is our view that the second of these models – the Employability Account – holds the most promise for individual companies as well as society as a whole, though we certainly do not regard it as a silver bullet to solve the skills problem. The adoption of the model is also not without its challenges. For it to work, companies need to reset how they perceive investment in training and skills development – less as a cost and more as an enabler of long-term success – and this requires commitment to change on a governmental level. Nonetheless, in the face of a widening skills gap and increasing job-market polarization, the need for action is growing fast.
Chosen excerpts by Job Market Monitor. Read the whole story at Bridging the skills gap: Rethinking workforce investment Skills for Employment