How to engage retailers on employee relations: getting started

To improve the level of reporting and performance on employee relations, suggestions on how investors can engage retailers on the topic are provided below.

Review reporting for red flags

Even if a company reports that it “values its employees”, there are several red flags indicating that the company might underestimate the importance of its employees to its business:

1: No reporting on employee-related KPIs

A retailer that reports no employee-related KPIs sends the signal that it doesn’t recognise the contribution and relevance of its employees to the business. Employees are an integral part of the retail business and companies should provide shareholders with an indication that employee relations are managed well.

2: No reporting on performance against KPIs, or narrative on that performance

Reporting on performance against KPIs is more meaningful when companies provide data over time. It is not however possible to rely purely on quantitative metrics; investors need to know the context to be able to assess risks and understand levels of, and changes in, performance.

3: No demonstrated awareness of employee relations at the most senior level

Customer satisfaction is key in the retail sector, and employees are the face of the company. Companies should provide evidence that employee relations are part of their overall strategy and drive the success of the business, rather than being isolated to the human resources department.

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An investor guide to engaging retailers on employee relations

December 2015

Ask tried and tested questions

Retailers’ business models differ, and not all employee relations metrics are relevant for all companies. As mentioned however, the dialogues with many companies confirmed the relevance of the key metrics below, which were identified based on academic and industry research. These metrics are interrelated and tend to positively correlate.

1: On employee turnover

How does the company’s annual employee turnover rate compare to previous years and industry peers?
Based on its business model, what rate is the company aiming for?
What is the company’s strategy to achieve or retain its desired turnover rate?

2: On employee training

How does the company assess what current and future skill sets it requires?
To meet this need, what training is provided, how much (e.g. hours of training or money spent) and how regularly (to each employee or group of employees)?
How does the company measure the effectiveness of its training?

3: On employee engagement

How does the company identify the needs and engagement levels of its employees on a regular basis, and what are they?
How does the company respond to the findings and ensure that its workforce is motivated and enabled to contribute to the success of the business?

Looking at the changes in reporting and performance of the 27 companies over the course of two years, most companies included in the engagement improved, with an average score increase of 5% across all companies. Improvements could be seen across the whole sample, from companies that were relative leaders in the 2013 benchmark to companies that were lagging behind peers in the original review.

In addition to the above questions, when raising employee relations issues with retailers’ boards and senior management, investors can consider the following questions:

How does the company fs employee-related strategy link to the company fs overall business strategy and growth model?
How often are these issues discussed at board level and how does the board ensure that its employee-related expectations are implemented at all levels?
What are the key employee relations challenges and opportunities for the company (as well as by geography/market where relevant)? How are these managed?

Evaluate the company’s response

“But we haven’t done anything wrong. Why are you contacting us?”

This response, expressed by a supermarket during the engagement, is a reminder that investors need to be clear on how managing environmental, social and governance considerations, such as employee relations, is not only about risk, but provides opportunities and potential competitive advantage.

Leading companies are able to go beyond the numbers and explain context such as:

The rationale behind their employee-related KPIs

Collecting data can be very valuable, but only if the data is used to identify gaps or to verify whether the company is on track with its targets. The company must then follow-up by improving processes and performance. If a company is unclear on why it collects data, or how it uses the outcomes, this points to a lack of understanding on its part as well as a missed opportunity to use the data as an early warning system or to improve processes.

The outcomes of those KPIs over time and compared to peers

Outcomes of KPIs need a narrative around them to provide a full picture of the company’s efforts, not all of which might be quantifiable at this stage, such as on-the-job training. A narrative further helps to put outcomes in context and to compare a company’s performance over time and against peers. It further provides the company with an opportunity to explain the outcomes, both the positive and any negative changes or anomalies. Lastly, companies should also be able to explain how they measure the effectiveness of their employee-related policies and practices, such as training.

How their employee-related strategy links to their overall strategy and business model (bearing in mind demographic changes and competition for workforce)

Leading companies were able to explain how their employee-related strategy links to their overall business strategy and how employees contribute to the growth of the business. Based on their specific business models and changes in customer demand, these companies demonstrated a strong understanding of the skillsets that their employees require now and in the future, and how to achieve this. Those companies were also aware of, and prepared for, demographic changes and competition, such as wage increases from competitors.

Respond to common company concerns

Engaging in dialogue with a number of companies and exchanging information with each other helped investors to better respond to the concerns and challenges that companies raised. Below is a summary of the most common reasons that companies provided for not measuring or disclosing employee-related data, and suggestions on how investors can respond.

“The information is commercially sensitive. My peers don’t report this information and it would be a competitive disadvantage to do so.”

Many retailers across different sub-sectors and regions already report such information (for example, the German supermarket Metro reported its employee turnover and the Mexican hypermarket Walmart Mexico reported its spend on employee training). Companies can also find a reporting method that suits their circumstances: for instance, instead of reporting the total spent on training, a company might choose to report the average hours of training per employee.

“It is too difficult to measure training”

Where quantified metrics cannot fully capture activity, measurement and reporting should not be abandoned, but reinforced with explanatory narrative. Companies should also collaborate with sector peers, investors, other stakeholders and experts to develop solutions for quantifying different types of training, such as on-the-job training or informal mentoring.

“The data is not consistent enough between peers/countries to allow meaningful comparisons.”

Leading companies provide data over time, to identify improvements or anomalies, and, where needed, break it down, e.g. by country, to allow more meaningful comparisons. Companies are encouraged to put consistent data collections in place across countries, which allow them to track and understand on a global level how well they manage employees, including the impact of measures such as training or increased benefits across geographies.

Answering concerns about comparability with peers, employee engagement rates are not comparable as companies use different questions in their employee engagement surveys. This is why investors seek evidence that a company has conducted a year-on-year survey, and is able to demonstrate an improvement in its own performance over time. Companies are encouraged to work on comparability of data by publishing the key questions from their employee surveys.

Leading companies provide a clear narrative to put their data into context, and are clear on the definitions they used. Good sector practice, or international standards such as the G4 Sustainability Reporting Guidelines or SASB’s Sustainability Accounting standards for the consumption sectors, can provide further guidance.