It is often said that a company is only as good as its people. It is a company’s people who work on the front lines and in the background, overseeing every aspect behind every product, service, and metric that investors evaluate. The way that companies manage their people can set them on a path of long-term success, or struggle. In this piece, we examine the topic of employee management from the investor perspective and discuss recent trends resulting from the spread of COVID-19.
Employee management encompasses three core issues
In the corporate context, employee management refers to practices used to recruit, retain, and develop a company’s workforce.1 The goal of effective human capital management is to maximize productivity, innovation, and ultimately, business results. Companies do this by hiring the right people and keeping them engaged and productive.
There are three issues fundamental to the management of employees2:
- Labour Practices. Companies’ policies and practices should facilitate a good working relationships with their labour force, including in the areas of financial compensation, adherence to local labour laws and standards, and general employee satisfaction. This is important for both direct employees of the company, as well as for the labour force embedded within the supply chain. Failure to institute effective labour practices can lead to workflow disruptions due to labour unrest, reduced productivity and product quality, negative impacts on employee culture and morale, and loss of competitiveness due to damage to reputation and brand value.
- Health & Safety. Companies must ensure that working conditions preserve employee wellbeing by creating policies and practices that minimize on-the-job incidents. Employee accidents can lead to personal loss for employees, and production disruptions, litigation, and liability for employers.
- Employee Engagement and Development. Typically associated with the management of highly skilled or highly trained workers, this issue encompasses companies’ ability to attract, develop, and retain employees throughout the workforce. Companies strive to instigate policies and practices that improve employees’ engagement, productivity, innovation, and ultimately, retention. Factors such as culture and diversity can greatly affect engagement.
The extent to which these factors affect companies depends on sector, business model, and even type of role. Companies that adhere to best practices in managing their human capital tend to satisfy or excel in all three areas, with culture and corporate policies reinforcing performance in each. Those that fail to meet industry standards, on the other hand, can face costly litigation, employee turnover, reputational risk, and failure to acquire license to operate in certain jurisdictions.
COVID-19 has introduced new dimensions to employee management
The current pandemic has shined a spotlight on companies’ employee management practices. Customers and employees alike are intently focused on companies’ responses to the pandemic, and actions companies take now could have longer-term impacts that carry over into a post-COVID-19 world.
The following are trends we have observed since the global spread of COVID-19 began:
Many short-term human capital impacts are likely to persist in the long run
Looking beyond the initial impacts of COVID-19, these developments in employee management may prove to have long-lasting effects. Many policies that were previously considered unfeasible have been thrust into implementation and are now in a mass “test” period. Once this period passes, it is likely that to some extent, the most successful of these policies will remain:
- Remote work may become a new normal. As COVID-19 has forced companies into adopting remote work environments, many firms are considering whether certain positions and functions may stay remote for the long haul. Pre-pandemic, research from Gartner had already suggested there would be an estimated 30% rise in demand for remote work by 2030.9 In late March 2020, Gartner published results of another survey wherein 74% of companies said they plan to permanently shift some portion of their workforce to remote work post COVID-1910, suggesting a potential acceleration in the trend.
- Debates surrounding minimum and living wages are likely to continue. With companies and governments alike increasing compensation for lower wage employees and citizens during the pandemic, we may see some of these changes persist past the eventual recovery.” For example, Charter Communications, a U.S. broadband connectivity company and cable operator, has already announced that it will permanently raise its minimum wage to $20/hour over the next two years.11 At the national level, in Spain, Economy Minister Nadia Calvino stated that part of the government’s response to COVID-19 includes creating a universal basic income system “that stays forever, that becomes a structural instrument, a permanent instrument.”12
- Reputational impacts may affect companies’ long-term prospects. More than ever, companies are being judged by customers and employees alike on how seriously they take stakeholder interests into account. Companies perceived to have inadequately responded to the pandemic could face social backlash and boycotting, not to mention potential regulatory penalties. Those who treat employees poorly now or do not foster good morale throughout the crisis may find it difficult to attract and retain new employees later. Meanwhile, those that communicate transparently and often, listen to employee feedback, and enact policies to address employee concerns, can significantly decrease the anxiety faced by their employees. These firms may become attractive employers in the future. Even in companies that must lay off or furlough employees, the way that these decisions are communicated and the way that both departing and remaining employees are treated can materially affect the firm’s reputation and its future hiring prospects.
Integrating employee management considerations helps us identify investments that meet our clients’ objectives
From the investor perspective, the COVID-19 pandemic has placed the quality of financials, management teams, and cultures of investee companies under greater scrutiny. Those that are able to safeguard the health of their employees and keep their workforce engaged and productive through these unprecedented times, all while maintaining the financial wellbeing of the business, may be better positioned to emerge from the pandemic and benefit from a recovery that follows.
At RBC Global Asset Management, our investment teams consider material information about the health and safety of employees, labour practices, and employee engagement of issuers in our investment decisions. We engage directly with companies and express our views in line with the best interest of our clients.