SSE asks PwC to quantify the value of its human capital

The human capital of UK energy company SSE is valued at £3.4 billion, or £173,000 per head, research by PwC shows. The research, which was commissioned by SSE to get a better understanding of the significance of its employees to the business, also highlights the positive economic return of investing in employees for the employees (increased earning), the company (profits) and the wider society (tax payments).

UK energy company SSE recently released a new research report in which its human capital, the economic value of the skills and capabilities of the people it employs, is valued by professional services firm PwC.

To come to an estimated value of SSE’s human capital, a basic calculation was used. Expected lifetime earnings, depending on skills and qualifications, for each SSE employee were calculated and adjusted by time spent at SSE, taking into account (in)voluntary leaver rates and leaving due to sickness, and by a SSE-specific company risk profile discount factor.

The result of this calculation shows that the total estimated human capital of SSE at 1 April 2014 is £3.4 billion, which, as the firm had 19,631 employees at the time, translates to an average human capital per head of £173,000. This human capital value breaks down to £1.82 billion in England (10,685 employees), £1.12 billion in Scotland (6,241 employees) and £270 million in Wales (1,798 employees).

Creating a better understanding of the significance of employees to the business was amongst the reasons to commission the research. As a result of this knowledge, SSE will be able to decide on future strategy in human capital measurement and management, allowing it to enhance the productivity of its workforce by anticipating on variables that can positively or negatively change the human capital value per employee.

Investing in the future
With SSE investing significant amounts of money in the training and development of its employees on a yearly basis, gaining insight in the economic return of these investment was another important driver for the human capital research. To calculate the return on training investment, value is measured over the liftime of the trainees, using wage premiums that reflect the expected increase in productivity from higher formal qualifications. The total economic impact of this higher productivity from training equals the increased value shared between the individual (wages), employer (profit) and society (taxes).

SSE invests £12.000 (excluding wages) per trainee per year. The 2014 apprentices (109 in total) are expected to generate £2.4 million in wages, £6.1 million in profits for SSE and £1.6 million in tax revenue, equating to an economic return of £4.29 for every £1 invested. As SSE funds 73% of the costs, 73% of the total economic impact can be attributed to SSE.

The economic return of SSE’s technical staff training is even higher. SSE invests around £15.000 (excluding wages) per annum per trainee, with the 2014 trainees (25 in total) expected to generate £1.2 million in wages, £4.6 million in profits for SSE and £1.2 million in tax revenue, equating to an economic return of £7.65 for every £1 invested in the programme, shared by the trainee, SSE and the wider society. As SSE funds the entire programme, 100% of the total economic impact can be attributed to SSE.

According to John Stewart, SSE Director of Human Resources, the report will help SSE to develop its current levels of employee skills and capabilities. “This report shows in black and white how both a company and society benefits from proper investment in its workforce through increased earnings for individuals and resulting increased tax payments. SSE is breaking new ground with this report which helps us properly understand the economic return on investment and shape our future HR plans and our investment in training.”

Alan McGill, Partner at PwC, adds: “Human capital is recognised as a crucial input for every business, and the reporting that we do around this capital needs to be radically changed to give us the insight into how to manage this most critical resource. SSE and its human capital results will open the eyes of the business world to the importance of valuing people and investing in them.”