The big idea
People are the only capital competitors can’t copy. Strategic HR measures them like it, and turns those measures into Excellence.
In 60 seconds
- About 92% of S&P 500 value is intangible, and regulators now ask companies to report on human capital.
- Meaningful HR metrics combine a computation, an accounting category and a contextual cut, and they include leading indicators, not just lagging ones.
- Today’s snapshots: half of U.S. workers are looking or watching for a new job, only 20% trust their leaders, and health costs are rising fastest in 15 years.
Do this: score your organization on the Human Capital Scorecard and add one leading people indicator to your next leadership review.
How strategic HR works
Strategic HR
Valuing human capital.
Strategic trends, measurement issues and the case for treating people as the organization’s most valuable capital.Lane Morris, PhD & Jules Morris, PhD
The Creative Alliances System
Strategic HR is how we measure Excellence.
How this topic fits the Creative Alliances System
- Goals: Excellence. Excellence sits at the center of the goals wheel. Strategic HR is how organizations measure it.
- All six goals. Efficiency, Effectiveness, Efficacy, Expansion, Experience and Engagement each have HR metrics that show whether they are moving.
- Bonds behind the numbers. Each goal takes the color of the bond that fuels it, so a weak metric points back to a bond leaders can build.
- Where it connects. Engagement covers the engagement goal in depth; Fostering Learning covers training and development.
Text version of this diagram
- Goals: Excellence sits at the center of the goals wheel. Engagement, Efficiency, Experience, Expansion, Efficacy and Effectiveness surround it.
- Strategic HR turns those goals into measures: the metrics that show whether people practices are building Excellence.
- Each goal takes the color of the bond that fuels it, so the measures point back to the bonds leaders build.
Segment objectives
Four things we’ll cover.
Segment plan
- Human capital basicsWhat strategic HR is, and why people are capital.
- Valuing human capitalMeasuring and metrics.
- Strategic HR and sustained competitive advantageWhat makes people an advantage that lasts.
- Employee value proposition trendsCurrent snapshots, verified.
Part 1 · Human capital
Human capital basics
People are the only capital that can’t be copied.
Excellence starts with how an organization values its people.
Human capital basics
The only irreplaceable capital an organization possesses is the knowledge and ability of its people.
Attributed to Andrew CarnegieAs quoted in Jack J. Phillips, Investing in Your Company’s Human Capital (2005), ch. 8
Strategic HR: what is it?
People solutions for key business problems.
What it is
- People solutions for key business problems and challenges
- Future focused
- Measurement oriented
How it works
- Goals
- Objectives
- Key performance indicators
Valuing human capital
Most of a company’s value is intangible.
92%
of S&P 500 market value is intangible: people, know-how, relationships, brands and intellectual property.
Intangibles have held at about 90% of value every year from 2020 to 2025.
Ocean Tomo, Intangible Asset Market Value Study (2025 results, released 2026).
Human capital reporting goes mainstream
Investors now ask about people.
Human capital is now reported, not just assumed
SEC Release 2020-192 (Aug 26, 2020); ISO 30414:2025.
Meanwhile, on the farm
Value people like the asset they are.
Text version of this diagram
- Panel 1: the Highland coo boss at the podium: people are our greatest asset!
- Panel 2: the Nubian goat taps the budget printout: then why are we a cost on this?
- Panel 3: she smiles: maybe we should measure it like one.
Part 2 · Measurement
Human capital measurement and metrics
What gets measured gets managed, and valued.
Lane’s HC Accounting Model, then how to build metrics that mean something.
Human capital accounting model
Six talent functions turn strategy into performance.
Text version of this diagram
- Strategic planning feeds human capital (HC) initiatives.
- Six talent functions ring the initiatives: talent acquisition; allocation and citizenship; development; compensation, reward and maintenance; conservation and retention; appraisal and evaluation.
- Together they drive firm performance.
HC accounting functions
What each function accounts for.
| Function | What it covers |
|---|---|
| Strategic planning | Who, what, how and why: forecasting, alignment, benefit offer and usage. |
| Talent acquisition | Recruiting, selection, hiring, applicant pool size and quality. |
| Talent allocation and citizenship | Deployment (right person, right position), absenteeism, employee relations (grievances, complaints). |
| Talent development | Maturation, education, training, career and organizational development. |
| Talent compensation and reward | Pay (variable and fixed), benefits, merit system, equity. |
| Talent conservation and retention | Retention, health and wellness, hope, hardiness, resiliency, engagement level, competitiveness. |
| Talent appraisal and evaluation | Performance review, performance communication. |
| Firm performance | Productivity, profits, revenue, share price, market share, customer loyalty, first to market. |
Measure, measure, measure
Set the target. Find the benchmark. Then measure five things.
Establish the goal or target to be met, and identify a benchmark number.
- QuantityVolume.
- MoneyIncome and expense.
- Customer reactionSatisfaction.
- TimeSpeed.
- QualityHow well.
Where have we been? Where are we going?
Look in the mirror, and through the windshield.
Lagging indicators
- What we have accomplished
- The rear-view mirror
- Turnover, cost per hire, last year’s results
Leading indicators
- Forecasts of performance
- Where we are headed
- Emerging trends: engagement, intent to stay, bench strength
Meanwhile, on the farm
Measure where you’re going.
Text version of this diagram
- Panel 1: the Highland coo boss points proudly at last year’s rising chart: look at last year!
- Panel 2: the Polish hen points out the window at a foggy road: great, what about next year?
- Panel 3: he peers into the fog: we don’t measure next year.
Criteria for effective measures
Sixteen tests a good measure passes.
- Important
- Complete
- Timely
- Visible
- Controllable
- Cost-effective
- Interpretable
- Simple
- Specific
- Collectable
- Team-based
- Credible
- Used
- Feasible
- Accurate
- Proprietary
Jack J. Phillips (2005), p. 214.
Developing meaningful HR metrics
Every metric has three dimensions.
Text version of this diagram
- Computation: rate, ratio, composition or index.
- Accounting category: volume, cost, income, time, quality or reaction.
- Contextual cut: longevity, job type, employment status, demographics, division or location.
- A meaningful metric picks one of each. The highlighted cell is one example: a cost ratio, such as cost per hire, cut by division.
Metric construction
Four ways to build a metric.
- RatePart of a whole. Example: termination rate.
- RatioOne number relative to another. Example: profit per FTE.
- CompositionA whole broken into parts. Example: performance rating distribution.
- IndexA weighted mix of data on one scale. Example: engagement index, the Dow.
HC/HR performance metric classes
Five classes of HR metrics.
- CostsAdvertising, operating, health care.
- TimeCycle time, time to fill, delays.
- QuantityUnits produced, frequency of events.
- QualityError rates, quality deviations.
- ReactionsSatisfaction, loyalty, engagement.
Metric class by HC function
One metric for every cell.
| Function | Volume | Cost | Income | Time | Quality | Reaction |
|---|---|---|---|---|---|---|
| Planning | Requisition rate | Consultant fees | Innovation | Hours spent | Alignment | Management satisfaction |
| Acquisition | Number of hires | Cost per hire | Recruiter fees | Time to fill | Applicant pool | Manager satisfaction |
| Allocation | Transfers | Absenteeism | Orientation | Sick days | Transfers | Internal referrals |
| Development | Seminars offered | Training programs | Training transfer | Training hours | Program evaluation | Employee satisfaction |
| Compensation | Bonuses | Salary, wages, benefits | Market rates | Overtime | Pay-to-performance alignment | Equity |
| Conservation | Turnover count | Turnover | Termination of C players | Onboarding | Staffing | Engagement |
| Evaluation | Appraisals | Production loss | Retention of A players | Hours spent | Appraisal consensus | Employee fairness |
| Firm performance | Productivity | Unit costs | EBITDA | First to market | Customer loyalty | Earnings per share |
Part 3 · Advantage
Strategic HR and competitive advantage
Advantage that lasts comes from people.
Engagement, alignment and agility create advantage, and sustain it.
Advantage framework
Engagement, alignment and agility around business priorities.
Text version of this diagram
- Engagement: employees’ pride, energy and optimism that fuel their discretionary effort and intent to stay.
- Alignment: the connection between employees’ work and goals and the organization’s mission and goals.
- Agility: the organization’s ability to sense and respond to change in order to sustain engagement and performance.
- Together they create advantage, then sustain it, around the organization’s business priorities.
Strategic HR and sustained competitive advantage
Human capital resources that last.
Focus human capital resources on qualities competitors can’t easily copy.
- Purposeful alignment
- Malleable
- Rare
- Valuable
- Value-added
- Portable
- Renewable
- Exploitable
- Sustainable
- Costly to imitate
Strategic HR areas that promote sustained competitive advantage
Seven areas where HR builds the advantage.
- Employee value proposition
- Recruiting and selection methods
- Clearly defined job duties and tasks
- Performance standards and measurement
- Training and development
- Succession management
- Compensation and benefits
Part 4 · Trends
Strategic HRM: EVP issues and trends
Current snapshots, verified for 2024 to 2026.
The data that shape attraction, engagement, retention, pay, health and development today.
Strategic issues and trends: snapshot areas
Eight areas to watch.
- EVPEmployee value proposition.
- Engagement and retention
- High-potential employees
- Performance managementAnd productivity.
- Succession management
- Compensation and benefits
- Recruiting and selection
- Training and development
EVP: five elements defined
What people gain by working here.
Text version of this diagram
- The employment value proposition is the set of attributes the labor market and employees perceive as the value they gain through employment in the organization.
- Rewards: compensation, health benefits, retirement benefits, vacation.
- Opportunity: development, future career opportunities, organization growth, meritocracy, stability.
- Organization: customer prestige, diversity, empowerment, ethics, respect, market position, brand, social responsibility.
- Work: innovation, job impact, alignment with interests, location, recognition, work-life balance.
- People: camaraderie, coworker quality, manager quality, people management, senior leadership reputation.
EVP: the human deal
The newer EVP treats people as people, not just workers.
Employee satisfaction with the EVP rises 15% when it includes the human deal.
- Deeper connections
- Radical flexibility
- Personal growth
- Holistic well-being
- Shared purpose
Gartner, press release (May 25, 2020).
Top EVP attraction drivers
Pay comes first, but it isn’t enough.
The top five drivers employees worldwide look for in an employer, in rank order.
- Salary and benefitsThe top driver worldwide.
- Work-life balance
- Job security
- Pleasant work atmosphere
- Equity
Randstad, Employer Brand Research 2025: 171,191 respondents in 34 markets.
EVP and job choice: what employees want
What U.S. employees call very important in their next job.
Text version of this diagram
- Share of U.S. employees rating each factor very important in their next job: a significant increase in income or benefits 64%, greater work-life balance and better personal well-being 61%, the ability to do what they do best 58%, greater stability and job security 53%.
Why they leave: opportunity, pay, management
People leave for pay, and for respect.
Text version of this diagram
- Among U.S. workers who quit a job in 2021: 63% cited low pay, 63% no opportunities for advancement and 57% feeling disrespected at work.
- Gallup (2024 data): pay and benefits was the single most common reason for leaving, but only 16% of the time. Engagement and culture (37%) plus well-being and work-life balance (31%) explain 68% of U.S. exits.
Active job-seeking
Half of U.S. workers have one foot out the door.
Text version of this diagram
- 51% of U.S. workers are actively looking for a new job (11%) or watching for opportunities (40%), Q4 2025.
- By generation, about 61% of Gen Z, 57% of millennials, 47% of Gen X and 26% of baby boomers are looking or watching.
- Since 2015 the share has ranged from 42% (2018) to 52% (Q3 2025).
Engagement by generation
Younger workers lost the most engagement.
Text version of this diagram
- Change in U.S. employee engagement from 2020 to 2025, in percentage points: Gen Z and younger millennials down 8, older millennials down 9, Gen X down 6, baby boomers unchanged.
- Overall U.S. engagement averaged 31% in 2025, down from a 36% peak in 2020.
Employees’ confidence in leadership
Trust in leaders is thin.
20%
trust leadership
U.S. employees who strongly agree they trust their organization’s leadership (2026).
16%
say leaders communicate well
Who say leadership communicates effectively (2025).
70%
of team engagement
The share of variance in team engagement that managers account for.
22%
of managers engaged
Global manager engagement, down from 27% in 2024 (2025 data).
Gallup, Leadership & Management indicator; Gallup, State of the Global Workplace: 2026 Report.
Performance management effectiveness
Performance management rarely motivates.
Text version of this diagram
- Only 20% of U.S. employees say their performance is managed in a way that motivates them to do outstanding work (Gallup, 2025).
- Succession: on average, only 49% of critical leadership roles can be filled immediately by internal candidates, and only 20% of CHROs say they have leaders ready to fill critical business roles (DDI, 2025).
Internal mobility and intent to stay
Growth inside keeps people inside.
41%
longer tenure
Employees stay 41% longer at companies that regularly hire from within (LinkedIn, 2020).
1 in 5
feel confident moving internally
Employees with strong confidence they could make an internal move (LinkedIn, 2024).
LinkedIn, Global Talent Trends 2020; LinkedIn, Workplace Learning Report 2024.
Does it pay to fight or flight? Switching premium
Switching jobs still pays more.
Text version of this diagram
- Twelve-month median wage growth, September 2026: 4.4% for people who switched jobs vs. 3.5% for people who stayed.
Merit pay change expectations
Raises are holding steady at about 3.5%.
| Source | Year | Merit | Total increase |
|---|---|---|---|
| WTW | 2025 actual | 3.4% | |
| WTW | 2026 planned | 3.4% | |
| Mercer | 2026 actual | 3.1% | 3.4% |
| Mercer | 2027 projected | 3.2% | 3.5% |
U.S. salary increase budgets. WTW (2026); Mercer (2026); Mercer (2026).
Health care will cost even more
Health costs are rising fastest in 15 years.
Text version of this diagram
- Average family premium: $26,993 in 2025, up 6%; workers paid $6,850 of it (KFF).
- Per-employee health benefit cost: up 6.5% in 2026 after cost-cutting changes, nearly 9% without them, the highest in 15 years (Mercer).
- Large employers project a 9.2% trend for 2027 (Business Group on Health).
Organizations with a well-being strategy
Well-being is now part of workforce strategy.
Text version of this diagram
- 94% of large employers view health and well-being as integral to, or a consideration of, their workforce strategy (Business Group on Health, 2026).
- 83% of larger firms and 56% of smaller firms offer at least one wellness program (KFF, 2025).
- All surveyed large employers include mental health in their well-being strategy, and 92% include financial health (Business Group on Health, 2025).
Recruiting and selection: time to fill
Hiring takes about six weeks.
39 days
Median time to fill a nonexecutive role (2026).
45 days
Executive time to fill, down from 60.
$1,200
Median cost per nonexecutive hire (2025).
$10,625
Median cost per executive hire (2025).
SHRM, Recruiting Benchmarking Report 2025 and 2026 brief. Medians, not averages.
Mis-hires and turnover: money wasted
$1T
lost each year to voluntary turnover in U.S. businesses
Replacing an employee can cost one-half to two times their annual salary.
Gallup, This Fixable Problem Costs U.S. Businesses $1 Trillion (2019).
Photo by @bruskrd on Unsplash
Changes in T&D spend
Training budgets are growing again.
Text version of this diagram
- U.S. training spend reached $102.8 billion in 2025, up 4.9% (Training magazine).
- Spend per learner rose from $774 to $874, while hours per learner fell from 47 to 40.
- ATD: learning spend reached 2.9% of revenue, up from 2% in 2020.
Engagement, EVP and risk heat map
Cut every metric by who it’s about.
The same metric can look healthy overall and alarming for one group. Benchmark it, then cut it by:
DemographicsGender, age, education.
LevelEmployee level and performance level.
OrganizationSize, division, location.
Conclusion
Conclusion
Measure people like the advantage they are.
Strategic HR turns the goals of the Creative Alliances System into numbers leaders can manage.
Conclusion: quick tips
Four things to take back.
Goals of Creative Alliances
Excellence is what the metrics add up to.
Text version of this diagram
- Excellence sits at the center: performance quality and standards.
- Effectiveness: better, with real impact. Expansion: bigger. Efficiency: cheaper operations. Efficacy: faster, easier and results-oriented.
- Experience: community, not just culture. Engagement: head, heart and hands.
- Strategic HR metrics show whether each goal is moving: cost per hire and unit costs (Efficiency), productivity and customer loyalty (Effectiveness), engagement and intent to stay (Engagement), time to fill (Efficacy), first to market and market share (Expansion), employee satisfaction (Experience).
World’s most admired companies
Who gets people right?
Fortune’s annual ranking includes people management among the attributes it scores. Look at who leads, and what they measure.
Try it: the Human Capital Scorecard
How well does your organization measure its people?
Below this deck, rate how your organization measures acquisition, development, retention and firm performance. See your weakest area and one move to strengthen it.
Try it: Human Capital Scorecard
Self-check · Strategic HR
Human Capital Scorecard
Think about your organization, or your part of it. Rate how well you measure each area. See your weakest area, and one move to strengthen it.
- 1Rate
- 2See
- 3Practice
Acquisitiongetting the right people
We track time to fill and cost per hire against a benchmark.
We measure the quality of hires, not just the number.
Our EVP is defined and tested with candidates.
Development and retentiongrowing and keeping them
We track training transfer, not just training hours.
We measure intent to stay and engagement at least yearly.
We know which critical roles have a ready successor.
Firm performancelinking people to results
People metrics sit next to financial results in leadership reviews.
We use leading indicators, not just lagging ones.
We cut metrics by group (level, location, demographics) to find hidden problems.
Your human capital picture
Your result builds as you rate.
This is a reflection exercise, not a validated assessment. It draws on Lane Morris’s HC Accounting Model and Jack Phillips’s measurement work. Your answers stay in this browser tab. Nothing is sent or saved.
Go deeper
Back to all Executive Education topics · Related: Employee Motivation and Engagement
Part of Executive Education from the Human Centered Lab: workshops Jules Morris, PhD and Lane Morris, PhD lead for working professionals.
Frequently asked questions
What is strategic HR?
Strategic HR delivers people solutions for key business problems. It is future focused and measurement oriented, built on goals, objectives and key performance indicators.
What is human capital?
Human capital is the knowledge, skills and abilities of an organization’s people. About 92% of S&P 500 market value is intangible, much of it human capital.
What is the difference between leading and lagging indicators?
Lagging indicators show what has already happened, such as turnover or last year’s results. Leading indicators forecast performance, such as engagement, intent to stay and bench strength.
What is an employee value proposition?
The EVP is the set of attributes the labor market and employees perceive as the value they gain through employment: rewards, opportunity, organization, work and people.