To stay relevant in a labour market that is and will be disrupted by technology, workers must continuously develop their capabilities. We have identified three alternative models to help companies rethink how they invest in re/upskilling and how they treat it during the accounting process.
There is a pressing need for businesses, and employees themselves, to invest in the internal creation of new skillsets. The idea that a school or tertiary qualification, together with some informal onthe-job training, will provide an individual with the skills they need for a lifetime of employment has become obsolete. To stay relevant in a labour market that is being and will be disrupted by technology, workers must continuously develop their capabilities – just as, to thrive in an uncertain economy, employers need a steady supply of trained, productive and multi-skilled workers.
Challenging assumptions
A logical suggestion might be that businesses and their employees help each other here. Through effective reskilling and upskilling (‘re-/upskilling’), employers can construct their own talent base while giving their staff the capabilities they need to keep their jobs for longer. There is currently a temptation, however, for employers to lay off workers who do not have the required skillsets and replace them with new recruits who have those skillsets already in place. Moreover, younger employees often have a very different perception of their career prospects, away from the traditional view of developing a role with one company over a working lifetime. Company culture also typically discourages interdepartmental “poaching”, meaning that employees must look outside the business for new opportunities. Companies cannot, therefore, assume that employees will stay for the long term and, concerned that newly trained employees might leave, do not see retraining as risk-free. From a short-term financial perspective, many treat re-/upskilling as a sunk cost, rather than a long-term investment in value creation. And, owing to the way severance payments are reported, it can seem preferable on a tactical level to make redundancies instead.
Rethinking investment
Such attitudes may seem intractable, but this report argues that the benefits of re-/ upskilling outweigh the costs to such an extent that companies should pursue it all the same. To do so more effectively, however, they may need to approach it differently. How? We believe one solution, to justify a focus on employee development, is for companies to rethink how they invest in re-/upskilling and treat it during the accounting process. More specifically, we propose three alternative approaches for consideration, identified by the Adecco Group and supported by CFOs, senior finance professionals, public-sector executives, auditors, skill-development industry leaders and more. In parallel, we urge for a reconsideration of how taxation incentives for re-/upskilling are applied, so that the credit to companies is not linked to corporation tax – as it is in many existing programmes – but instead recognised as a grant against cost, effectively making it visible above the tax line.
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, financed through a percentage of payroll costs, with no set final benefit per employee. When employees leave, they can take their share with them to support continuous learning.
Employability Account
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-/upskillingrelated 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.
Amortisation model
Employers pay for an employee’s re-/upskilling, capitalising it as an asset, after which he or she is required to stay for a set number of years, reflecting 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.
Alain Dehaze, CEO the Adecco Group and Jake Schwartz CEO & Founder of General Assembly talk about workforce investment at WEF 2019.
Read the full report here