Internal labor markets and promotion from within
Accounting standards force companies to list "Training" as an expense, identical to "Janitorial Services." The data proves this is a classification error. The CIPD report cites meta-analyses showing that investments in Training and Development have some of the strongest correlations with organizational performance found in the literature (ranging from 0.60 to 0.66). Unlike physical Capex, Human Capital Capex improves the entire system. A trained workforce makes fewer errors and adapts faster. The return on this investment appears in the form of higher productivity per employee.
https://www.researchgate.net/publication/271517703_From_The_Stockholder_To_The_Stakeholder_-_How_Sustainability_Can_Drive_Financial_OutperformanceWe correct the GAAP error in our models. We move "Training" from OpEx to Capex. A company cutting training budget to make a quarterly number is, in our view, selling off its machinery to pay the rent. It works for one quarter, but it destroys the production capacity of the firm. We look for companies that maintain high training spend during downturns—this signals a management team that understands they are building an asset.
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