Last summer, the US Securities and Exchange Commission published its final rule on human capital reporting, which took effect Nov. 9, 2020. The rule changes the SEC’s Regulation S-K, replacing a prior requirement to disclose the number of employees with a requirement to disclose a description of the registrant’s human capital resources such as the quality of jobs at their companies. It requires disclosure of human capital objectives or measures used to manage the business if they are material to an understanding of the business.
“A company’s workforce is its most important resource. Yet as things stand now, investors, lenders, suppliers, other market participants, policymakers and the public don’t have detailed and comparable information about the workers who drive corporations’ profitability and resilience,” says Alexandra Thornton, senior director of tax policy at the Center for American Progress. “The SEC is uniquely positioned to ensure that companies are transparent about turnover, demographics, job quality, diversity and union density and should adopt a robust, standardized human capital reporting framework without delay.”
But the SEC rule is vague in its description of what must be disclosed, and it is up to individual companies whether to include a qualitative objective and/or a quantitative measure in each area of human capital. Information such as contingent workforce metrics, temporary worker numbers, employee retention, employee incentive rewards, health and safety policies, wellness programs, training and development procedures, and diversity and inclusion efforts could come into play.
In a report released last month, the Center for American Progress proposed a framework for what these metrics should look like. “The proliferation of human capital frameworks and metrics globally demonstrates both the need and the demand for a set of standardized core workforce metrics from the SEC,” says Research Associate Zoe Willingham, who co-authored the report with Thornton.
It proposes that the SEC require registered companies to report on standardized metrics including:
- Baseline numbers of full-time, part-time and contract workers, disaggregated by race, gender and ethnicity and separately by occupation and pay band
- Job quality indicators such as pay, benefits and workplace safety
- Measures of worker voice and empowerment, such as union density
- Measures of expenditures on training and recruitment
First Filings Come Amid Covid Crisis
While the human capital disclosure requirements have been in the works for years, they came into effect during a global health pandemic that wreaked havoc on workforces across the value chain, and on the heels of a tumultuous year that required communities and businesses to directly address unhealed wounds revealed by the 2020 social justice movements, Seyfarth Shaw LLP wrote in a report last month. “These global overlays only fueled the calls for businesses — private and public — to address and disclose their environmental, social and governance matters at all levels of the business,” it stated.
Because the new HCM requirements are so broad, Seyfarth’s report found “great variation” in the human capital management disclosures reviewed.
“What a company chooses to include in their HCM disclosures may provide insights into their culture and values,” it stated. “Some of these disclosures were focused on employees, and some were more focused on the impact of human capital to the business’s bottom line. Intentional or not, by leaving the requirements broad, the SEC has provided companies with an opportunity to provide insight into what matters most to them by what they choose to include in these HCM disclosures.”
The fact is that program managers and C-suite execs aren’t the only ones seeking more visibility into their organization’s contingent workforce. Legislators, consumers and investors are paying closer attention to the way their goods are made and their services are delivered — often supporting only those companies that treat both staff and contingent workers ethically and foster workplaces that embrace diversity, equity and inclusion.
Advocates for workforce transparency also hope to shine a spotlight on those firms that fall short when it comes managing their workforces in a way that benefits the social good and not just the bottom line.
Could all this provide an opportunity to highlight the great work programs are doing, garnering attention from company leadership, investors and clients? Or, on the other hand, is this an area of concern that needs to be addressed? Either way, the new rule is likely to bring more attention to the workforce policies of publicly traded companies going forward.
CWS 3.0 will take a closer look at what companies are choosing to report in a future article. Please reach out to firstname.lastname@example.org with any comments or insight on this topic.