An SEC plan to require publicly traded companies to report detailed metrics on human capital has implications for contingent workers and total talent management.
Proposed changes to the US Securities and Exchange Commission’s Regulation S-K would replace a current requirement to disclose the number of employees with a requirement to disclose a description of the registrant’s human capital resources. This includes “any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the registrant’s business, such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the attraction, development, and retention of personnel.”
The rule change was first proposed Aug. 23, and the public comment period closed Oct. 22; the commission must now adopt a final rule in order to modernize Regulation S-K and make the disclosures required.
The commission noted companies and industries have varying human capital considerations, which may evolve over time. Therefore, it held that prescribing fixed, specific line-item disclosures in this area for all registrants would not be meaningful. “Instead, we believe that investors would be better served by understanding how each company looks at its human capital and, in particular, where management focuses its attention in this space.”
Contingent Workforce ‘Somewhat Overlooked’
Although disclosed metrics could provide information on how firms blend their workforces and their mix between various contingent workers and full-time employees, the current proposal focuses on reporting details about full-time workforces.
The contingent component is “somewhat overlooked in this discussion,” noted John Nurthen, Staffing Industry Analysts’ executive director of global research. Excluding this workforce undermines the data: If some firms report contingents and some don’t, the firms not reporting contingents will inaccurately appear to be doing more with a smaller workforce.
“Clearly, the companies that make the best use of all those types of labor are going to end up with the better metrics when it comes to reporting on their human capital,” Nurthen said. “I call that a good thing. I think it is something that could lead to more demand for contingent labor. It is something that could lead to more interest in total talent management.”
The split between contingent workers and full-time employees can be significant, especially among large companies. Respondents to SIA’s 2019 Workforce Solutions Buyer Survey, specific to the Americas region, reported contingents comprised a median 20% and average 21% share of their total workforce. That average is similar to levels in recent years: 22%, 21% and 22% in 2018, 2017 and 2016, respectively. The survey included 175 participating firms and median contingent workforce spend was $120 million.
US Sen. Mark R. Warner (D-VA) lauded the proposed changes, stating that the additional disclosures will provide greater insight into workforce development and help drive value in an increasingly knowledge-based economy.
“I’m excited to see the SEC take this important step to recognize the significance of human capital management and the role it plays in the 21st century economy,” Sen. Warner said. “Many of the ideas outlined in the proposed rule would go a long way in providing investors with the information they need to evaluate whether a company is making the appropriate investments in its workforce.”
However, others are not as keen on the possible change. Concerns from comments submitted to the proposal include that it could require companies to disclose competitive or sensitive information; voluntary disclosures, or “private ordering,” currently underway obviate the need for mandated disclosure; and that proposed disclosures could require significant effort and cause companies to incur additional costs in order to be able to track, summarize and review the required human capital information.
Human capital reporting has caught attention at an international level as well. Disclosure guidelines issued last December by the International Organization for Standardization, or ISO, are expected to have a powerful impact, CFO Magazine reported.
ISO 30414, outlined in the document, Human resource management – Guidelines for internal and external human capital reporting, is an international standard that allows an organization to get a clear view of the actual contribution of its human capital and provides guidelines for internal and external human capital reporting. “The objective is to consider and to make transparent the human capital contribution to the organization in order to support sustainability of the workforce,” the document stated. It applies to all organizations, regardless of the type, size, nature or complexity of the business, whether in the public, private or voluntary sector, or a not-for-profit organization.
The move toward human capital reporting is in line with growing pressure to disclosure increasing amounts of information such as executive salaries, environmental impacts and social influences. Gone are the days when firms could focus on managing financial capitol, Nurthen explained.
“I think it is really recognition within any modern organization that you must be clever in the way that you manage the workforce to be successful,” he said.