Human Capital Disclosure Requirement

A recent survey conducted by Gibson Dunn shows how 451 public companies responded to the U.S. Securities and Exchange Commission’s (SEC) adopted amendments on human capital reporting and disclosures. 

Effective November 9, 2020, the amendments added human capital resources as a disclosure 101(c). The SEC requires disclosures to include “the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).” 

Prior to these amendments, companies were required to disclose only the number of people they employed.

The new requirement is in line with the SEC’s recent steps to take a closer look at disclosures related to environmental, societal, and governance (ESG) issues and approve a new board diversity rule for public companies listed on Nasdaq.

Gibson Dunn’s survey focused on human capital disclosures filed between Nov. 9, 2020, and July 16, 2021. The firm notes that since the SEC amendments didn’t provide a definition of human capital, “companies provided a wide variety of human capital disclosures, with no uniformity in their depth or breadth.”

Below is a snapshot of what the survey found in areas relating to pay data reporting and diversity, equity, and inclusion (DEI).

Workforce Composition and Demographics

93% of the companies surveyed included disclosures relating to workforce composition and demographics in one or more of the following categories: diversity and inclusion, full-time/part-time employee split, unionized employee relations, and quantitative workforce turnover rates.

While 82% discussed their commitment to DEI, only 41% and 35% of companies disclosed quantitative metrics regarding gender and racial diversity, respectively. 

Recruiting, Training, Succession

88% of the companies surveyed included disclosures regarding talent and succession planning in the areas of talent attraction and retention, talent development, and succession planning. Disclosures were primarily qualitative in nature.

Employee Compensation

67% of the companies surveyed included disclosures relating to employee compensation. 64% included a qualitative description of the compensation and benefits program offered to employees. However, only 16% of companies surveyed addressed pay equity practices or assessments, and a mere 4% of companies surveyed included quantitative measures of the pay gap between diverse and non-diverse employees or male and female employees.

Culture and Engagement

51% of the companies surveyed discussed specific initiatives they were taking related to culture and engagement. Only 20% of companies surveyed included specific disclosures related to building and maintaining their culture and values, while disclosures about monitoring culture and employee engagement were much more common at 45%.

Leveraging Human Capital Disclosures

Companies that aren’t using quantitative figures to disclose pay and DEI information are putting themselves at legal risk and missing the goal in human capital disclosures altogether.

In lieu of more defined rules governing the disclosure of human capital management – and given the potential liability associated with disclosures in SEC filings – companies will likely need to enact more rigorous controls to ensure the accuracy and completeness of their information.

For example, organizations should confirm their statements made in human capital closures are reliable, consistent, up-to-date, appropriate, and relevant. They should also address significant areas highlighted in stakeholder meetings, among other measures. It’s also important to note disclosures are likely to evolve and plans will need to be dynamic, especially in regard to the effect of COVID-19-related policies on the workforce.

Former SEC Chairman Jay Clayton commented that he would expect companies to “maintain metric definitions constant from period to period or to disclose prominently any changes to the metrics.”

Best practices encourage employers to get ahead of requirements proactively. Beyond helping companies stay compliant, a demonstrable commitment to DEI assists with hiring and retention efforts, as well as innovation and profitability. Trusaic’s comprehensive PayParity solution helps organizations do this and monitors their DEI progress in real-time. The system performs a holistic analysis of employee compensation at the intersections of gender and race/ethnicity to help organizations promote transparency, effectively communicate disclosures to stakeholders, and achieve workplace equity.

Learn about how to build an inclusive and supportive work environment in our research report conducted by Harvard Business Review Analytic Services, Creating a Culture of Diversity, Equity, and Inclusion below.

Downlaod Trusaic and HBR Research Report