Comments on SEC Human Capital Metrics Standard Illustrate Broad Range of Approaches, Beliefs

December 13, 2019

Only a third of comments on the SEC’s proposed changes to the Annual Report (10-K) focused on human capital metrics, with most of those advocating for greater disclosure seeking a defined list of measures.  The SEC proposed that companies provide a principles-based disclosure of material human capital management issues.

91 individual comments were filed, with 34 pertaining to human capital metrics.  The SEC’s proposed rule dealt with many changes to the description of the business in the 10-K, and many commenters did not address the proposal to require a principles-based disclosure of material human capital management issues.

Advocates most often sought disclosure of a mandated list.  Investors such as CalPERS argued that “concise, numeric, comparable disclosures are the most conclusive indicators of company performance and therefore most useful to investors.”  It further contended the SEC should require disclosure of the “number of full-time, part-time, and contingent workers; employee turnover rates; and diversity statistics.”  Similar approaches were supported by the Council of Institutional Investors and several union pension funds.

Existence of standardized information:  As with pay ratio, many commenters seeking additional HCM disclosure mistakenly believe standardized information is readily available.  For example, Domini Impact Investments argued that many human capital metrics could be extracted from payroll data through “relatively simple software.”

Strong arguments for a principles-based disclosure of human capital issues:  Several associations, including the HR Policy Association, as well as law and consulting firms, submitted comments supporting the SEC’s approach to principles-based human capital disclosure.  For example, Financial Executives International noted that “there are significant operational challenges to disclosing human capital information in the 10-K.”  It stated that it will “often be difficult to identify how a change in a human capital metric did or will affect a company’s financial performance.”

What’s Next:  The SEC is expected to review the comments and determine whether to move forward with additional disclosure of human capital management and whether the disclosure should be principles-based as proposed, or involve more specific metrics.