Guidance and Best Practices Finally Emerging for Human Capital Metrics Disclosures
February 05, 2021
Notable disclosure trends have emerged after companies filed the initial wave of disclosures implementing the SEC’s new human resource information disclosure rules, which went into effect Nov. 9, 2020.
The disclosure length has varied dramatically from just nine words to 1,582 words, with a median length of 369 words, according to FW Cook.
- 39 of the 50 10-Ks reviewed included “extensive” human capital disclosures (i.e., disclosures that go further than simply stating that the company considered diversity, recruiting, training, compensation, and benefits to be important factors in its strategy).
Nearly all disclosures to date depend heavily on a qualitative description of core values, programs, and practices. Compensation Advisory Partners details how very few companies are disclosing actual objectives and/or metrics used to manage the business. Examples of those that do disclose metrics include:
- Visa, which disclosed that it established goals to increase diverse representation at the vice president level and above in the U.S. by 50% over three years and to increase representation for the entire workforce in the U.S. by 50% in five years.
- Wells Fargo, which disclosed the adjusted pay gap between (1) women and men and (2) people of color and their white peers (both are more than 99 cents for every $1) and reports that the unadjusted pay gap is higher than the company would like it to be.
Aon published the most comprehensive study of quantitative versus qualitative HCM disclosures:
- Just over half disclosed diversity (53%) and geographic location of employees (52%).
- Just under half disclosed talent development (49%) and health and safety (46%).
- Quantitative disclosures were most common when discussing collective bargaining agreements (62% of CBA disclosures), turnover/attrition (55% of such disclosures), and diversity (49%).
- The number of employees had a larger correlation with the depth of disclosure than revenue.
Outlook: Public companies and the investor community are keeping a close eye on the SEC, which could publish additional guidance on which specific HCM data points represent material risks and opportunities that investors need to know. Longer term, it could also undertake new rulemakings to build off the existing rules.