SEC Committee Approves Recommendation to Explore Expanding Human Capital Metric Requirements for Public Companies

March 29, 2019

In a 13 to 6 vote, the SEC’s Investor Advisory Committee approved a recommendation by its Investor as Owner Subcommittee that the SEC explore disclosures required of public companies to include various human capital metrics, such as the number of workers who are full-time, part-time, or contingent-based.

The Committee’s recommendations would provide that companies further include as background: 

  • Voluntary and involuntary turnover and internal hire and promotion rates;

  • Safety data, including frequency, severity and lost-time due to injuries, illnesses and fatalities, and first-tier supplier safety compliance;

  • Average hours of training per employee per year;

  • Race/ethnicity and gender diversity data; and

  • Employee satisfaction survey results.

The Committee also recommended that the Commission broaden proxy statement disclosure “to help investors understand the human capital within a firm and how it is being incentivized and managed.”  Specific suggested disclosures include:

  • How performance, risk, compliance, and long-term sustainability are considered in setting pay and making promotion decisions for the broader workforce, and

  • Organizational reporting and responsibility, such as:

    • Does the head of HR report directly to the board’s compensation committee, risk committee or audit committee?

    • Do formal management committees have responsibility for measuring and valuing the effects of turnover, layoffs, outsourcing and offshoring decisions, and are these decisions within the scope of board review?

SEC Chairman Jay Clayton told committee members before the vote:

"We should not attempt to impose rigid standards or metrics for human capital on all public companies.  Rather, I think investors would be better served by understanding the lens through which each company looks at its human capital.  In this regard, I ask: what questions do boards ask their management teams about human capital and what questions do investors—those who are making investment decisions—ask about human capital?  For example, how do investors use human capital information to make relative capital allocations among similar organizations?  Armed with general and sector-specific answers to these questions, we can better craft rules and guidance.”

The recommendations of the Committee are for consideration by the SEC only, but given growing investor interest in this area, it would not be surprising to see further Commission work to gather more information on the disclosure of intangible assets such as human capital or intellectual property.