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Article | Executive Pay Memo North America

Initial 10-K disclosures provide limited data on human capital metrics

By Steve Seelig and Lindsay Green | January 28, 2021

A majority of companies provide expanded descriptions of material human capital issues and initiatives
Executive Compensation

On November 9, 2020, the new Securities and Exchange Commission (SEC) requirements for human capital disclosures went into effect. Our review of the first three dozen S&P 500 human capital disclosures published in 10-Ks filed since that effect date reflects a mixed bag of approaches. Many companies have developed a detailed description of their human resource initiatives and items important to their business strategy, while others have simply offered data on workforce demographics without offering much more on other elements of human capital.

First-glimpse observations and caveats

The initial filings provide some helpful guideposts for calendar-year companies to reference as they consider how to craft their own disclosures in the coming weeks, with some caveats.

Calendar-year companies should make sure to understand the nuance of disclosing broad human capital strategy and initiatives compared with data based on hard metrics. Companies have determined that both types of disclosures can meet the definition of “materiality” under the SEC regulations. We think it is likely that they used this initial disclosure with descriptions of human capital resources and/or initiatives to set the stage for future-year disclosures that will include more hard data on specific metrics (e.g., gender/race representation, turnover, engagement scores).

It is also important to be mindful that the companies in the sample reviewed had a short time frame in which to create their 10-K disclosures. This suggests that the initial disclosures reviewed may provide less detail than those soon to be issued by other calendar-year companies. For example, because total head count data was already disclosed under the former 10-K rules, providing expanded head count data with added demographic details may be useful for shareholders to review, but it is not necessarily a marked expansion from prior disclosures.

Last, once companies answer the question of whether to disclose human capital information, they must then determine what level of detail is “material” to shareholders; thus, even if peer companies disclose information on diversity and inclusion, for example, an individual company will still need to determine how much information is relevant to its own shareholders.

How to read the results:

Our analysis breaks down the contents of the initial disclosures into two categories:

  1. Descriptions of human capital resources and initiatives
  2. Disclosure of data reflecting human capital metrics

For example, if a company describes a targeted training program, we counted that disclosure in the first category. If the company disclosed actual information about the number of participants in that program or the percentage of the population that completed that training, we counted that disclosure in the second category.

1. Descriptions of human capital resources and initiatives

As illustrated in Figure 1, most companies included the descriptions “employee development and training” and "diversity initiatives and strategies." This is not surprising given the societal focus on these issues during 2020. A cursory review of larger companies in our sample indicates these disclosures were leveraged from existing public statements, such as proxies and environmental, social and governance (ESG) reports.

Among the companies disclosing diversity initiatives and strategies as descriptions, two thirds enhanced their disclosure with representation metrics. Only a handful of companies disclosed concrete gender and racial diversity goals (e.g., increase the representation of both women and ethnically diverse talent by at least one percentage point year over year). We expect that more companies will continue to enhance their internal reporting processes and develop and publicize actual goals in these areas; therefore, an uptick in their prevalence as metrics disclosed in future filings is likely.

Fig. 1 Human capital descriptions and initiatives prevalence
Figure 1 Human capital descriptions and initiatives prevalence

1) Excludes COVID-19 specific disclosure
2) Among the companies disclosing diversity initiatives and strategies: 19% provided concrete gender diversity goals 

2. Disclosure of data reflecting human capital metrics

Almost every disclosure reviewed included at least one human capital metric. The most common type of metric was labor profile, with the total number of employees disclosed being most prevalent as a carryover from the prior 10-K disclosure rules. The next tier includes gender representation as well as diversity and inclusion metrics disclosed by more than one-third of the sample. Less than 25% of the sample disclosed metrics other than labor profile, with each of these getting modest coverage (Figure 2).

Fig. 2 Human capital metrics prevalence
Figure 2 Human capital metrics prevalence

On COVID-19:

Most companies included COVID-19-specific disclosures. We did not include COVID-19-related disclosures in our analyses, as they will be temporarily spotlighted in the 10-Ks, disappearing with what we hope is the impending conclusion of the pandemic. That said, we anticipate more prevalent and robust COVID-19-specific disclosures among 2020 calendar-year filers.

Thinking about next year:

Companies should keep in mind that a Democratic-led SEC very well may move to mandate specific ESG-related items, including human capital metrics, for future 10-Ks. A template for what those mandates could include in the human capital metrics arena could be found in the Workforce Investment and Disclosure Act passed by a House committee in the last legislative session. Now is a good time to start thinking about how data on these metrics would be compiled and disclosed in next year’s 10-K.

A version of this article appeared in Workspan Daily on January 21, 2021. All rights reserved, reprinted with permission.


Senior Director, Executive Compensation

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