Developing Best Practices in Human Capital Disclosure Now That It’s the Law

Last week, I posted twice on the SEC’s adoption of amendments to Regulation S-K disclosure requiring human capital disclosure. I observed that (a) because the disclosure requirements are principles-based, there was no specific guidance as to precisely what companies should disclose and (ii) the SEC seems to be allowing companies and thought leaders [that means you and me] to develop best practices on their own. With that in mind, and an eye toward the rapidly approaching 2021 proxy statements, we have developed a checklist of possible human capital disclosure topics (and some suggested best practices), drawn from previous SEC guidance and other sources. This checklist also includes the potential relevance of each factor and a variety of illustrative sample disclosures. Preparing this list was not rocket science, but it does attempt to capture each HCM measurable we could think of.*

Keeping in mind the SEC’s advice to “eschew simple one-size-fits-all approaches that obscure more than they add” and the fact that each company’s disclosures will depend on the nature of it business and workforce, among the thirty-plus HCM measurables on the list are the following:

1. The organizational structure through which the company manages its human capital resources
2. Internal rates of hiring and promotion
3. Measures regarding average hours of training per employee per year
4. Measures regarding worker productivity
5. The education and experience of the company’s workforce
6. Succession planning for potential successors to senior leadership roles
7. Opportunities for emerging talent in the organization
8. The safety of the workforce, including frequency, severity and lost-time due to injuries, illnesses and fatalities, and percent of first-tier suppliers that were audited for safety and health compliance
9. Inculcating company culture and norms
10. Information regarding the trend of all/each of the human capital factors noted above

And, we will update the checklist and examples as companies begin to make more detailed disclosures. Of course some companies already provide substantial human capital disclosures, recently, for example, The Procter & Gamble Company and Change Healthcare Inc.

-Mike Melbinger, CompensationStandards.com August 31, 2020