From a review of over 2000 Form 10-Ks following the effective date of the new human capital management (HCM) disclosure requirement, PwC released an updated memo to include findings from that review. At a high-level, PwC found 89% of the filings included both qualitative and quantitative metrics and disclosures commonly included discussion of COVID-19 and its impact on human capital (most of which were qualitative) and diversity, equity and inclusion (again much of which was qualitative).
When the SEC amended Item 101 of Reg S-K, it took a principles-based approach and didn’t mandate disclosure addressing specific human capital metrics. So, it wasn’t too surprising that PwC found when quantitative DEI metrics were disclosed, the disclosures primarily included the total number of employees and gender percentages.
With increased focus on employees, and as stakeholders look for HCM metrics, it can be helpful when you find a company that’s posted a stand-alone human capital management report, which often include much more detailed HCM disclosures. Over a year ago, I blogged on our “Proxy Season Blog” about Bank of America’s first human capital management report and just last week, Verizon released its first human capital management report. To each company’s credit, they include fairly extensive HCM disclosure in their 10-K but the HCM reports go further and include charts and visuals beyond what you’d commonly find in a 10-K.
Verizon’s report includes a deep dive with data about the makeup of its global workforce, and among other things, covers topics like initiatives to attract and develop employees, pay equity, how it measures progress and actions it took in 2020 in response to COVID-19. Verizon’s deep dive into workforce data is one of the more detailed examples I’ve come across and it begins on page 35 – it includes gender and racial/ethnic diversity data globally and by business segment. Within each of those areas it shows the data across Verizon pay bands.
In terms of HCM disclosures included in SEC filings, a recent Stanford Closer Look article summarized its early look at HCM 10-K disclosures and it again points to why those looking for metrics might be better off looking elsewhere.
We find that while some companies are transparent in explaining the philosophy, design, and focus of their HCM, most disclosure is boilerplate. Companies infrequently provide quantitative metrics. One major focus of early HCM disclosure is to describe diversity efforts. Another is to highlight safety records. Few provide data to shed light on the strategic aspects of HCM: talent recruitment, development, retention, and incentive systems. As such, new HCM disclosure appears to contribute to the length but not the informativeness of 10-K disclosures.
Equilar has been tracking HCM disclosures in SEC filings and found the median character count has increased more than four times over the last year. Equilar’s most recent blog entry includes examples with varying levels of disclosure, some including data about age diversity by showing a breakdown of workforce across age brackets.
-Lynn Jokela, TheCorporateCounsel.net May 7, 2021
