The Proof Is in the People: Be Ready to Share Your Human Capital Management Metrics Soon

If business leaders and stakeholders were not keenly aware of the significant link between Human Capital Management (HCM) and business viability before, they sure are now. Over the past 18 months, employees have faced the compounded stress of a pandemic, social strife, remote work, and everything else that has come with the “new normal.” All of this has manifested in novel challenges for companies, shining a light on the critical importance of HCM, workforce quality, and employee fulfillment like never before.

Now, with the SEC stepping in to mandate additional HCM disclosure requirements, there’s no longer any doubt that the topic deserves a spot at the top of corporate and board agendas. Here’s what you need to know to prepare for the new regulations expected soon.

Human Capital Management 101: Getting Up to Speed  

Human Capital Management or HCM is widely understood as a company’s management of its workforce. This encompasses everything from employee benefits to corporate hiring strategy and even employee development programs. HCM is central to a company’s strategy, performance, and long-term sustainability, making it a key area of focus for internal and external stakeholders alike.

The topic received increased attention in November 2020 when the SEC rolled out Human Capital Management disclosure requirements for the first time. The rules require companies to provide minimal disclosure on topics such as the total number of employees. As most anticipated, however, this was just a start, and the requirements were expected to become increasingly robust over time.

That time has come. CEOs have recently experienced first-hand why good HCM matters so much, but they are not the only stakeholders who increasingly care about employee experience. According to a recent survey by PWC, 76% of customers are willing to discontinue their relationship with companies that treat the environment, employees, or the community in which they operate poorly. Of course, the influential ESG ratings agencies have long ranked human capital as a significant factor for most companies. And now, regulators are taking a closer look, too.

With this increased focus on HCM across stakeholder groups comes a need for more information. This has been the catalyst for the more demanding disclosure environment that is coming soon.

The Next Chapter for HCM Disclosures: Looking Around the Bend

In August 2021, SEC Chair Gary Gensler announced that the SEC was looking into further HCM disclosure requirements. He specifically mentioned metrics including:

• Workforce turnover
• Skills and development training
• Compensation
• Benefits
• Workforce demographics including diversity
• Health and safety track records and employee training

In large part, the call for increased disclosure is driven by regulators’ desire for consistent and regulated reporting. However, investors have a horse in the race too. For some time now, investors have considered a company’s HCM strategy as part of their investment decision. As investment techniques grow increasingly sophisticated, investors’ data requirements evolve, too. Standardized, uniform HCM reporting—including quantitative data—is a critical step in the right direction in satisfying Wall Street’s needs.

So, what exactly does that look like?

The new disclosure mandate will likely require a breakdown of employee type, including full-time, part-time, seasonal, and contract workers. It may also include a further breakdown by geography as well as compensation information by employee class.

In addition to turnover rates, companies will likely be asked to share key information on factors to mitigate employee turnover. This could include things like employee benefits, access to wellness programs, and employee growth opportunities (e.g., mentorship and development programs and time investment by both employees and employers). Other employee experience related metrics, like engagement and satisfaction, may also be monitored.

Additionally, in parallel with NASDAQ’s board diversity rules, it is quite likely that SEC’s rules will also have a diversity element—that is, a breakdown of representation among a company’s workforce.  

Collectively, these metrics and information will provide investors with better insight into companies’ risk exposure and stability with regard to its people. But arguably, the most impactful outcome of the SEC’s new rule will be the consolidation and centralization of corporate human capital data. This will prevent investors or other stakeholders from having to search a variety of corporate disclosures to find the certain data points that interest them most.

Turning the Corner: 3 Ways to Prepare for the Future of HCM Disclosure

Any such proposed rules will not be finalized until 2022, which, in turn, will not likely impact reporting requirements until 2023. This will hopefully afford companies adequate time to prepare. However, it’s always best to get ahead of the game. Here are a few ways to start:

1. Publish your EE0-1 data for the SEC.
   • Every publicly traded company is already required to file EE0-1 data to the Equal Employment Opportunity Commission. So, this is an easy one that should require minimal effort. However, some companies are concerned that their EEO-1 reports do not accurately reflect their diversity outlook and goals. In this case, companies have the option to disclose a supplement in which they can add narrative around their data and discuss recruiting, promotion, and retention rates of diverse employees.
   • Keep in mind that although an SEC rule would not take effect until 2023, State Street Global Advisors announced that, starting in 2022, it will vote against compensation committee chairs at S&P 500 companies that do not disclose EEO-1 survey responses. The New York City Comptroller has asked the same of many S&P 100 companies.
2. Assess the state of your existing data.
   • It’s not uncommon for multiple departments within a company to collect HCM data. If this is the case in your business, take the time now to put processes in place that ensure consistent data collection, organization, and validation across the company. This will go a long way toward streamlining reporting if and when it does become a mandate.
3. Check out what your peers are doing.
   • Now is the perfect time for corporate leaders to begin looking at peer disclosures. Consider how your company is performing in comparison to others in your industry. Gaining this insight now can provide important context around stakeholder expectations. More importantly, it can point you toward any areas where you lag behind other companies while there is still time to make improvements.

At a Minimum, Know Where You Stand

Some companies are not yet ready to disclose all HCM metrics. And there’s still time before such reporting is required. However, knowing and understanding your numbers is still important, if only for internal purposes at the moment. We can help you understand your data, explore what your industry peers are reporting, and discover what information investors value to the most. Reach out to start a conversation and learn how to use your HCM data to build the most meaningful story you can.