SEC human capital disclosures lend renewed focus on employee talent development

Last August, the Securities and Exchange Commission announced it would update its corporate filing rules, requiring companies to disclose data about their employees, also known as human capital management (HCM) reporting. Often touted as a company’s most important asset, human capital data could include the number of workers employed and any other relevant information considered “material” to investors. 

The change was effective November 2020, and because the SEC rules were broad and ambiguous, companies used their own discretion to determine what they disclosed, and more importantly, what they did not. For example, in a July podcast, research analyst Josh Bersin reported that while the details of Ford Motor’s HCM filled three pages, Tesla described its method in a couple of sentences. 

As we approach nearly a year since the filing change, it’s becoming apparent that the majority of companies are not unlike Tesla, and are reluctant to divulge vital HCM information, particularly when it comes to employee talent development. In its first year, the federal government has been quite tolerant and patient about such vagueness as well.  

This is a missed opportunity. SEC disclosures are only as useful and informative as the quality and quantity of data companies provide. If companies were more open to sharing their HCM data and elaborate on even more relevant metrics, these filings can both empower and hold accountable their HR and L&D teams for business impact. And while it’s true employers risk opening themselves up to criticism for the lack of investment, it is ultimately a net positive to be more transparent with this information as they look to gain credit from investors for their HCM practices in the future.

 

New rules, old problems

In May, the Stanford Graduate School of Business released a report that analyzed 100 companies and their HCM disclosures following November’s SEC revisions. These filings touched upon areas like DE&I, employee development efforts, compensation, recruiting practices, and much more. Researchers found that while the word count and overall length of these disclosures increased, the level of useful information amounted to very little.

Less than half the companies, for example, provided quantitative metrics beyond headcount and the number of union reps. Instead, “exceedingly generic,” boilerplate language was used by companies to describe lofty and vague corporate achievements that were rarely backed by specific details or numbers.

This pattern was illustrated further by the two graphs Stanford included in its report, which Guild reproduced below. Though 55% of companies added employee development as a new area of HCM (coming second to diversity) only 4% actually used metrics to describe talent development efforts.

According to the corporate data solutions platform Equilar, one such company was the automotive oil maker Valvoline. In its 10-K annual report, it detailed its training and development for new employees, who received “270 hours of training that is generally completed within the first 60 days of employment leading to their first certification and another 225 hours of training in the next 140 days that leads to a promotion.”

Valvoline and three other companies were the exceptions, however. The Stanford report ultimately concluded that “without concrete improvement, it does not appear that current HCM disclosure is relevant for assessing corporate performance or understanding how employee development programs contribute to strategy, value creation, or competitive advantages.”

 

Embracing the change

In February, I made a prediction about the future of work anticipating that human capital would be treated more like capital. Since then, it appeared as if the SEC were as tolerant as they intended to be regarding continued vagueness from public companies when it comes to human capital reporting. But recently, Reuters reported that companies should expect new guidance by the end of the year on HCM reporting practices that include sharing more details. 

Many employers have valid reasons to hold their HCM information close to the chest, or not measure it all. For one thing, they could be doing little to substantially contribute to the level of investment that their “most important assets” need in order to build the great companies of the future. Additionally, gathering relevant data can be time-consuming and labor-intensive; companies can view the information as proprietary and be overprotective of it; and as Reuters reported, public companies worry that “such data could prove embarrassing, create legal risks or be exploited by labor unions.”

But ultimately, the benefits for organizations that are investing in talent development, increasing equitable compensation, and bettering their hiring practices and employee benefits, far outweigh the drawbacks. Quantifying employee development, especially when the press continues to highlight the war for talent in its headlines each day, gives stakeholders insight into company culture, and informs retention, branding, and employee engagement. 

The forcing mechanism of HCM reporting can also help employers design benefits and education programs to their maximum potential, such as ones that upskill and train specific workers and help them land internal, high-demand roles. Future headlines regarding “education programs that increase employee retention,” or “reskilling programs that reduce hiring costs,” or even “internal mobility as an engagement driver” will serve as powerful reminders that an HR function that is focused on employee experience is, in itself, a powerful business strategy.

It’s important to keep in mind that the federal government is not the sole audience for SEC filings — investors, the press, the current employee base, and future talent can all view HCM disclosures. Rather than shying away from its implications, employers, especially those who want to be innovative, should seize this as an opportunity to differentiate from their competitors. It gives companies a chance to study their most valuable and complex asset, hold their own HR and L&D teams accountable with data that would optimize their workforces, and potentially uncover business solutions that would ultimately help the bottom line.

Written by Matthew Daniel
Principal, Employer Solutions

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