The Advisors' Blog

Way back in 2017, before many folks had even heard the term “human capital,” the investor-led “Human Capital Management Coalition” submitted a rulemaking petition to the SEC – calling for additional disclosure about policies, practices & performance. I taped a podcast around that time with Cambria Allen of the UAW Retiree Medical Benefits Trust (the HCM Coalition’s leader), to discuss that petition. By 2019, the SEC proposed amendments to Regulation S-K that added “principles-based” human capital disclosure requirements in response to investor appetite for that info. The SEC adopted those rules in 2020.

But, those rules didn’t go as far as many investors wanted, and there are continued calls for more prescriptive line-item disclosure requirements. I blogged earlier this summer that HCM continues to be part of SEC Chair Gary Gensler’s Reg Flex Agenda – with a proposal expected this fall.

A recent rulemaking petition submitted by the “Working Group on Human Capital Accounting Disclosures” gives an idea of how far that proposal might go. The Working Group is co-chaired by Stanford Law & Columbia Business School profs Colleen Honigsberg & Shivaram Rajgopal – and members include former GC and Acting Director of the SEC’s Division of Corporation Finance John Coates, former SEC Commissioner and current Stanford Law prof Joe Grundfest, former SEC Commissioner and current NYU Law prof Rob Jackson, Wharton’s Daniel Taylor, and other academics.

The petition calls for enhanced MD&A disclosure that explains what portion of labor costs are investment in growth vs. maintenance, very detailed tabular disclosure of labor-related info, and income statement disaggregation of labor costs. Here’s the tabular info that the petitioners are calling for, which they suggest breaking out to show by the categories of full-time employees, part-time employees & contingent workers (also see this Forbes op-ed):

– Mean Tenure, Employee Turnover & Number of Employees

– Total Compensation by Category:

– Salary

– Bonus

– Pension

– Stock Awards

– Option Awards

– Non-Equity Incentive Compensation

– Pension & Deferred Compensation

– Health Care

– Training

– “Other”

For most companies, it’s already a heavy lift to provide compensation info for NEOs. We have an entire Disclosure Treatise that walks through how to do it! That effort would pale in comparison to this workforce-wide exercise, but the petitioners argue that it would be money & effort well-spent. Time will tell whether the SEC includes anything like this in its proposal.

Rest assured that we’ll be sharing practical guidance on this topic at our “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – specifically, during our session on “Human Capital Disclosure: Mastering SEC & Investor Expectations.” That’s only one of the many rulemaking topics that we’ll be covering. Check out the agendas – 18 fast-moving, practical sessions held virtually over 3 days – October 12th – 14th. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271. With human capital also being a very relevant topic to anyone navigating ESG issues, you can also add on our “1st Annual Practical ESG Conference” for a bundled discount! Tell your colleagues, and save even more for multi-seat registrations…

– Liz Dunshee