The Advisors' Blog

I previously noted that the SEC’s Investor Advisory Committee would meet September 21st to consider recommendations on human capital management disclosure. Here’s an excerpt from the recommendations that the IAC approved at the meeting:

First, the IAC recommends that the Commission strengthen current Item 101(c) under Regulation S-K pertaining to human resources disclosures by requiring disclosure of the following:

1. The number of people employed by the issuer, broken down by whether those people are full-time, part-time, or contingent workers;

2. Turnover or comparable workforce stability metrics;

3. The total cost of the issuer’s workforce, broken down into major components of compensation; and

4. Workforce demographic data sufficient to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts.

Second, the IAC recommends that the Commission consider narrative disclosure, in the Management Discussion & Analysis, of how the firm’s labor practices, compensation incentives, and staffing fit within the broader firm strategy. Such a discussion would address what portion of labor costs management views as an investment and why, including how labor is allocated across areas designed to promote firm growth (e.g., R&D) and those necessary to maintain current operations rather than increase sales revenue (e.g., compliance). Our recommendation here is consistent with the recommendation put forward in a June 2022 rulemaking petition submitted by former SEC commissioners and senior officials as well as professors of accounting and securities law.

The IAC is an Advisory Committee – this recommendation doesn’t obligate the SEC to take action one way or another – so I can’t speculate on whether the rules that the Commission is expected to propose will track with these recommendations. But the SEC likely will consider these recommendations as a data point in its calculus of the type of data that is needed for investor protection (with “needed” being a controversial word here).

This Cooley blog shares questions from Commissioner Hester Peirce and other details from last week’s meeeting – along with context on how these recommendations fit with FASB work and other developments over the past few years. At our “Proxy Disclosure & 20th Annual Executive Compensation Conferences,” our panelists discussed these recommendations and the compensation committee’s evolving role in human capital oversight. They also talked about HCM complexities and disclosure controls for HCM-related data. Visit our “Human Capital Management” Practice Area for checklists and other resources, and remember that you can still register for access to our Conference archives (and get on-demand CLE credit) if you weren’t able to attend.

– Liz Dunshee