WASHINGTON – This week, the U.S. Securities and Exchange Commission (SEC) proposed modernizing the reporting and disclosure of human capital management practices.
The SEC’s announcement follows efforts by U.S. Sen. Mark R. Warner (D-VA) to require companies to disclose more information about their human capital management policies and practices. These additional disclosures will provide greater insight into workforce development and help drive value in an increasingly knowledge-based economy.
Last July, Sen. Warner, a former business executive and current member of the Senate Banking Committee, pressed the SEC to use its rulemaking authority to require companies to tell shareholders whether and how they are investing in their workforces through human capital management disclosures. The SEC’s proposed rule contains many of the suggestions Sen. Warner called for in his July letter.
“I’m excited to see the SEC take this important step to recognize the significance of human capital management and the role it plays in the 21st century economy. Many of the ideas outlined in the proposed rule would go a long way in providing investors with the information they need to evaluate whether a company is making the appropriate investments in its workforce. As this rulemaking moves forward, I look forward to working with the SEC to develop a robust human capital disclosure regime for companies to help promote workforce training and investment, and sustain long-term economic growth,” said Sen. Warner.
Human capital management disclosures provide a snapshot of how U.S. companies compensate, train, retain, and incentivize their employees. Several studies have found that human capital management disclosures are an important predictor of a company’s long-term success in a changing economy. For example, a 2015 McKinsey study found that firms that prioritize learning programs for their employees perform better overall than those that do not. As the Investor Advisory Committee also noted, a recent Harvard report found a positive correlation between disclosed training programs and financial performance. Requiring companies to disclose human capital management indicators would provide investors with a better understanding of a firm’s performance and potential for long-term growth.
The SEC’s current human capital disclosure requirements are extremely limited, requiring disclosures only of the number of employees, their median compensation, and CEO compensation. In a July letter, Sen. Warner urged the SEC to heed the calls of investors and utilize its rulemaking authority to require companies across the board to provide further details relating to human capital management. Specifically, Sen. Warner encouraged the SEC to revise and modernize Regulation S-K to require public reporting companies to disclose more qualitative and quantitative information regarding human capital. While the SEC would be responsible for developing and finalizing the requirements, human capital disclosures could potentially require firms to make public information about employee education and training programs; workforce demographics; employee turnover; employee compensation; and workforce compensation and incentives.