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Compliance HR’s guide to the SEC human capital disclosure requirements
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Compliance | 5 min

HR’s guide to the SEC human capital disclosure requirements

HR’s guide to the SEC human capital disclosure requirements

Want to receive the latest news and updates on the SEC’s human capital disclosure requirements as they develop? Subscribe for updates at the bottom of this page.

By now, you’ve likely heard of the new U.S Securities and Exchange Commission (SEC) regulations that mandate human capital disclosure for all publicly listed companies, coming into effect later this year.

But you probably have some questions such as,

  • What metrics do we need to report?
  • When do we need to report?
  • What’s the best way to capture our human capital data moving forward?
  • Is there a tool or software I can use to support our human capital disclosures?

For those who already have a strong people analytics strategy in place, sourcing data to meet the requirements will be easier than for others, who will need to act fast to put appropriate measures and processes in place.

Given that the specifications for reporting provided by the SEC have been somewhat vague to date, there are likely lots of questions facing you! In this guide, we’ll attempt to answer all of these questions and lay out a clear path to help you do what you need to do, without the stress.

Background

On August 26 2020, the SEC made a number of amendments to modernize the disclosure requirements of Regulation S-K – many of which hadn’t been significantly revised in over 30 years – to “reflect the many changes in our capital markets and the domestic and global economy in recent decades”.

These amendments are designed to increase transparency for investors about a company’s financial position, the nature of their workforce, the way they conduct their business, and if they have the requisite human resources to manage future challenges.

While these new requirements will put pressure on many HR teams, there’s also a positive news story hidden behind the red tape: the recognition of people.

These new rules recognize human capital as a critical resource, which SEC Chairman Jay Clayton says is a key driver of business performance.

I am particularly supportive of the increased focus on human capital disclosures, which for various industries and companies can be an important driver of long-term value.”

If the global pandemic has brought one thing into focus, it’s the importance of our people, and including human capital metrics in reporting will help bring important people issues and trends to the fore.

 

Part 1. SEC human capital disclosure reporting requirements

Previously, only one human capital metric, number of employees, had to be reported to the SEC. Now, in addition to existing reporting requirements, the SEC is mandating reporting of metrics integral to human capital management.

Principles-based approach

Instead of prescribing specific metrics to report on (or even providing a definition of ‘human capital’), the SEC has proposed a ‘principles-based approach’ to disclosure. This basically means that the SEC is giving companies the license to decide which information is important or ‘material’ to the running of their business and thus which information to disclose. 

“disclosure [that] is material to an understanding of the registrant’s business taken as a whole, a description of a registrant’s human capital resources, including any human capital measures or objectives that the registrant focuses on in managing the business.”

In implementing a principles-based approach, the SEC recognizes that every organization is different and thus reporting need not be the same. Moreover, reporting is likely to differ by industry, with what is relevant for banking and finance not necessarily relevant for advertising or tech for example.

As a start, however, the SEC names attraction, development and retention as three key areas of focus. Why? Because these three things can have a substantial impact on the success and performance of a company, and thus are areas that an investor would most likely want to know about.

When to start reporting?

The amendment became effective on 9 November 2020; any reporting will need to include human capital metrics after this date. Thus, your Q4 and end-of-year reporting should include the new metrics: so now is the time to start getting your ducks in a row.

Who needs to report?

All public US companies issuing stocks, bonds or derivatives are subject to SEC reporting requirements. 

Finance teams will need to partner with human resources teams to gather and put in place measures to collect accurate, up to date and consistent information to include in the report.

 

Part 2. Building a reporting framework

With all of this in mind, where should you start? Begin by identifying what is relevant to your organization as per step 1 below, and then work through the next steps to set yourself up for success not just for the first submission, but for future ones too.

  1. Identify relevant human capital measures and objectives 
  2. Determine what to disclose
  3. Establish a reporting framework

 

1. Identify relevant human capital measures and objectives

Compile a list of all human capital metrics, measures or objectives that are relevant to your business, that you’re currently using, or that you can access data on. You’re most likely already using some in your HR strategy, reporting or operations, so that’s a good place to start. Or, take inspiration from our list below and see Part 3. for more detail.

  • Human capital resources (description of workforce including full time, part-time, temporary and contract employees)
  • Compliance and ethics
  • Diversity and inclusion
  • Health, safety and wellbeing 
  • Employee retention 
  • Incentives and rewards
  • Organizational culture
  • Talent management and workforce planning 
  • Total workforce cost/human capital productivity 

 

2. Determine what to disclose

Next, you will need to whittle down your list to those that are the most important to understanding and managing your business.  Here are some tips in choosing what to report:

  • Start with what’s already available to you and go from there. You can always add more metrics to your report down the track.
  • Only include what’s ‘material’ to your business i.e. those that a potential investor would be interested in in making decisions related to your business.
  • Metrics that have been previously disclosed externally or used to track performance are likely to be highly relevant.
  • You can disclose either a quantitative metric or a qualitative objective (or both!).

 

3. Establish a reporting framework:

Finally, you will need to establish a reliable framework that facilitates consistent, efficient and reliable reporting on an ongoing basis.

It’s important to note that any metrics disclosed will need to be reported on again each period and any change to the measures – the way they are calculated or otherwise – must be disclosed. Thus, having structures and processes in place that allow you to easily surface accurate metrics will save you time.

Collecting your data

Spreadsheets

If you’re storing your human capital data in a single, or multiple spreadsheets, saved somewhere on the drive, be warned that this is not sustainable in the long run. Spreadsheets are prone to errors and inaccuracies, greater security risk, and will cause more headaches than they’re worth come audit time.

HRIS

You’ve got all your data stored in your HRIS? Great. Except for the fact that many HRIS’s only provide end-of-period reports and don’t track changes over time. 

As the reporting requirements are ongoing, it makes sense to be able to view and understand all of your people metrics, and then report the ones that you have evidence are impacting business performance, rather than choosing metrics first and then reporting them, leaving you open to the risk that you’re missing vital information.

People and workforce analytics software

Purpose-built people software tools are a type of business intelligence software that collates your people data, using statistical models to provide analytics and insights into your people.

intelliHR is a leading people management platform with built-in AI-powered analytics that calculate a variety of metrics that provide insight into your human capital, including: performance, engagement, training and development, employee retention and turnover, health, safety and compliance, span of control, labor cost and organizational structure. 

 

Part 3. Objectives and measures

Here’s our curated list of potential objectives and measures you could disclose to the SEC.  The majority of these metrics are reported automatically in intelliHR, no need to marry up data from multiple sources or do complex filtering and calculations. Get in touch to schedule a free personalized demo.

  1. Human capital resources

This is where you provide a description of your workforce including: 

  • Number of full-time employees
  • Part-time employees
  • Temporary employees
  • Independent contractors who are essential to an investor’s understanding of a business
intelliHR workforce headcount report
intelliHR’s workforce headcount report shows changes in number of employees over time as well as their work type.

 

  1. Compliance and ethics

Policies or measures that demonstrate your ethical stance or level of compliance can provide useful insight into your business. Compliance requirements vary significantly depending on your industry, but a few measures to include could be:

  • C&E objectives or program
  • Misconduct 
  • Pay equality
  • Industry-related compliance training and qualifications requirements or investment
intelliHR qualifications compliance
In intelliHR, you can easily measure role-related compliance for qualifications and training.

 

  1. Diversity, equity and inclusion

D&I isn’t just a buzzword anymore, but an integral part of many company’s recruitment strategies and policies. Here’s what you could report on.

Diversity

Descriptive measures of your human capital’s diversity might include:

  • Race and ethnicity
  • Gender identity and expression
  • Sexual orientation
  • Age
  • Disability 
  • Culture
  • Religion
  • Marital status

Inclusion

Any initiatives or policies that ensure a safe environment where differences are respected and leveraged and that supports the performance, engagement and satisfaction of all employees.

Equity

Policies or metrics that ensure or outline equality of opportunity including:

  • Pay equity
  • Recruitment strategies 
  • Leadership diversity
  1. Health, safety and wellbeing

Health and safety policies, wellness programs, employee wellbeing objectives could all feature here. Metrics might include:

  • Health and safety incidents
  • Frequency, severity and lost time related to illness and death
intelliHR health and safety concerns report
intelliHR let’s you track the number of health and safety incidents over time.

 

  1. Employee retention

Employee turnover is said to cost anywhere from 30-150%, or 6-9 months of an employee’s salary, which is why it’s so important to retain rather than replace staff. In addition to any employee retention policies or objectives you have, you could report on:

  • Turnover and attrition (by tenure, pay grade, gender, recruitment source)
  • Cost of turnover
  • Turnover type (voluntary/involuntary, retirement/resignation/compliance matter etc.)
  • Exit drivers
  • Employee satisfaction
intelliHR attrition analysis report
Model your attrition over time and filter down on specifics including tenure, pay grade, and gender to understand your turnover.

 

  1. Talent management and workforce planning

Recruitment and attraction

  • Time to fill vacant position
  • Time to fill critical vacant positions
  • Percentage of positions filled internally
  • Percentage of critical positions filled internally

Training and development

  • Average hours of training per employee year
  • Training investment 
  • Development and training cost
  • Percentage of employees who have completed training on compliance and ethics
  • Percentage of employees who participate in training
  • Average hours of formal training per employee
intelliHR training and development
Quantify your training investment and analyze it by a range of filters including provider, business unit, pay grade, tenure and more with intelliHR.

 

Skills and capabilities

  • Skills types and distribution (expert, proficient, basic)
  • Skills gaps

Promotion 

  • Promotion rates
  • Promotion by gender, age, tenure, ethnicity
  • Succession planning
  1. Incentives and rewards

Do you have a program to incentivize, recognize and reward high-achieving staff? If this is relevant to the operation and performance of your business, now’s your chance to report on it. Think about both the policy, cost and any tangible outcomes.

  1. Organizational culture

Culture is one of those things that’s difficult to pinpoint and almost impossible to measure; however, a proxy of culture can be gained through employee engagement pulses and surveys as well as leadership surveys.

Many HR teams already conduct an annual employee engagement survey to understand how engaged, satisfied and loyal team members are, but you can go one step further? Conducting regular pulse checks on engagement helps you to track and report on culture over time, and map it onto key events or initiatives in your organization, and performance and success. Allowing you to answer the key question, when your business thrives, is culture also thriving?

intellihr employee sentiment
intelliHR’s sentiment report combines data across all of your employee pulse surveys, feedback and inputs to take a temperature check on your organization’s culture.

 

RELATED: 5 Ways to protect your organizational culture 

 

  1. Total workforce cost

Total workforce cost and productivity profit per employee.

Alternatively, there are a couple of existing guidelines that you can look to inform which metrics to include:

  1. International Standards Organization (ISO)
  2. Environmental, Social and Governance (ESG)

The International Standards Organization (ISO), which outlines sets of common standards that businesses can adopt such as the ISO9000 for quality, recommends a number of metrics for reporting by organizations including these 10. Their full recommendations can be accessed for a fee.

  1. Total workforce cost
  2. Human capital ROI
  3. Turnover rate
  4. Development and training costs
  5. Percentage of employees who have completed compliance training
  6. Number of accidents
  7. Number killed during work
  8. Number of employees
  9. Number of full-time equivalents
  10. Revenue per employee

 

Next steps

Meeting the reporting requirements for SEC human capital disclosure is important, but it doesn’t have to be hard. If you want an intelligent, intuitive and efficient solution for capturing, collating and analyzing your human capital data, learn how intelliHR can help today. 

Useful links

 

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intelliHR is a people management platform helping HR, leaders and managers enhance performance, culture, engagement and retention. With built-in tools for core HR, compliance and powerful real-time analytics, see how the platform works today.

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