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Initial 10-K Disclosures Provide Limited Data on Human Capital Metrics

A Willis Towers Watson review of the first three dozen S&P 500 human capital disclosures published in 10-Ks filed after the Nov. 9 effective date of the new U.S. Securities and Exchange (SEC) requirements reflects a mixed bag of approaches. 

Editor’s Note: A 10-K is a comprehensive report filed annually by public companies concerning their financial performance. The report is required by the U.S. Securities and Exchange Commission and provides more detail than a company’s annual report.

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Many companies have developed a detailed description of their human resources initiatives and items important to their business strategy, while others have simply offered data on workforce demographics without offering much more data on other elements of human capital. 

First Glimpse Observations and Caveats

The initial filings provide some helpful guideposts for calendar-year companies to review as they consider how to craft their own disclosures in the coming weeks, with some caveats.  

There is nuance between disclosing broad human capital strategy and initiatives compared to data based on hard metrics. Companies have determined that both types of disclosures can meet the definition of “materiality” under the SEC regulations. It’s likely that companies used this initial disclosure with descriptions of human capital resources and/or initiatives to set the stage for future year disclosures that will include more hard data on specific metrics (e.g., gender/race representation, turnover, engagement scores, etc.).

It’s worth noting that the companies in the sample reviewed had a short timeframe to create their 10-K disclosure. This suggests that the initial disclosures reviewed may provide less detail than those by calendar year companies that will soon be issued. For example, because total headcount data was already disclosed under the former 10-K rules, providing expanded headcount data with added demographic details may be useful for shareholders to review, but it is not necessarily a marked expansion from prior disclosures.

Lastly, once companies answer the question of whether to disclose human capital information, they must then determine what level of detail is “material” to shareholders. Thus, even if peer companies disclose information on diversity and inclusion, for example, companies will still need to determine how much information is relevant to their shareholders.

How to Read the Results

Willis Towers Watson’s analysis breaks down the contents of the initial disclosures into two categories:

  1. Descriptions of human capital resources and initiatives, versus
  2. Disclosure of data reflecting human capital metrics.

For example, if a company describes a targeted training program, that disclosure would be counted in the first category. If the company disclosed actual information about the number of participants in that program or the percentage of the population that completed that training, that disclosure would be counted in the second category.

  1. Descriptions of Human Capital Resources and Initiatives

As illustrated to the right, most companies included descriptions of employee development and training as well as diversity initiatives and strategies. This is not surprising given the societal focus on these issues during 2020. A cursory review of larger companies in our sample indicates these disclosures were leveraged from existing public statements like proxies and environmental, social and governance (ESG) reports.  

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Among the companies disclosing diversity initiatives and strategies as descriptions, two-thirds enhanced their disclosure with representation metrics. Only a handful of companies disclosed concrete gender and racial diversity goals (e.g., increase the representation of both women and ethnically diverse talent by at least 1 percentage point year-over-year). Willis Towers Watson expects more companies will continue to enhance their internal reporting processes and develop and publicize actual goals in these areas; therefore, an uptick in their prevalence as metrics disclosed in future filings is likely.

  1. Disclosure of Data reflecting Human Capital Metrics

Almost every disclosure reviewed included at least one human capital metric. The most common type of metrics were labor profile metrics, with the total number of employees disclosed being most prevalent as a carryover from the prior 10-K disclosure rules. The next tier includes gender representation and diversity and inclusion metrics disclosed by more than one-third of the sample. Less than 25% of the sample disclosed metrics other than labor profile metrics, with each of these getting modest coverage.

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On COVID-19
Most companies included COVID-specific disclosures. Willis Towers Watson did not include COVID-related disclosures in its analyses, as they will be temporarily spotlighted in the 10-Ks, disappearing with what we hope is the impending conclusion of the pandemic. That said, we anticipate more prevalent and robust COVID-specific disclosures among 2020 calendar-year filers.

Looking Ahead
Companies should keep in mind that a Democrat-led SEC very well may move to mandate specific ESG-related items, including human capital metrics, for future 10-Ks. A template for what those mandates could include in the human capital metrics arena could be found in this bill passed by a House committee in the last legislative session

Now is a good time to start thinking about how data on these metrics would be compiled and disclosed in next year’s 10-K.

About the Authors

Steve Seelig is a senior director, executive compensation, at Willis Towers Watson.

Lindsay Green is a director, executive compensation, at Willis Towers Watson.


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