A new bill has been proposed in the U.S. House of Representatives that would require public companies to disclose information to investors about their human capital management in their annual report.
The Workforce Investment Disclosure Act was approved by the House Financial Services Committee in February. Specifically, the bill requires the disclosure of workforce demographics, workforce stability, training and capabilities, health and safety, culture and empowerment, and compensation and incentives.
While it’s unlikely the bill will advance, it underscores a broader movement around human capital reporting. The Securities and Exchange Commission (SEC) proposed rule amendments to modernize the description of business, legal proceedings and risk factor disclosures that organizations are required to make pursuant to Regulation S-K. Currently, public companies are only required to report on staff size and executive compensation.
The Workforce Investment Disclosure Act would require the following information, as laid out by Willis Towers Watson:
- Workforce demographics — including information on the number of full-time, part-time and contingent workers as well as policies and practices relating to subcontracting, insourcing and outsourcing.
- Workforce stability — including information about voluntary and involuntary turnover rates, internal hiring and internal promotion rates.
- Workforce composition — including data on the gender, racial and ethnic composition of the workforce, information about diversity policies and audits (workforce stability information from item 2 above would also be broken out by gender, racial and ethnic components).
- Workforce skills and capabilities — including information about training (including the average number of hours of training and spending on training per employee per year), skills gap, and the alignment of employee skills and capabilities with business strategy.
- Workforce culture and empowerment — including:
- Policies and practices regarding freedom of association and work/life balance
- Incidents of verified workplace harassment (during the five prior fiscal years)
- Policies and practices relating to employee engagement and well-being, including:
- Management discussions about creating an autonomous work environment
- Fostering a sense of purpose in the workforce
- Trust in management
- A supportive, fair and constructive workplace.
- Total workforce compensation, broken out by full-time, part-time and contingent workers
- Policies and practices about how performance, productivity and sustainability are considered when setting pay and making promotion decisions
- Policies and practices regarding incentives and bonuses provided to those who are not named executives (including policies and practices to counter any risk created by such incentives).
If the proposal is enacted, the SEC would have 270 days to study whether additional disclosures would be material to shareholders and one year to report the results to Congress, including information about:
- Human rights commitments of issuers, principles used to evaluate risk, constituent consultations and supplier due diligence;
- Violations of the Fair Labor Standards Act;
- More detailed employee demographic information; and
- The results of employee satisfaction surveys
The SEC would have two years to promulgate final regulations for the implementation of the law’s disclosure requirements; however, issuers would still need to comply with the law as of the date of enactment. Until the SEC issues its regulations, issuers would be deemed in compliance with the law if disclosures set forth in the annual report satisfy the public disclosure standards of the International Organization for Standardization’s ISO 2 30414, or any successor standards for external human capital reporting, and as supplemented or adjusted by such rules, guidance or other comments from the commission.
The bill is cleared for action on the House floor. The House could vote on the proposal, but Senate action is not expected, according to Willis Towers Watson.
About the Author
Brett Christie is the managing editor of Workspan Daily.