FAQs on Human Capital Management Disclosure

I have blogged before on the explosion of HCM onto the scene. With the SEC reporting season approaching rapidly and in light of the new SECs disclosure requirements, most compensation committees are review and improving the underlying structure of their human capital management. Today we will discuss a few of the issues and questions that are arising.

  1. Where do we start? As an initial matter, take care not to “reinvent the wheel.” Most companies are tracking the types of statistical information that should be disclosed. Additionally, many companies maintain and may have disclosed relevant information based on their (i) ESG and sustainability reporting, (ii) CEO pay ratio calculation and disclosure, and (iii) succession planning, just to name a few. Ideally, your law firm or compensation consultant will have developed a checklist of possible human capital disclosure topics (and some suggested best practices), drawn from previous SEC guidance and other sources. This checklist may include the potential relevance of each factor and a variety of illustrative sample disclosures.
  2. Should we expand the compensation committee’s oversight beyond the executive officers? Many (if not most) compensation committee charters make the committee responsible only for the compensation of the executive officers or the named executive officers. This made sense for a committee desirous of limiting its focus to those executives included in the proxy statement. However, a committee that now takes on the responsibility of significant HCM oversight should broaden its focus to other management and key employees, at a minimum, for several reasons, including company culture, internal promotion rates, and succession planning.
  3. Where should we make our HCM disclosure? The SEC rules require disclosure in the company’s Form 10-K. To date, the vast majority of companies providing HCM disclosure have done so in their proxy statements. We believe that many companies will include similar disclosure in both the Form 10-K and the proxy statement.
  4. Can you provide us with good examples of HCM disclosure? Among the comprehensive HCM disclosure examples are those found in the 2020 (for the 2019 fiscal year) proxy statements of BlackRock, Change Healthcare Inc., Intel Corporation (Proxy and Form 10-K), and The Procter & Gamble Company.
  5. Must we do all of this before filing our next Form 10-K or proxy statement? The new SEC rules require the company to provide a (i) description of the company’s human capital resources, including the number of persons employed by the company, and (ii) any human capital measures or objectives that the company focuses on in managing the business (such as, depending on the nature of the company’s business and workforce, measures or objectives that address the development, attraction and retention of personnel). Companies must do these two. However, companies do not need to include the type of comprehensive disclosures provided in the examples I cite above if they have not implemented those types of programs and initiatives.

This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.