The SEC’s Enhanced Human Capital Disclosure Requirement: What Companies Should Know
Friday, October 16, 2020

The Securities and Exchange Commission (SEC) recently announced a new human capital disclosure requirement for public companies to “reflect the many changes in our capital markets and the domestic and global economy in recent decades.” Over the past several years, human capital has become increasingly important to investors. “Human capital” generally refers to the value of a company’s workforce, which is often influenced by a company’s policies and procedures related to recruitment, retention, training, development, health and safety, diversity and inclusion, and culture. Investors see human capital as an essential component in creating long-term shareholder value and have increasingly prioritized strong human capital practices.


On August 26, 2020, in an effort to modernize its public company business disclosure rules, the SEC adopted amendments to Regulation S-K, which sets forth nonfinancial reporting requirements applicable to registration statements, proxy statements, and other periodic filings.

As a result of these amendments, companies are now required to disclose additional information about material human capital resource objectives. Specifically, companies must disclose:

A description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).

Challenges of the New Rule

Notably, the SEC did not provide a definition of “human capital” or structured guidance on how to implement this new rule. Instead, the SEC declined to define “human capital” because the meaning of this term “may evolve over time and may be defined by different companies in ways that are industry specific.” The SEC noted that it did not include a framework to provide the disclosure, but instead permits a principles-based approach to afford companies the “flexibility to tailor their disclosures” to their individual circumstances.  For example, the new rule states that under this principles-based approach, to the extent a company’s part-time employees, full-time employees, independent contractors and contingent workers, and employee turnover is material to an understanding of the company’s business, the company must disclose this information. The SEC believes this approach will result in a “more meaningful disclosure being provided to investors.”

Looking Ahead to the 2021 Proxy Season

The new human capital disclosure rule is likely to provide investors with increased transparency into a company’s workforce and allow investors to better understand the value of a company’s human resources. The new rule is particularly important in light of the COVID-19 pandemic, as investors seek information on the policies that companies are implementing as well as how the pandemic has impacted a company’s workforce. In the upcoming proxy season, we expect companies to expand their human capital disclosures to include information such as employee retention practices, employee incentive rewards, health and safety policies, wellness programs, training and development procedures, and diversity and inclusion efforts. Although the SEC did not address environmental, social, and governance (ESG) matters in its recent guidance, these issues have become increasingly important to investors. As a result, companies may consider including an enhanced discussion on their commitment to ESG matters in conjunction with their human capital disclosure.

We anticipate that companies will use this disclosure requirement as an opportunity to highlight to investors the ways in which they prioritize their human capital and culture.


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