January 9, 2023
A Survey of Disclosures from the S&P 100 During the Two Years Following Adoption of the Securities and Exchange Commission Rule
Human capital resource disclosures by public companies have continued to be a focus since the U.S. Securities and Exchange Commission adopted the new rules in 2020; not only for companies making the disclosures, but employees, investors, and other stakeholders reading them. This alert serves as an update to the alert we issued in 2021, “Discussing Human Capital: A Survey of the S&P 500’s Compliance with the New SEC Disclosure Requirement One Year After Adoption,” and reviews disclosure trends among S&P 100 companies, each of which has now included human capital disclosure in their past two annual reports on Form 10-K. This alert also provides practical considerations for companies as we head into 2023.
The overall takeaway from our survey, which categorized disclosures into 17 topic areas, was that companies are generally expanding the length of their disclosures, covering more topics, and including slightly more quantitative information in some areas. We note the following trends regarding the S&P 100 companies’ disclosures compared to the previous year:
I. Background on the Requirements
On August 26, 2020, the U.S. Securities and Exchange Commission (the “Commission”) voted three to two to approve amendments to Items 101, 103, and 105 of Regulation S-K, including the principles-based requirement to discuss a registrant’s human capital resources to the extent material to an understanding of the registrant’s business taken as a whole. Specifically, public companies’ human capital disclosure must include “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).” One dissenting commissioner criticized the amendment for failing to even require disclosure of “commonly kept metrics such as part time vs. full time workers, workforce expenses, turnover, and diversity.”
As discussed below, following the change in presidential administration, the Commission has indicated that it plans to revisit the human capital disclosure requirements and potentially adopt more prescriptive rules in the future.
While companies disclosures under the principles-based rules varied widely, our survey was able to introduce some comparability. The next two sections show the relevant data from our survey.
II. Disclosure Topics
Our survey classifies human capital disclosures into 17 topics, each of which is listed in the following chart, along with the number of companies that discussed the topic in 2021 and the number of additional companies that discussed the topic in 2022. Each topic is described more fully in the sections following the chart.
A. Workforce Composition and Demographics
Of the 100 companies surveyed, 99 included disclosures relating to workforce composition and demographics in one or more of the following categories:
B. Recruiting, Training, Succession
Of the companies surveyed, 96% included disclosures relating to talent and succession planning in one or more of the following categories:
C. Employee Compensation
Of the companies surveyed, 85% included disclosures relating to employee compensation, up from 68% the previous year. All of those companies included a qualitative description of the compensation and benefits program offered to employees. Of the companies surveyed, 41% addressed pay equity practices or assessments (compared to 30% in 2021), and substantially fewer companies (12% of companies surveyed in 2022 and 11% in 2021) included quantitative measures of the pay gap between diverse and nondiverse employees or male and female employees.
D. Health and Safety
Of the companies surveyed, 78% included disclosures relating to health and safety in one or both of the following categories:
E. Culture and Engagement
In addition to the many instances where companies mentioned a general commitment to culture and values, 62% of the companies surveyed discussed specific initiatives they were taking related to culture and engagement in one or more of the following categories:
A majority of companies (71% of those surveyed compared to 66% in 2021) included information regarding COVID-19 and its impact on company policies and procedures or on employees generally. COVID-19-related topics addressed ranged from work-from-home arrangements and safety protocols taken for employees who worked in person to additional benefits and compensation paid to employees as a result of the pandemic and contributions made to organizations supporting those affected by the pandemic.
G. Human Capital Management Governance and Organizational Practices
Over half of the companies (57% of those surveyed compared to 41% in 2021) addressed their governance and organizational practices (such as oversight by the board of directors or a committee and the organization of the human resources function).
III. Industry Trends
One of the main rationales underlying the adoption of principles-based—rather than prescriptive—requirements for human capital disclosures is that the relative significance of various human capital measures and objectives varies by industry. This is reflected in the following industry trends that we observed:
IV. Disclosure Format
The format of human capital disclosures in companies’ annual reports continued to vary greatly.
Word Count. The length of the disclosures ranged from 109 to 1,995 words, with the average disclosure consisting of 960 words and the median disclosure consisting of 949 words. Compare this to 2021, which saw a range of 105 to 1,931 words, with an average of 823 words and median of 818 words.
Metrics. While the disclosure requirement specifically asks for a description of “any human capital measures or objectives that the registrant focuses on in managing the business” (emphasis added), our survey revealed that 25% of companies determined not to include disclosure in any of the quantitative categories we discuss above, and 10% did not include any type of quantitative metrics in their disclosure beyond headcount numbers (down from 36% and 14%, respectively, in 2021). Given the materiality threshold included in the requirement and the fact that it is focused on what is actually used to manage the business, this is not a surprising result. It was common to see companies identify important objectives they focus on, but omit quantitative metrics related to those objectives; however, that group has been shrinking as more companies include metrics. For example, while 96% of companies discussed their commitment to diversity, equity, and inclusion (compared to 89% in 2021), only 61% and 59% of companies disclosed quantitative metrics regarding gender and racial diversity, respectively (compared to 47% and 43%, respectively, in 2021).
Graphics. Although the minority practice, 24% of companies surveyed also included charts or other graphics, up from 21% the previous year, which were generally used to present statistical data, such as diversity statistics or breakdowns of the number of employees by geographic location.
Categories. Most companies organized their disclosures by categories similar to those discussed above and included headings to define the types of disclosures presented.
V. Comment Letter Correspondence
Comment letter correspondence from the staff of the Division of Corporation Finance (the “Staff”), which often helps put a finer point on principles-based disclosure requirements like this one, has shed relatively little light on how the Staff believes the new requirements should be interpreted. Consistent with what we found at this time last year, the comment letters, all of which involved reviews of registration statements, were generally issued to companies whose disclosures about employees were limited to the bare-bones items companies have discussed historically, such as the number of persons employed and the quality of employee relations. From these companies, the Staff simply sought a more detailed discussion of the company’s human capital resources, including any human capital measures or objectives upon which the company focuses in managing its business. There were also a few comment letters where the Staff asked companies to clarify statements in their human capital disclosures. Based on our review of the responses to those comment letters, we have not seen a company take the position that a discussion of human capital resources was immaterial and therefore unnecessary.
During the most recent year, we generally saw companies expanding the length of their human capital disclosures, covering more topics, and including slightly more quantitative information in some areas; however, the principles-based nature of the disclosure requirements has continued to result in companies providing a wide variety of disclosures, with significant differences in depth and breadth.
Given how high the Human Capital Management Disclosure rulemaking appears on the Fall 2022 Reg Flex Agenda (it appears as an action item for the first quarter of 2023), it seems unlikely we will see another year pass without more prescriptive rules being proposed and possibly adopted.
There has been no shortage of investors, politicians, and activists chiming in with input on the forthcoming rules. For example, earlier this year, several members of Congress wrote a letter asking the Commission to resist requests for more specific and quantitative disclosures on human capital, which expressed particular concerns about requiring metrics on full-time employees, part-time employees, independent contractors, subcontractors, or contingent employees. In June 2022, the Working Group on Human Capital Accounting Disclosure, a group composed of academics and former SEC officials, submitted a rulemaking petition requesting the Commission to require more financial information about human capital in companies’ disclosures.
Until the Commission proposes and adopts new rules governing the disclosure of human capital management, however, we expect the wide variance in Form 10-K human capital disclosures to continue. As companies prepare for the upcoming Form 10-K reporting season, they should consider the following:
 See 17 C.F.R. § 229.101(c)(2)(ii).
 See Regulation S-K and ESG Disclosures: An Unsustainable Silence, available at https://www.sec.gov/news/public-statement/lee-regulation-s-k-2020-08-26.
 Commission Chair Gary Gensler’s Fall 2022 Unified Agenda of Regulatory and Deregulatory Actions (the “Fall 2022 Reg Flex Agenda”) shows “Human Capital Management Disclosure” as being in the proposed rule stage. Available at https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST¤tPub=true&agencyCode&showStage=active&agencyCd=3235.
 Note that companies often include additional human capital management-related disclosures in their ESG/sustainability/social responsibility reports and websites and sometimes in the proxy statement, but these disclosures are outside the scope of the survey.
 While never expressly required by Regulation S-K, as a result of disclosure review comments issued by the Division of Corporation Finance over the years and a decades-old and since-deleted requirement in Form 1-A, it has been a relatively common practice to discuss collective bargaining and employee relations in the Form 10-K or in an IPO Form S-1, particularly since the threat of a workforce strike could be material.
 For purposes of our survey, we grouped companies in similar industries based on both their four-digit Standard Industrial Classification code and their designated industry within the Sustainable Industry Classification System. The industry groups discussed in this section cover 33% of the companies included in our survey.
 Available at https://www.warner.senate.gov/public/index.cfm/2022/2/warner-brown-call-on-sec-to-update-human-capital-disclosures-so-that-companies-report-the-number-of-employees-who-are-not-full-time-workers.
 Available at https://www.sec.gov/rules/petitions/2022/petn4-787.pdf.
 See Morrow Sodali 2021 Institutional Investor Survey, available at https://morrowsodali.com/insights/institutional-investor-survey-2021.
The following Gibson Dunn attorneys assisted in preparing this update: Meghan Sherley and Mike Titera.
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