HCM Disclosure, Year Two: More of the Same

Required Form 10-K disclosure of human capital metrics continues to be largely qualitative and focused on talent, diversity and inclusion, and engagement, according to a recent Aon study. Based on an analysis of the 2021 filings of 103 S&P 500 firms, the study indicates that while the most prevalent topics remained the same from the prior year, companies provided more details on those topics resulting in more robust disclosures. 

The study noted the area with the greatest increase in disclosure was gender or race/ethnicity breakdown, with the number of companies disclosing quantitative data on this topic increasing 124% over the prior year. There was also a significant increase in quantitative disclosure regarding geography (up 80%) and turnover (up 62%). Interestingly, the study noted a decline in the number of pay equity study disclosures, which the authors theorize may be because such studies may not be conducted every year. They also note that the increase in topics covered in disclosure reflects an effort of companies to “get in front” of additional HCM disclosure requirements that may be coming from the SEC. While action by the SEC is certainly expected, it is likely that companies are also responding to the expressed interest of shareholders for more substantive information on these topics.

The study noted four key themes across the second-year disclosures:

• Hiring and Retaining Talent: most companies highlight hiring and development strategies in response to a competitive job market, including the role of compensation and benefits in the hiring strategy.
  
  
• Diversity, Equity, and Inclusion: 80% of companies discussed specific DE&I initiatives, and as noted above there was an increase in the amount of quantitative diversity disclosures. Just over half of the companies disclosed both gender and race/ethnicity breakdowns of their workforce.
  
  
• Employee Engagement: Nearly three quarters of companies discussed employee engagement in their disclosure, and about one-third of those companies included quantitative metrics (such as survey participation rates and results.) Turnover was mentioned by a quarter of companies, most of which also disclosed quantitative data.
  
  
• COVID-19, Health, and Safety: While COVID disclosures declined from the prior year, three quarters of companies still included pandemic measures in their disclosure. 81% of companies discussed workforce health and safety, including mental health. 

The article encourages companies to monitor topics that are gaining significant traction, including disclosing quantitative DE&I metrics and turnover, and to start planning 2023 disclosures now.