FASB Proposes Changes to Compensation Disclosures

As anticipated, the Financial Accounting Standards Board (FASB) is charging forward with new accounting standards on disaggregation of income statements and segment reporting. Importantly, the changes will impact the way in which employee compensation is disclosed in the income statement.

Right now, companies typically reflect compensation expense in larger expense categories such as Selling, General and Administrative (SG&A), so investors don’t have a clear view of how much of a company’s expense structure is attributable to labor. The new rules would require disaggregating expenses on the income statement, purportedly to give investors more transparency into a company’s profit margins and operating costs.

The changes come amid calls from groups like the Working Group on Human Capital Accounting to force companies to provide a detailed breakdown on employee compensation, turnover, independent contractors, employee tenure and more to increase transparency into labor costs. FASB has declined to go that far, so all eyes will be on the SEC this fall to see if the much-anticipated HCM rules make up the difference.