August 16, 2021

Human Capital Disclosures: Responses to Corp Fin Comments

Although the SEC hasn’t defined “human capital,” it does require companies to provide info about those resources, to the extent that info is material to the business as a whole. Staff comment letters & revised company disclosures can help us understand what Corp Fin is looking for – or at least what the Staff has flagged as potentially inadequate.

This Bass Berry blog does a nice job of outlining comment letter trends. They note that most of the comment letters so far are on registration statements, not Form 10-Ks. Here’s an excerpt:

As reflected in the underlying data chart, the SEC Staff’s comment on the human capital disclosures often simply cited the new regulation without any further explanation or guidance. However, an analysis of the revised filings by the registrants in response to the SEC Staff’s comments shines more light on the SEC’s expectations, or at least how registrants interpreted the requirements. While there were broad differences in which and how many human capital metrics companies disclosed, the following were the most common:

– Number of employees.

– Geographical distribution of employees.

– Breakdown of types of employees (e.g., full-time, part-time, seasonal).

– Steps taken to identify, recruit, and retain new and existing employees.

– Commitments to diversity and inclusion.

– Whether employees are represented by a labor union or covered by a collective bargaining agreement.

– Status of the company’s relationship with employees (e.g., good, satisfactory).

– Employee incentives and benefits (e.g., insurance packages, stock-based compensation awards, cash-based performance bonus awards).

– Employee learning/development/training programs.

– Core values (e.g., learning, development, inclusion, diversity, teamwork).

– Social impact and social justice initiatives.

– Impact of and response to the COVID-19 pandemic.

– Employee safety measures.

– Diversity statistics.

– Use of employee engagement surveys.

It is clear from our review that human capital disclosures are individualized and industry-dependent. Most filings addressed only a few of these subjects. Companies also varied in taking a qualitative or quantitative approach in response to comments, but the general theme is that quantitative information was typically not provided in the response, and, if it was, the information related to diversity statistics.

Liz Dunshee