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The SEC’s New Human Capital Disclosure Rule: 4 Key Things to Know

September 4, 2020 - minute read

Public companies, heads up! On August 26, the U.S. Securities and Exchange Commission (SEC) announced that it has adopted new human capital disclosure requirements that apply to public companies listed on U.S. exchanges.

For the last 30 years, the SEC has required that companies only disclose the number of workers they employ. However, under the new requirements, public companies will also be required to detail how human capital impacts their business results by providing key HR metrics.

According to SEC Chairman Jay Clayton, “The rules we adopt today…seek to elicit information that will allow today’s investors to make more informed investment decisions. I am particularly supportive of the increased focus on human capital disclosures, which for various industries and companies can be an important driver of long-term value.”

While there remains much to be learned about the new SEC rules, here are four essential factors public companies should be addressing right now.

1. The New SEC Disclosure Requirements Are Open to Interpretation

The SEC did not specify which human capital metrics employers will need to disclose, leaving it up to each company to decide what makes sense for them, based on the nature of their business. The key will be to focus on metrics that reflect the business impact of their human capital investment and management practices.  

One suggested solution is to follow ISO 30414:2018, the human capital reporting guidelines created by the International Organization for Standardization, which details a set of recommended internal and external human capital metrics.

It has also been suggested that, depending on the company and industry, relevant human capital metrics may include:

  • Those that demonstrate workforce stability, including employee retention, turnover, and the average time it takes to fill open positions      
  • The company’s human capital ROI
  • The company’s HR policies for rewarding employee innovation and productivity
  • Total workforce costs, including training costs
  • Workforce safety measures
  • Average hours of training per employee per year

2. The New SEC Rules Will Take Effect Soon

The new disclosure requirements will take effect 30 days after they are published in the Federal Register. Because that is expected to happen sometime this month (September), employers need to start planning now. (If your company is using HR analytics or if you’re an EPAY customer, you have a great head start—see below.)

eBook- Human Capital Management Implementaion

3. Employers Need to Start Planning Now

In order to meet the new SEC disclosure requirements, employers will need to:

  • Identify those specific HR metrics that reflect the business impact of their human capital investment and management practices
  • Determine if their HR systems’ current reporting capabilities are able to produce those metrics—and if not, take corrective action
  • Decide how to communicate the link between their metrics and their business strategy

In short, now is the time to determine if where you stand with regards to accessing relevant human capital metrics, where you need to be, and how to quickly bridge the gap. It’s a tall order!

4. HR Analytics Just Got a Whole Lot More Important

Unfortunately, many U.S. employers—and their HR software providers—are in the early stages of tracking human capital metrics. They will need to play catch-up, and quickly.

But if your company had the foresight to put HR analytics software in place, you may already have the capabilities to calculate the human capital metrics that you will need to complete SEC disclosure requirements.

HCM Analytics From EPAY

Our real-time HR analytics puts a host of key human capital metrics at employers’ fingertips, including:

  • Headcount
  • Hiring rates
  • Turnover rates
  • Average tenure
  • Hiring and retention trends
  • Reasons workers leave
  • Labor and overtime costs
  • Productivity costs
  • Human Capital ROI
  • Detailed time and labor metrics

When we implemented our HR analytics solution, it was to help businesses operate smarter, leaner, more profitably, and more compliantly. These key metrics yield actionable insights that allow employers to continuously improve their operation. Now, with the new SEC disclosure rule, it will also allow them to fulfill their SEC requirements with relative ease.

We will bring you more information as it becomes available. If you’re not an EPAY customer, but you want to learn more about how we can help you start tracking key human capital metrics, watch our two-minute video. Learn what HR analytics can do.  

Filed Under: Human Capital Management Analytics