Human capital is increasingly recognized as a critical factor in a company's success. Investors, regulators, and other stakeholders are demanding greater transparency in how businesses manage their workforce. The Securities and Exchange Commission (SEC) has responded to this shift by emphasizing the need for detailed human capital disclosures. By requiring publicly traded companies to report on key workforce-related metrics, the SEC aims to enhance investor decision-making and improve overall corporate accountability.
The focus on human capital disclosure requirements aligns with broader trends in environmental, social, and governance (ESG) reporting. In recent years, companies have been under increasing pressure to disclose their policies on diversity, employee retention, workforce training, and compensation structures.
Investors are keen to understand how organizations cultivate talent, mitigate labor-related risks, and foster an inclusive workplace. With human capital now seen as a fundamental driver of long-term business sustainability and success, clear and meaningful disclosures are no longer optional—they are a necessity.
The SEC's shift toward human capital transparency is rooted in regulatory updates, particularly the amendments to Regulation S-K in 2020. These changes marked a significant departure from traditional workforce disclosures, which historically focused only on headcount and executive compensation.
Instead, companies are now expected to report on a broader set of workforce-related factors, tailored to their specific industry and business model. While the SEC has taken a principles-based approach, allowing organizations some flexibility in how they structure their disclosures, businesses must still ensure that they provide relevant and material workforce information that is valuable to investors in order to make informed decisions.
Investor demand for human capital disclosures continues to rise. Shareholders, prospective employees, and even customers are seeking deeper insights into corporate workforce strategies. Investors use this data to assess a company's ability to attract and retain top talent, measure workforce productivity, and gauge potential risks related to labor shortages or regulatory compliance.
As human capital disclosures become a standard part of investment analysis, public companies that fail to provide meaningful workforce data risk falling behind their competitors in terms of investor confidence and stakeholder engagement.
This blog post explores key aspects of SEC human capital disclosure requirements, including who must comply, what information should be disclosed, and best practices for integrating these disclosures into SEC filings. Companies that take a proactive approach to human capital transparency will not only meet regulatory requirements but also build stronger relationships with investors and enhance their reputation in the marketplace.
Background: SEC’s Shift Toward Human Capital Reporting
The SEC's focus on human capital disclosure requirements represents a significant departure from past reporting norms. Historically, workforce-related disclosures were limited to headcount and executive compensation, offering minimal insights into a company's broader human capital strategy. Recognizing the growing importance of workforce management in assessing business performance, the SEC amended Regulation S-K in 2020 to include expanded human capital disclosure requirements.
This shift was driven by multiple factors, including:
Market Demands for Transparency: Investors and analysts increasingly view human capital as a key performance indicator. A company’s ability to attract, retain, and develop talent is directly linked to its long-term success, making detailed workforce reporting essential.
The Rise of ESG and Corporate Social Responsibility (CSR): The growing integration of human capital SEC disclosure within ESG frameworks has pushed companies to provide more comprehensive data on diversity, equity, inclusion (DEI), and workforce well-being.
Regulatory Evolution: The SEC’s amendments to Regulation S-K require companies to disclose material human capital information, signaling a long-term regulatory commitment to workforce transparency.
By requiring companies to report on human capital, the SEC aims to give investors deeper insights into how organizations manage their workforce, mitigate labor-related risks, and create sustainable business models. These evolving requirements underscore the need for companies to develop robust human capital reporting frameworks that align with regulatory and investor expectations.
Who Must Comply with Human Capital Disclosure Rules
SEC Human Capital Management (HCM) disclosure requirements primarily affect publicly traded companies that file reports under the Exchange Act, including Form 10-K and Form 10-Q. The SEC has adopted a principles-based approach, meaning there is no single template for disclosure. Instead, companies must evaluate which human capital metrics are material to their business and relevant to investor decision-making.
While these requirements apply broadly, their impact varies based on company size, industry, and investor expectations. Companies operating in labor-intensive industries—such as manufacturing, retail, and logistics—often face higher scrutiny regarding workforce policies, employee turnover, and safety measures.
On the other hand, firms in highly regulated industries—such as healthcare and finance—may need to provide extensive details on compliance-driven human capital concerns, including hiring practices, diversity initiatives, and workforce training programs.
Evolving Regulatory Expectations and Future Compliance Considerations
Companies should anticipate continued regulatory evolution in human capital disclosures. The SEC has signaled ongoing interest in strengthening workforce-related reporting requirements, particularly as investor demand for workforce transparency grows. Future updates may include:
More Standardized Reporting Guidelines: While disclosures are currently flexible, the SEC may introduce standardized frameworks to enhance comparability across industries.
Expanded Data Requirements: Companies may be required to disclose specific workforce metrics such as median pay gaps, promotion rates, and turnover trends.
Integration with ESG and Sustainability Reporting: Investors increasingly expect human capital disclosures to align with broader ESG frameworks, reinforcing the connection between workforce management and sustainable business practices.
As regulations continue to evolve, publicly traded companies should proactively assess their workforce policies and disclosure strategies. Conducting internal audits, engaging investor relations teams, and leveraging technology-driven compliance solutions—such as ActiveDisclosure—can help organizations streamline their SEC compliance efforts while meeting investor expectations for transparent and accurate human capital reporting.
Key Components of Human Capital Disclosures
Companies must decide which human capital elements are material and should be included in their disclosures. Common metrics and qualitative insights may include:
Employee Headcount and Composition: Total workforce size, diversity statistics, and demographic breakdowns. Companies may also report on hiring trends and workforce expansion initiatives.
Turnover Rates: Data on employee retention and voluntary or involuntary departures. High turnover rates may indicate operational inefficiencies or workplace culture issues that warrant discussion.
Training and Development: Hours of employee training, upskilling programs, and leadership development initiatives. Companies investing in employee education demonstrate a commitment to workforce sustainability and future innovation.
Workforce Safety and Well-being: Occupational health and safety metrics, workplace injury rates, and wellness programs. This is particularly important for industries with high-risk work environments, such as construction and energy.
Compensation and Benefits: Salary structures, incentive programs, and employee satisfaction indicators. Transparent compensation disclosures help build trust among investors and stakeholders.
Corporate Culture and Engagement: Results from employee engagement surveys and initiatives to foster an inclusive workplace. Companies may also highlight diversity and inclusion efforts and employee resource groups.
Balancing qualitative and quantitative data is key. While numbers provide concrete insights, narrative descriptions help contextualize corporate governance strategies and strategic workforce management efforts. Companies should also conduct a materiality assessment to determine which workforce factors significantly impact their operations, investor decisions, and risk profiles. Analyzing peer disclosures and investor feedback can help organizations refine their approach to human capital transparency.
Integrating Human Capital Disclosures into SEC Filings
Human capital disclosure requirements typically appear in the Management’s Discussion and Analysis (MD&A) or Business sections of Form 10-K. These disclosures provide critical insights into how companies manage workforce-related risks and opportunities. As regulatory expectations continue to evolve, companies must ensure that human capital disclosures are seamlessly integrated into their broader corporate reporting framework. Proper alignment across financial reports, investor presentations, and ESG disclosures strengthens transparency and consistency in corporate communications.
Establishing a Cohesive Disclosure Strategy
To create a cohesive human capital disclosure strategy, companies should:
Ensure Consistency Across Reports: Human capital disclosures should be aligned across financial statements, sustainability reports, and ESG disclosures. Investors and other stakeholders rely on these reports to assess a company's workforce management strategies, so consistency enhances credibility and prevents discrepancies.
Cross-Reference Workforce Metrics with KPIs: Companies should integrate human capital data with other key performance indicators (KPIs) that impact business strategy. Metrics such as employee turnover rates, workforce diversity, training investments, and employee engagement scores should be contextualized within broader financial and operational performance.
Standardize Language and Definitions: Using standardized terminology and definitions ensures comparability across industries and facilitates better communication with investors. Aligning disclosures with SEC guidelines and ESG reporting standards helps companies provide transparent and meaningful insights into workforce management.
Aligning Human Capital Disclosures with ESG Reporting
Many companies are increasingly integrating human capital disclosures with their ESG financial reporting strategies. This approach creates a unified corporate narrative and reinforces a company’s commitment to workforce sustainability, diversity, equity, and inclusion (DEI), employee well-being, and corporate social responsibility (CSR). By demonstrating how human capital initiatives align with long-term business objectives, companies can enhance investor confidence and showcase their dedication to ethical workforce management.
Leveraging Technology for Accuracy and Compliance
Ensuring accuracy and consistency across filings becomes more manageable with SEC filing software like ActiveDisclosure. Digital tools streamline the reporting process, reducing the likelihood of errors and improving compliance with SEC requirements. Companies leveraging such solutions can automate data collection, standardize disclosures, and enhance collaboration between HR, finance, legal, and investor relations teams.
By integrating human capital disclosures effectively into SEC filings, organizations can meet regulatory expectations while fostering greater transparency and trust among stakeholders. A strategic and well-executed approach to human capital reporting positions companies for long-term success in an evolving regulatory landscape.
The Role of Board Oversight & Investor Relations
Boards of directors play a crucial role in overseeing human capital disclosure strategies. As investors scrutinize workforce-related risks and opportunities, board involvement ensures that human capital information aligns with corporate objectives and long-term business strategy.
Board Oversight and Accountability
Boards are responsible for ensuring that human capital management aligns with the company’s vision and operational goals. The HR and Compensation Committees play a key role in guiding executive compensation structures, workforce planning, and diversity initiatives. These committees help establish policies that drive workforce engagement and retention, ensuring disclosures accurately reflect the company's commitment to employee well-being and development.
Investor Relations and Transparency
Investor interest in human capital SEC disclosure continues to grow, with shareholders frequently raising questions on employee retention, diversity efforts, and workforce productivity. Companies must be prepared to provide clear and comprehensive responses to investor inquiries, reinforcing the link between human capital initiatives and business success. Strong investor relations practices can build trust and demonstrate proactive workforce management.
Proxy Statements and Corporate Governance
Companies may also present human capital disclosure in their proxy statements, reinforcing their commitment to corporate governance best practices. Proxy statements offer an opportunity to highlight workforce-related policies and programs, giving investors a deeper understanding of how companies manage their human capital resources.
The board’s role extends beyond compliance; it also involves shaping company culture and ensuring long-term workforce sustainability. As shareholder activism, when shareholders use their ownership rights to influence a company’s business practices, around workforce issues increases, companies must prioritize transparency and develop clear communication strategies to address stakeholder concerns effectively.
Looking Ahead: Strengthening Human Capital Transparency
The SEC human capital disclosure requirements mark a significant step toward greater corporate transparency and accountability. As businesses adapt to evolving expectations, those that take a proactive approach to workforce disclosures will be better positioned to build trust with investors, attract top talent, and strengthen their long-term competitive edge.
A well-defined human capital reporting strategy is essential for organizations aiming to comply with regulatory requirements while also showcasing their commitment to ethical workforce management. Companies should invest in data collection and analysis, ensure consistency across various reporting frameworks, and align human capital disclosures with their broader corporate governance and ESG initiatives. Engaging cross-functional teams—including HR, compliance, and investor relations—will be crucial for ensuring that workforce disclosures reflect both regulatory expectations and stakeholder priorities.
As technology advances, leveraging industry-leading financial software solutions can help organizations streamline compliance, improve reporting accuracy, and ensure disclosures remain transparent and comprehensive. DFIN (Donnelley Financial Solutions) provides expert guidance and cutting-edge financial software designed to simplify the human capital disclosure process. Through advanced reporting tools, automation, and seamless integration with SEC filings, DFIN empowers companies to meet evolving regulatory requirements efficiently while enhancing investor confidence.
By prioritizing transparency and embracing best practices in SEC human capital reporting, businesses can drive long-term value creation, strengthen their competitive position, and build a more resilient workforce. Partnering with DFIN’s financial software solutions ensures that organizations remain at the forefront of regulatory compliance while effectively managing their workforce disclosures.
