Policy Briefing — SEC Human Capital Disclosure Modernization

Executive briefing: On 26 August 2020 the U.S. Securities and Exchange Commission (SEC) adopted amendments to Regulation S-K Items 101, 103, and 105, requiring public companies to disclose material human capital resources and measures. Filers must implement governance, data, and assurance programs that translate principles-based expectations into investor-grade reporting for Form 10-K, 10-Q, and registration statements filed after 9 November 2020.

Scope and regulatory expectations

Item 101(c) now mandates a description of human capital resources—defined broadly to include measures addressing attraction, development, retention, and other objectives—when material to understanding the business. The rule maintains a principles-based approach but directs companies to highlight metrics or objectives that management focuses on in managing the business, such as headcount, turnover, training hours, health and safety performance, or diversity statistics. Item 101(a) eliminates prescriptive five-year business development disclosures, increasing reliance on materiality judgments. Item 103 encourages hyperlinking to avoid duplicative legal proceedings disclosures, while Item 105 requires concise summaries of material risk factors with subheadings and caps on length.

The SEC intentionally avoided a prescriptive list of human capital metrics, emphasizing flexibility and the need for qualitative context. Nevertheless, Chair Jay Clayton and the adopting release stress that investors expect consistent, decision-useful data. Issuers should anticipate scrutiny from institutional investors, proxy advisors, and activists who view human capital as a driver of long-term value and risk mitigation. Foreign private issuers and smaller reporting companies fall within scope because Regulation S-K applies broadly to domestic registrants.

Governance and accountability

Board oversight should be formalized through compensation or nominating and governance committees, which increasingly receive charters addressing human capital. Review charter language to explicitly cover workforce strategy, culture, diversity, equity and inclusion (DEI), and health and safety. Establish management-level councils—often led by the chief human resources officer (CHRO), chief diversity officer, and chief legal officer—that coordinate data collection and disclosure decision-making. Incorporate human capital into enterprise risk management (ERM) frameworks, linking key risks (e.g., talent shortages, labor relations, pandemic response) to mitigation plans and reporting obligations.

Document oversight activities in board minutes and consider adding a dedicated section in the proxy statement describing board engagement on human capital issues. Align with investor stewardship frameworks such as the Council of Institutional Investors’ policies and BlackRock’s voting guidelines, which emphasize workforce disclosures. Provide periodic briefings to directors on workforce analytics, employee engagement survey results, and progress against DEI goals.

Data architecture and metric selection

Implement a human capital data inventory covering headcount, demographics, hiring, attrition, promotion rates, compensation equity, safety incidents, training investment, employee relations, and contingent labor. Map data sources—HR information systems (HRIS), learning management systems (LMS), environmental health and safety (EHS) platforms, payroll, and survey tools—and assess data quality, completeness, and ownership. Develop standardized definitions (e.g., full-time equivalent, voluntary turnover) and document calculation methodologies.

Select metrics based on materiality analysis. Consider sector-specific benchmarks: manufacturing companies may prioritize total recordable incident rate (TRIR) and lost-time injuries, while technology firms may highlight voluntary attrition and time-to-productivity. Financial institutions often disclose employee engagement scores, compliance training completion, and talent development program participation. When referencing DEI metrics, ensure legal review to manage risks associated with equal employment laws in different jurisdictions.

Integrate human capital metrics into management dashboards and investor-facing materials. Align reporting cycles with SEC filing deadlines and sustainability reporting (e.g., SASB, GRI). Where metrics are newly tracked, pilot internal reporting before external disclosure to validate accuracy and trend analysis.

Internal controls and assurance

Extend Sarbanes-Oxley (SOX) style controls to human capital data even though not explicitly required. Define control owners, implement change management for metric definitions, and ensure segregation of duties in data preparation and review. Build evidence packages documenting data extraction, transformations, and management review. Internal audit should incorporate human capital metrics into its audit plan, testing data integrity and reporting controls.

Consider external assurance or agreed-upon procedures for critical metrics—particularly those tied to sustainability-linked financing, executive compensation, or stakeholder commitments. Engage independent auditors or consultants to perform readiness assessments, focusing on data lineage, system access controls, and calculation accuracy. Establish remediation plans for identified control gaps and track progress through governance committees.

Drafting disclosure narratives

Craft narratives that link human capital strategy to long-term business objectives. Discuss workforce composition (permanent vs. contingent labor), geographic distribution, and key talent segments. Explain talent acquisition strategies, including partnerships with universities, apprenticeship programs, or reskilling initiatives. Address employee engagement methods, such as pulse surveys, town halls, and feedback channels, and summarize actions taken in response to employee input.

Provide DEI disclosures that include goals, representation metrics, and accountability mechanisms (e.g., tying executive compensation to diversity outcomes). Discuss pay equity analyses, supplier diversity programs, and employee resource group participation. For companies operating in regulated industries, incorporate compliance training and licensing requirements. Manufacturing and energy firms should detail health and safety programs, incident investigation processes, and continuous improvement practices.

Incorporate COVID-19 response measures relevant in 2020: remote work policies, PPE distribution, facility modifications, furloughs, and workforce support programs. Explain how the company maintained operations, protected employees, and supported communities. Disclose talent retention strategies such as upskilling, redeployment, and succession planning.

Risk factors and forward-looking statements

Update risk factors to reflect human capital dependencies, including competition for skilled labor, exposure to labor disputes, cybersecurity workforce shortages, or failure to achieve diversity targets. Group related risks under descriptive subheadings and include a “Human Capital Management” section when material. Ensure consistency between risk factors, MD&A discussions, and sustainability reports to avoid conflicting messages.

When including forward-looking statements about human capital goals, apply safe harbor language and outline key assumptions. Coordinate with investor relations and legal to prepare Q&A guidance for earnings calls and investor meetings, addressing likely questions on workforce resilience and culture.

Stakeholder communication and benchmarking

Align SEC disclosures with sustainability reports, Integrated Reports, and CDP or SASB submissions to maintain coherence. Monitor peer filings during the 2021 reporting cycle to benchmark depth and breadth of human capital narratives. Leverage industry working groups—such as the Human Capital Management Coalition or World Economic Forum metrics—to stay abreast of evolving investor expectations.

Develop communication plans for employees, highlighting how disclosures reflect organizational values and commitments. Engage with labor unions or works councils where applicable to ensure messaging aligns with negotiated agreements. Provide training for investor relations, corporate communications, and legal teams on consistent messaging across channels.

Implementation roadmap

Construct a project plan with cross-functional workstreams:

• Governance: Update board and management committee charters, define decision rights, and schedule periodic human capital reviews.
• Data and controls: Inventory data sources, harmonize definitions, deploy reporting technology, and document control procedures.
• Disclosure drafting: Develop narrative templates, collect business unit inputs, and run legal review cycles ahead of filing deadlines.
• Assurance: Engage internal audit or external advisors to test data accuracy and readiness for investor scrutiny.
• Change management: Communicate expectations to HR business partners, finance teams, and operations leaders; provide training and resources.

Establish milestones aligned to fiscal year-end. For calendar-year filers, complete data readiness by October, finalize narratives in November, and integrate disclosures into Form 10-K drafts by December. Post-filing, solicit investor feedback and iterate disclosures based on emerging best practices.

Key takeaways for executives

The SEC’s principles-based regime places responsibility on issuers to determine material human capital disclosures while delivering consistent, decision-useful information. Companies that invest in governance, reliable data pipelines, and cohesive storytelling can differentiate themselves with investors, attract talent, and mitigate litigation risk. Treat human capital reporting as a continuous improvement cycle: monitor evolving guidance, track performance, and embed workforce insights into strategic planning.

Follow-up: CorpFin staff have issued multiple human-capital comment letters since 2021, and the SEC’s 2024 regulatory agenda still includes a proposal for prescriptive workforce metrics to supplement the principles-based 2020 rule.

Sources

• SEC Release No. 33-10825 — Modernization of Regulation S-K Items 101, 103, and 105 — U.S. Securities and Exchange Commission; Final rule adopting human capital disclosure amendments to Regulation S-K.
• SEC Fact Sheet — Modernization of Regulation S-K Items 101, 103, and 105 — U.S. Securities and Exchange Commission; SEC fact sheet summarizing key provisions and compliance dates for the human capital disclosure rulemaking.