Proxies offering incomplete human capital picture, study finds
US companies are beginning to add information about human capital management to their proxy statements, but those disclosures are often lacking in relevant details, according to a new study.
EY looked at human capital and culture-related disclosures in the proxy statements of 82 companies on the Fortune 100 list available as of September 5. Half of those highlight the companies’ commitments and efforts to enhance diversity and inclusion, for example.
Among these disclosures, the report states, are mentions of initiatives to empower women and minorities and bring them into leadership positions, diversity statistics and recruitment goals, employee affinity groups, supplier diversity initiatives, collaborations with diversity organizations and external rewards and recognition.
But the report’s authors describe the proxy disclosures as reflecting ‘early stage efforts’ to address growing investor demands for more reporting on human capital issues. Many companies talk about management’s general efforts around certain human capital issues, such as diversity, but often do not identify KPIs or quantify them, according to EY.
In addition, many companies ‘broadly address board oversight of human capital management or culture, and more assign related committee oversight responsibilities, but the depth and clarity of these disclosures vary and may not provide a complete picture of the board’s governance in this important area,’ the report states.
‘I think this is a journey for everyone involved,’ Jamie Smith, associate director at the EY Center for Board Matters, tells Corporate Secretary. She notes that there is a growing recognition among all market participants of the value of human capital and that this awareness is reflected in the increasing disclosures on the topic. Some companies have said shareholder engagement led them to increase the level of human capital information in the proxy statement, she adds.
The authors acknowledge that many companies tackle human capital in their CSR or sustainability reports or other public disclosures. But they also note that proxy statements are becoming increasingly important in terms of shareholder engagement and a key source of information about the board’s governance philosophy and approach.
Smith advises that quantitative data and metrics should only be the starting point in terms of human capital disclosures. It is also important to have qualitative disclosures to give context and meaning to any figures being reported, she adds.
Around a third of the proxy statements EY studied highlight key practices or developments related to compensation of the broader workforce. Most of these target pay equity, such as efforts to remove pay gaps for women and minorities.
Roughly 40 percent of the companies that discuss workforce compensation disclose specific performance data around pay equity beyond the required CEO pay ratio. In general, this includes the female to male employee pay ratio and the minority to non-minority employee pay ratio.
Among other disclosures, 22 percent of companies talk about some of the ways they are embedding or measuring culture beyond compliance with codes of conduct or executive pay considerations, EY states. Half of those say they use employee surveys to measure culture.
Other KPIs companies refer to include diversity hires, employee engagement, turnover and issue-escalation resolution. With limited exceptions, the companies do not provide quantitative results for their disclosed KPIs, according to the report.
Twenty-two percent of companies describe commitments, initiatives or benefit programs related to workforce health and safety. But less than half of those companies disclose any related KPIs. Among those that do, the most common are recordable injury rates and the number of employees taking part in health and wellness programs.
In addition, 22 percent of companies mention initiatives regarding employee re-skilling, training and leadership development programs and half of these companies provide at least one related quantified KPI measure. Meanwhile, just 6 percent of the proxy statements studied offer observations about workforce stability.
The focus on human capital management and related disclosures comes in part from institutional investors such as BlackRock and State Street Global Investors, which are targeting human capital as part of their engagement efforts. Reporting frameworks from organizations such as SASB are also starting to include human capital metrics.
In addition, the SEC’s current plans to update corporate reporting by amending Regulation SK would, if approved, include as a topic for disclosure human capital resources, such as any human capital measures or objectives that management focuses on in managing the business, to the degree such disclosures would be material to an understanding of the business.
Depending on the nature of the company’s business and workforce, these would be measures or objectives that address the attraction, development and retention of personnel.