The “Great Resignation”–or as former Department of Labor Secretary Robert Reich puts it, “a general strike”–showed that while many companies say human capital is a valuable asset, they aren’t always walking the walk. And workers are expressing their displeasure.
This mass exodus of the workforce coincides with conversations about the importance of investment in human capital—defined by UNICEF as “a set of knowledge, skills, and abilities that individuals accumulate towards personal well-being and improved work opportunities.”
SEC chair Gary Gensler recently tweeted one of the many reasons why human capital disclosure matters, explaining that investors need more transparency around metrics such as turnover, skills training, diversity demographics, and more.
New research from JUST Capital found that human capital data disclosure on topics like compensation, training, demographics, and health is low across the board. This type of disclosure matters because it gives a baseline to measure improvement, provides important information to employees and workers as they navigate employment decisions, and can help shape investors’ decisions. Simply put, it holds companies accountable.
Most metrics are currently disclosed in corporate social responsibility (CSR) or sustainability reports. But unlike other countries, the U.S. does not set requirements around this facet of reporting. The new research also found that metrics with the highest and most common disclosure rates are disproportionately likely to be found in Annual Reports (or 10-K Filings) that are submitted to the SEC.
What does this discrepancy between public attention and actual disclosure tell us? To start: We have a measurement problem. For businesses who live and die on data analytics, it is telling that human capital data disclosure is lacking. Martin Whittaker, the CEO of JUST Capital, shared with me that he thinks this is more a matter of skill than will: “There are some things that actually do matter a lot—employee financial health for example—that we know companies don’t measure. This isn’t because they’ve assessed it and decided it doesn’t matter; it’s because they haven’t figured it out.”
While CSR and sustainability reporting is important to consumers, there are no widely adopted reporting frameworks. Why? One of the biggest challenges is that corporate social responsibility is often treated as “philanthropy”. Companies will often fail to acknowledge that trade-offs must be made between the financial health of the company and ethical outcomes—creating tension between profit and principles. This is especially true when it comes to investing in human capital. A report by Annie E. Casey and the Joyce foundations showed that surveyed employers spent 80% of their professional development dollars on high-wage earners while using the remaining dollars to focus on safety training and compliance. In the war for talent, this is not a winning strategy.
Intervention by the SEC is important—Chair Gensler’s announcement finally puts a stake in the ground for human capital disclosure. By creating more traditional models for reporting and imposing mandatory disclosure rules, we would help increase transparency about how organizations treat their workforce.
As the SEC defines new requirements, below are five key measures that may help employers better understand the state of their human capital:
- Employee poverty rate. The number of employees living below the poverty line.
- Employee training. The training benefits/offerings that companies provide and the percentage of employees that take advantage of available training.
- Work culture survey results.
- Internal promotion rate.
- Salary information and pay discrepancies. What is the percentage gap between lowest and highest paid workers?
Additional reporting requirements should be informed by workers. At a federal level, this may look like developing a national worker advisory board. At the employer level, we should call for employers to create their own worker advisory councils or employee resource groups that include workers from across different pay levels.
As we think about shifting the tides on reporting, I’m reminded of a friend who once said that they believe in “carrots and sticks” as it relates to motivating businesses to change. While some opponents of regulatory strategies will insist that increased reporting will stifle business, we can trust that the “carrot” (increased consumer and employee loyalty) and the “stick” (having to answer to the SEC) will have a significant impact on the future of work and human capital reporting norms.
Older workers are looking for motivation to continue in the workforce, and younger generations are concerned with the type of world they will be left to live in. Both would benefit from transparent, mandated reporting so that people are empowered to decide where they want to work, and what kind of products they want to invest in. If companies wish to attract more employees and investors, they must meet rising needs and expectations around transparency in human capital data.
Angela Jackson, Ph.D, is a Managing Partner at New Profit, a venture philanthropy organization. She recently launched the Future of Work Grand Challenge, an initiative to rapidly reskill 25,000 displaced workers into living-wage jobs in 24 months.
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