HR Management & Compliance

HR’s Dirty Little Secret Spotlighted By Human Capital Disclosure Rules

When the U.S. Securities and Exchange Commission (SEC) amended its 10-K human capital management (HCM) disclosure requirement in 2020, the ostensible goal was to generate more insight into how companies approach, measure, and assess the contributions HCM makes to their overall strategy and performance. Put in more simple terms, how does a company’s talent and investment in that talent contribute to its overall success?

Human Capital Disclosure RulesBut what actually happened is that the revised disclosures revealed that many companies put forth boilerplate statements of goodwill, but few offered any tangible insight, underscoring why companies may need more guidance around how to actually invest in talent, especially around data collection and tracking.

Many companies boast that their workforce is their most important asset, but their initial disclosures were heavy on generic narrative and light on actual data and insight. It is difficult to discern from the 10-K disclosures exactly how most companies are cultivating their most important asset. Part of this difficulty may be attributed to the squishiness of the SEC’s definition of HCM and the lack of a requirement to provide hard data. It is also common for companies to view their HCM data and practices as proprietary, thus believing detailed disclosure would interfere with their competitive advantage.

Some commentators, however, point to other areas of the 10-K as potential red herrings, undermining the credibility of company statements about the value of their workforce. These commentators point to things like chief human resources officers (CHROs) being among the lowest-compensated leaders in the C-suite and that CEOs often do not have significant incentives to improve HCM practices and outcomes. At the heart of the critique is the question: How can a company claim its workforce is the most important asset while the disclosed information shows a lack of incentives, investment, and tracking mechanisms aligned with that value?

Ultimately, it is difficult to glean any concrete conclusions from one round of disclosures. What is clear is that the disclosures were unrevealing.

As someone who has spent his career working with and as an HR leader, I found myself thinking about these disclosures in a slightly different way. I envisioned HR leaders behind closed doors banging their heads against a wall while smiling. The worst-kept secret in HR is that collection and tracking of HR data are a nightmare.

Between disparate systems, a lack of investment in sophisticated people analytics, and the growing complexity of prioritizing what metrics to actually track, HR leaders have long lamented their ability to provide meaningful insight into what is actually happening with their workforce. Now that HCM is getting so much attention, this is a renewed opportunity for HR leaders to help their organizations set a new trajectory, one that demonstrates people are the most important asset of any business.

In setting out on this journey, there are some key considerations and best practices that should be considered:

  • Add data scientists to your team. I am always amazed at how complex HR data is and how often there is no data science team in HR. HR is as much about people practices as it is big data. As more organizations lean into HCM practices, adding data science capabilities to your HR team will help you position your organization for the next evolution of HCM tracking, reporting, and insights.
  • Start with the end in mind. Understanding what metrics matter most and for what audience is crucial to setting up a data and HCM system. What metrics are the most important for your people? For your frontline managers? Your C-suite? Your board? The answers to these questions are likely different, so ensuring you have clarity on what outcome you want to show and track by audience is essential to getting your HCM practices aligned.
  • Audit your existing data systems. HR dashboards have been the rage for years, and there is a growing number of providers looking to support HR leaders in their HCM practices. But bad data in equals bad data out. Starting your journey (or turning around and going back to the beginning) should include an audit of your existing data systems, with a principal focus on your source data. How is source data collected? Where is it stored? Does data across your different HR information systems (HRISs) have similar ID characteristics? These are just a few simple questions that can help an HR team align its HR systems in a way that makes it easier to gather, track, and analyze data.
  • Longitudinal tracking. What good is people data if you cannot track the changes over time? Understanding where people start and where they go is paramount.

The HCM debate will likely rage on in the coming years. Talent shortages and shifting priorities of the U.S. workforce will only add to the pressure many companies feel to get a better handle on what is happening with their people. More importantly, however, as more attention is paid to HCM disclosures, people will want to see if companies are really committing to their most important asset.

Matt Bahl is Vice President and Head of Workplace Financial Health at Financial Health Network. In this role, Bahl leads market development and workplace strategy efforts across the organization. He is deeply committed to the goal of helping improve financial health for all and believes work and the workplace play a key role in making that goal a reality. 

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