Human capital concept in tag cloud on white background
What will it take for businesses to publicly share the following human capital data they report to the Bureau of Labor Statistics: compensation, working conditions, employment, and labor productivity?
The SEC is reportedly about to release its new human capital rule. The SEC’s Investor Advocacy Committee (IAC), largely consistent with the petition that Professor Colleen Honigsberg of Stanford Law and I filed. The IAC recommendations, which I wholeheartedly support, call for the following data points:
1. The number of people employed by the issuer, broken down into full-time, part-time or casual workers.
2. Turnover or comparable measures of workforce stability.
3. The issuer’s total labor cost, broken down into major remuneration components; And
4. Sufficient workforce demographics to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of those efforts.
5. Narrative disclosure, in the MD&A, of how the company’s labor practices, salary incentives, and personnel fit into the company’s broader strategy. Such a discussion would focus on how much of labor costs management considers an investment and why, including how labor is allocated among areas designed to promote business growth (e.g., R&D) and those needed to maintain current operations rather than increase revenue (e.g., R&D). compliance).
This is an excellent list that will help investors understand how a company’s human capital strategy contributes to or detracts from company value. However, we hope that this question will be the first in a broader conversation about understanding human capital.
The rich data that businesses submit to the Bureau of Labor Statistics (BLS) provides inspiration for a longer-term human capital disclosure agenda. Unfortunately, this data is anonymized to the extent that the investing public cannot access company identifiers linked to these data points. It is hoped that soon investors will be able to obtain such data. Companies can’t claim that collecting such data is expensive because they appear to fill out the BLS survey anyway. Some will of course say that this information is proprietary and could cause them competitive harm.
Disclosure is always a balance between helping the investor predict the future performance of the company and the potential competitive harm that the company could suffer and, in turn, lose value. Frankly, if I wanted to learn more about the data points below, I would simply hire a senior manager from the competing company. NDAs (non-disclosure agreements) are difficult to enforce anyway. Therefore, I wonder if companies will use the proprietary cost argument as a barrier to avoid revealing information that executives don’t want to share with investors anyway. On the other hand, forward-thinking companies will want to voluntarily disclose this data to investors.
Let’s review the BLS Data Elements which I think could prove useful in helping investors evaluate the company’s performance. These are intended as food for thought and do not constitute a tight legal argument for the disclosure of such data:
On remuneration and working conditions
· Annual aggregate information on the rate and number of fatal work-related accidents, illnesses and injuries, and how these statistics vary by incident, industry, geography, occupation and others features.
This data will help investors assess whether the company’s worker safety conditions predict future work stoppages or lead to future regulatory sanctions.
· Incidence of non-fatal occupational injuries and illnesses and days away from work.
Absenteeism or days away from work will help investors assess the strength of company culture, which has been shown to correlate with company value. Additionally, absenteeism suggests poor working conditions.
· Average hourly wage according to job characteristics: negotiation status (unionized and non-unionized); work status (part-time and full-time); basis of remuneration (time and bonuses); work levels.
This data element is an expansion of the requirement already requested by the IAC.
· Cognitive and mental demands, education, training and experience, environmental conditions and physical demands.
Cognitive and mental demands likely predict the nature of talent the company needs. Education, training and experience indicate whether the company can acquire the type of talent it needs to be productive and prosper financially. Data on environmental conditions and physical demand could help investors and managers assess workers’ mental and physical exhaustion. These data points seem vague, but the BLS has developed robust questionnaires to document this data robustly.
· Work stoppages.
This is a fairly obvious predictor of poor labor relations, future strikes, and the associated implications for output and firm value.
On employment and unemployment
· Gross employment gains
· Gross job losses
· Hires, departures and new job offers
Much of this data is now extracted from job postings and Linked In by hedge funds and other market participants. Some of these estimated data may be extremely inaccurate. Getting this information from the company itself will eliminate much of this imprecision and allow investors to get a better idea of how the company manages human capital.
On productivity and technology
· Labor productivity, defined as value added divided by the number of workers, entrepreneurs and both combined. The BLS measures productivity in terms of output per work hour.
This is a clear indicator of the long-term health of the economy and, on a micro level, the future financial viability of the business. This figure also likely informs investors about how technology is replacing labor.
The list of data elements I request is intentionally ambitious. Rather, investors have been too timid for too long to demand the basic data they need to evaluate company performance. We hope that forward-thinking companies will step up and start sharing this data with investors.