Corporate Governance

Corporate Governance and Exec Compensation 2021

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Shearman & Sterling LLP The Management and Disclosure of Human Capital Resources Requires a Roadmap | 6 With a year of public disclosures responding to the new human capital resource management disclosure rule available for review, have we learned anything about what aspects of human capital are material to U.S. public companies? One striking feature of disclosures thus far is their range with respect to detail. Some companies have included no more than a paragraph, hardly more than what was provided under the prior rule. On the other hand, some companies have included many pages of disclosure, which in some cases refer to even more information provided in other reports on corporate social responsibility, diversity or human capital management. What should we glean from this range? Are people material to these companies in different ways? Perhaps. But the range may tell us more about which companies had systems in place that could WHERE WE ARE NOW A review of human capital resource management disclosures by the Top 100 Companies is instructive. The Top 100 Companies focused on a relatively consistent range of topics in their disclosures, with certain topics heavily emphasized. By far, workforce demographics and diversity and inclusion were the most discussed topics. Employee health and safety was also a leader. Relatedly, a significant number of the Top 100 Companies described their response to the COVID-19 pandemic as it related to employees. Other topics addressed include the general compensation structure applicable to the broad- based employee population, employee benefit offerings, information with respect to employee surveys and other measures of employee engagement, employee training and development and the executives and board committees that are responsible for human capital management and oversight. Disclosures by the Top 100 Companies were largely qualitative, not quantitative. 3 Despite this, quantitative data was provided. Nearly all of the Top 100 Companies provided the total number of employees. Beyond that measurement, the leading topics where quantitative measurements were disclosed by the Top 100 Companies are set forth on the following page (for a listing of the most discussed topics, whether qualitative or quantitative, see page 44): 3 This is of particular interest because in connection with the adoption of the new disclosure rule, former-SEC Chairman Jay Clayton underscored the fact that the new disclosure rule is principles-based, but also noted that he did "expect to see meaningful qualitative and quantitative disclosure, including, as appropriate, disclosure of metrics that companies actually use in managing their affairs" and that "as is the case with non- GAAP financial measures, [he] would also expect companies to maintain metric definitions constant from period to period or to disclose prominently any changes to the metrics used or the definition of those metrics." be leveraged to respond to the new disclosure rule than it does about the relative importance of people to their business. Such systems include existing human capital management data and measurement tracking tools, already established executive teams and board committees responsible for human capital management development and oversight and employees and advisors in place and ready to translate this information into meaningful human capital resource management disclosures. In the first year of required disclosure, many companies were likely unprepared for the new rule. As we move into the second year of mandated disclosure, companies should increase their readiness for comprehensive and effective human capital resource management disclosure. Our suggestions for this preparation are below.

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