Investors Press US SEC for Enhanced Human Capital Disclosures

Good corporate human capital management practices are associated with better financial performance.

A group of institutional investors has petitioned the Securities and Exchange Commission (SEC) to ask corporates to make more human capital-related disclosures, considering that human capital management has a bearing on a company’s financial performance and shareholder returns.

The global group of 25 investors with a $2.8 trillion asset base, the Human Capital Management Coalition, is looking for enhanced disclosures on companies’ human capital management practices, policies, and performance. Currently, the SEC only requires companies to disclose their employee headcount. Investors are left to their own resources even to figure out input on how much a company spends on its workforce annually.

“As institutional investors and asset managers, members of the HCM Coalition have a vested interest in ensuring that the companies in which we invest are positioned for sustainability and growth over the long-term,” said Meredith Miller, chief corporate governance officer for the UAW Retiree Medical Benefits Trust. “The ability to effectively harness and apply the collective knowledge, skills, and experiences possessed by each individual in the workforce is essential to long-term value creation and is therefore material to investors evaluating a company’s future performance. Current disclosures leave investors with an incomplete picture of how well companies are seizing opportunities and managing risks.”

In their petition to the US capital markets regulatory authority, the investors cite, among other examples, a report by the Harvard Law School Pensions and Capital Stewardship program that finds human capital management policies lead to better financial performance by companies. The report looked at 92 studies that investigated various investment metrics that investors use, such as shareholder return, return on assets, and profitability.

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Companies that make investments in staff training, health and safety measures, employee engagement, workforce diversity and inclusion, and staffing measures are likely to benefit from a lower employee turnover, a higher level of productivity, and higher levels of consumer satisfaction, the investors say. On the other hand, bad human capital management practices could result in risks to a company’s reputation and lead to lawsuits, impairing its stock performance.  

The investors view the following broad metrics as providing input for human capital analysis:

  • Employee demographics
  • Stability of workforce
  • Composition of workforce
  • Employee skills
  • Workforce culture and empowerment of employees
  • Health and safety of employees
  • Employee productivity
  • Human rights
  • Employee compensation and incentives

“Human capital management, done well, means investing in people in ways that allow them to develop and apply their talents to the organization,” said Tim Goodman, director, Hermes EOS. “A company that treats human capital as a vital asset, instead of a cost to be minimized, is not just a good corporate citizen – it is a good investment.”

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UK Moves Up Pension Age Change

New timetable sees pension age rise to 68 by 2037, seven years earlier than current legislation.

The UK’s Department for Work and Pensions (DWP) said it will move up the pension age increase to 68 to between 2037 and 2039, instead of 2044 and 2046 as previously proposed.

“It is vitally important for the future of the state pension system that we take account of increasing life expectancy,” said the DWP.  “Failing to act now in light of compelling evidence of demographic pressures would be irresponsible and place an unfair burden on younger generations.”

The change will affect everyone born between April 6, 1970, and April 5, 1978. No one born on or before April 5, 1970, would see a change to their current proposed pension age.

Despite this change, the DWP said that those affected by this proposed timetable change will still receive, on average, more state pension over their lifetime than the generations before them.

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In support of its decision, the DWP cited the UK’s Office for National Statistics, which reported that the number of people older than the state pension age is expected to grow to 16.9 million in 2042 from 12.4 million in 2017.

According to the DWP, when the modern state pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years in receipt of it, which is the equivalent to 23% of their adult life. In 2017, a 65-year-old can expect to live for another 22.8 years, or 33.6% of their adult life.

“As life expectancy continues to rise and the number of people in receipt of state pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations,” said David Gauke, secretary of state for the DWP. “These changes will give people the certainty they need to plan ahead for retirement.”

However, Unite, the UK’s largest union, said the proposal to move up the timetable would be making workers pay for a failed economic policy. 

“This is a kick in the teeth for millions of workers who now face working up to a year longer before they receive their state pension,” said Gail Cartmail, assistant general secretary for Unite.

Cartmail also said that although the union is opposed to any increase in the state pension age, if one has introduced, it believes an individual’s state pension age should be based on the type of work they performed during their career. 

“In industries such as construction, the majority of the workforce are already forced out of their roles prior to 65 because of ill health and injury,” said Cartmail. “This increase will result in even more workers being forced into poverty, too old to work but too young to claim a pension.” 

The moving up of the timetable, however, is not set in stone. The DWP said that because “this is a big decision with significant consequences,” it will carry out a further review before moving up the rise in pension age “to enable consideration of the latest life expectancy projections, and to allow us to evaluate the effects of current rises in state pension age.”

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