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Article | Executive Pay Memo North America

Principles of human capital measurement and disclosure

Governance Advisory Services |Executive Compensation

By Don Delves and Shai Ganu | September 21, 2020

Using a defined process and applying principles can help companies determine what to disclose in response to the SEC rules.

The U.S. Securities and Exchange Commission (SEC) released new rules on Aug. 26 that expanded significantly on what material information publicly traded companies must disclose to investors and the public. Among the required elements that must be disclosed are measures and objectives about a company’s human capital. The required disclosures may be effective as soon as the fourth quarter of 2020 and 10Ks filed in 2021 for calendar filers.

This has been a long time coming.

The SEC has noted that a substantial portion of the value of many companies is made up of human capital and other intangibles. The value, cost, productivity, demographics, well-being and operational dynamics of human capital is an important part of what investors are evaluating when making investment decisions and, hence, they need better information.

The SEC has specifically not prescribed any specific measures that must be disclosed. Rather, a “principles-based approach” is suggested, where the “materiality” of human capital measures must be considered by each individual company, based on its unique business attributes.

But what principles should a company use when deciding what human capital information and factors to measure and disclose? And what process should a company follow in making these determinations?

We suggest the following as a possible process:

  1. Start with a list of possible human capital measures, sorted into key human resource-related categories. The Human Capital Measurement Framework (Figure 1 below) is an example.
  2. Assess known and possible measures relative to a set of principles (Figure 2 below), starting with materiality, as the SEC suggests and then refining further.
  3. Start small, with the most material and relevant metrics that the company can easily measure and accurately disclose on a timely basis, where meaningful comparisons can be made over time.
  4. Also, consider disclosing important actions taken and planned by the company to develop and enhance the value of the human capital asset. In particular, actions taken and planned during the COVID-19 pandemic and economic downturn will be particularly relevant to investors. The SEC has encouraged this through forward-looking disclosures.

Willis Towers Watson Human Capital Measurement Framework

Figure 1
Labor profile Total rewards Attraction & retention Productivity Wellbeing Culture
Diversity (gender and other) Gender/fair pay ratios Turnover (including high performers and high potentials) Training & development (costs and hours) Financial Engagement scores
Employment mode (full-time, part-time, contractors, etc) Benefits inclusion (access, quality, value) Acceptance and time to fill rates Labor cost / performance Social Alignment to strategy and purposes
Ready-now successors (including critical skill employees) Competitive programs Time in role and promotion rates Employee health & safety Emotional Human capital risk

Principles of Human Capital Measurement


  • Are we a human capital-intensive company, in a human capital-intensive industry, relative to other companies and industries?
  • How important is an understanding of our human capital to understanding the value of our business?
  • What are the most important aspects of our human capital asset to the value of our business — and to the understanding of that value?


  • Which measures are most important to our particular business?
  • When we talk about our business and our people, what aspects do we emphasize, value, consider key to our culture and the essence of our organization?


  • What elements of human capital can/do we currently measure?
  • Can we measure the elements of our human capital that are most material and relevant? For example, we may consider our culture to be highly relevant and key to understanding our value. But can we describe, measure and assess it? And are the measures we currently use really capturing the most important aspects of our culture (or whatever else we are trying to measure)?


  • Is the measure accurate, complete, comprehensive, consistent and not overly subject to misreporting and gross inaccuracies?
  • Can it be measured consistently over time and across geographies and business units?
  • Is this a measure that is durable, meaning we can use it on an ongoing basis for many months, quarters and years?


  • Can the measure be compared across time, geographies, business units, and to other companies?
  • How important is comparability?


  • Can the measure be tracked on a timely basis? How long will it take to gather the relevant, accurate information?
  • Is accurate data available when it still has relevance and meaning? There are many highly relevant and valuable things that cannot be reliably measured and reported for months or longer, which diminishes their value and use to investors and others.

Cost vs. benefits:

  • Are the benefits of measuring a particular human capital element worth the cost of measuring it? Measuring just about anything requires time and resources to do so on a timely and accurate basis. Are those costs worth the benefit of having and reporting the data?

Return on human capital investment:

  • Can we measure investments in people and the short- and long-term economic returns from those investments? If not for the entire workforce, for targeted segments, or specific investments?
  • Can we measure the cost of work and the return on work?

Value of human capital:

  • How can the value of the human capital asset — the assembled workforce — be valued?
  • Note that many other difficult assets are valued, measured and reported publicly. Consider the oil and gas measure, PV10, which measures the value of reserves. A similar process can be used to determine the value of human capital.
Figure 2

This process and principles are suggested as a starting point for companies to determine how and what to disclose to investors about their human capital asset. What gets disclosed should be a subset of a much broader set of human capital metrics managed by management and monitored and governed by the board.

A version of this article appeared in Workspan. All rights reserved, reprinted with permission.


Managing Director, Executive Compensation Practice Leader - North America (Chicago)

Managing Director and Global Leader,
Executive Compensation
Willis Towers Watson

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