June 29, 2022 Executive Compensation ESG & Human Capital Management Articles

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HCM Disclosure: A Strategic Opportunity Use the proxy to highlight your strengths in human capital management

Human capital management (HCM) disclosure is evolving rapidly, and the proxy is quickly becoming the most prominent area for boards to tell their HCM story.

Disclosure rules effective in November 2020 required issuers to describe “human capital resources … and any human capital measures or objectives that the company focuses on in managing the business” in the 10-K’s Business section. As with all 10-K requirements, disclosure is required to the extent that it is material to understanding the business. HCM arguably has become “material” as companies focus more on nonfinancial elements of their business strategy and stakeholders’ priorities.

We encourage companies to be thoughtful and comprehensive about their HCM strategy and use these new rules to highlight HCM strengths and leadership — but at an appropriate pace. Balance HCM with other strategic priorities, and don’t overcommit through external messaging.

Rules notwithstanding, institutional investors, proxy advisors, investment managers and other stakeholders drive the evolution of these expectations. For example, State Street will vote against director nominations for “insufficient” HCM disclosure. BlackRock expects robust board oversight of HCM topics and disclosure of actions to support a diverse workforce and HCM approach. The two leading proxy advisors announced policy updates regarding “against” recommendations for insufficient HCM disclosure, such as director diversity and skills, HCM risk oversight and pay equity audits.

Give your HCM story life

The 10-K and proxy have print-media analogs. The 10-K is like The Economist: dense, text-laden and comprehensive. The proxy statement is becoming more like The Guardian: also comprehensive, but more approachable in tone and more likely to use illustrations and graphics.
Our review of 2022 proxy and 10-K filings from a sample of leading consumer-facing companies shows more HCM disclosure than 2021. The 10-Ks are more likely to include nonquantifiable discussions of culture and HCM strategy and governance. These proxy excerpts show increased disclosure prevalence and depth regarding:

HCM strategy (board/management role)

These efforts are overseen by our board of directors — which has designated to our organization & compensation committee the responsibility for board-level oversight of the company’s human capital management and inclusion and diversity policies and practices —­ and implemented under the direction of our chief administrative officer.

Culture (employee engagement)

We conduct the Our Voice Survey, which measures employee sentiment about important aspects of our culture, such as employee engagement, development, health and wellness, collaboration, execution, innovation and compliance, and risk. The results are closely reviewed by the board, senior leadership and the human resources organization, and managers are provided with detailed anonymized reports highlighting their team results.

Johnson & Johnson
Culture (values)

Visa has fostered a culture where all employees are encouraged and empowered to be leaders. To build this culture, we have embraced the following Visa leadership principles that are integrated into all we do and drive accountability for the way we act and the way we lead. Employees are evaluated not only on their performance, but also against our leadership principles: We lead by example, we excel with partners, we communicate openly, we act decisively, we enable and inspire, and we collaborate.

Diversity, equity and inclusion (cultural tenets)

Our vision is to be a beacon of diversity, equity and inclusion for our colleagues, customers and communities. Our mission is to embed DEI into how we think, act and operate by fostering an inclusive culture and an environment that inspires, reflects and provides equitable access for every one of us. The work we do to advance this mission is guided by and organized into five focus areas: colleague, customer, supplier, community and marketing.


This trend will continue. The 10-K is primarily fact-oriented, e.g., geography breakdown, gender and racial demographics, and safety initiatives.

Research findings

We compared 2021 and 2022 10-Ks and proxies to assess the evolution of HCM disclosure. Nearly all of the companies significantly expanded proxy disclosure this year to address broader HCM topics in greater depth. Common expansions focused on DEI, compensation below the executive level and how HCM supports and drives company culture. The following are examples in each category:

  • DEI initiatives, including education/training (anti-bias training that promotes equal accessibility), recruiting outcomes or goals (targets or progress toward expanding employee diversity) and employee resource groups (initiatives and support systems to increase affiliation among underrepresented employees).
  • Subexecutive compensation and benefits, focusing on pay equity design practices and results of pay equity assessments.
  • Culture and work environment, including surveys assessing employee satisfaction and actions to address concerns.

We saw more robust proxy HCM disclosure (voluntary and nonprescribed) than 10-K HCM disclosure (required by the SEC and therefore more rigid) in our sample. Proxy disclosure expanded materially since 2021, when proxy HCM discussions tended to reference other disclosures (corporate social responsibility reports and 10-K disclosure).

Proxies from 2022 contain more HCM disclosure depth, quantifiable elements and illustrations/exhibits that make the information easily digestible. In 2022, 10-Ks remained focused on quantifiable or regulated items, like health and safety. Incentive programs with HCM-related health and safety measures were featured in both the proxy and the 10-K.

Engage your stakeholders

Stakeholders are interested and have had multiple opportunities to review annual HCM disclosures. They will see through greenwashing, so companies should put their best foot forward. Tying business strategy to relevant concrete HCM actions is key to a leading HCM strategy (and associated disclosure).

We expect “best in class” disclosures will continue to be refined as regulatory requirements and stakeholder expectations solidify. HCM disclosure that is true to the business focus and not performative comes from a place of strength and creates competitive advantages for attracting and keeping talented employees.

The proxy statement showcases governance and HCM items. The 10-K requires material facts, but context about why and what that means for employees, customers, suppliers and others is better suited and more accessible in the proxy. We expect leading firms to continue moving toward the proxy to provide a compelling HCM story.

View the full article as it was originally published.

Todd Sirras

Andrew Friedlander

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