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DIGGING DEEPER INTO THE 10 BIG IDEAS

Table of Contents

Introduction
The 10 Big Ideas
Digging Deeper
  1. Measure what matters to workers, capturing a full range of job quality indicators
  2. Center equity in measurement
  3. Increase mandatory human capital data disclosure
  4. Link public and private data to gain new insights into the quality of jobs
  5. Leverage business data to demonstrate the return on investment from good jobs
  6. Revise data systems to include and support the non-W2 workforce
  7. Strengthen workforce system metrics to deliver results for workers and businesses
  8. Use public and private spending to measure and strengthen equity and good jobs
  9. Strengthen state and local capacity for data-driven decision-making to advance good jobs
  10. Invest in strengthening job quality measurement
Understanding the Impact
Appendices
Acknowledgements

#3: Increase mandatory human capital data disclosure.

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These actions are intended for…

As human-capital-intensive service sector jobs play an increasingly important role in the U.S. economy, investors are seeking more information from companies about their workforces and job quality practices. This reflects a growing but incomplete body of evidence, as well as investor perspectives, that job quality is a critical and material indicator of business performance and resilience. Now is the time to leverage this mounting interest 1 in human capital disclosure and the “S” of Environmental, Social and Governance (ESG) investing to strengthen U.S. Securities and Exchange Commission (SEC) reporting requirements for public companies. Philanthropy can help to align government, investors, and business behind a common set of human capital disclosure metrics and a simple reporting framework to recommend to the SEC. Federal agencies can reduce the reporting burden on businesses by facilitating access to and linkage of the significant human capital data that firms already report to government entities.

Researchers, in partnership with investors, can accelerate efforts to gather human capital data from firms, by building the evidence base that providing good jobs strengthens business performance, including by reducing hiring and turnover costs and improving worker engagement and productivity.

To put this into practice, federal agencies seeking to build this field can work in collaboration with philanthropy, investors, researchers, and nonprofits to:

1. Align on a shared set of foundational human capital metrics and a reporting framework that could help to shape the evolution of human capital disclosure.

The most promising channel to scale firm-level disclosure on job quality metrics is through a SEC reporting requirement for public companies, similar in nature to a Form 10-K or Def14A Proxy Statement. In 2020, the SEC began requiring publicly traded companies to report on human capital,2 including “measures or objectives that address the development, attraction and retention of personnel.” However, these “principles-based” disclosure expectations give firms broad discretion to pick and choose what they report.

To help shape the continued evolution of human capital disclosure, philanthropy could convene key federal agencies, along with representatives from business, labor, and the nonprofit sector, to identify a core set of standardized job quality metrics and organize them into a new human capital measurement framework. The Human Capital Management Coalition has taken an important step in proposing four core metrics for investors to align around3—(1) number of employees, including full time, part-time and contingent labor; (2) total cost of the workforce; (3) turnover; and (4) employee diversity and inclusion. Though data disclosure on even this limited subset of metrics is low4, it offers an important starting point, and work is needed to continue building on these metrics to eventually paint a more complete picture of human capital practices and job quality. Investors, advocates, and regulatory agencies hold varied perspectives about which human capital metrics are material and measurable. Coordinating stakeholders behind a shared human capital framework to guide mandatory disclosure and establishing a simple reporting form like the EEO-1 could dramatically increase availability of job quality data.

To develop and align around a common set of metrics, philanthropy, investors, business, labor, and federal agencies could:

  • Invest in convening key partners to hold a public dialogue about the importance of human capital transparency, and recommend key metrics for inclusion in SEC disclosure requirements. Government agencies including the U.S. Department of Labor (DOL), the U.S. Department of Commerce (DOC), and the White House National Economic Council (NEC) can play important roles in these conversations, alongside business, investors, and labor (including pension fund managers who invest workers’ capital). These efforts should identify a core set of standardized job quality metrics, vetted by key stakeholders, and organize them into a new human capital measurement framework. DOL and DOC could take the lead in developing a human capital disclosure template similar to the EEO-1, drawing on data that firms with at least 100 workers already disclose to government agencies.
  • Support the development and testing of the proposed human capital framework, including creating norms for disaggregation of metrics (by demographic, occupational, or other worker characteristics), identifying a calculation methodology for each metric so that outputs are comparable across companies, creating a user-friendly corporate reporting structure for mandatory disclosure (similar in nature to the U.K. Gender Pay Gap Report5), and piloting the framework and reporting structure with a subset of companies.
  • To drive adoption of the proposed human capital metrics framework, DOL, DOC, and partners engaged in the framework development process could jointly compose a report or advisory note to the SEC outlining proposed standardized job quality metrics and the tested reporting structure framework.

2. To leverage existing business data to simplify human capital reporting, implement and maintain a single firm identifier across federal and state systems.

Businesses currently provide the same data to multiple federal government agencies. Administrative data on employers is routinely collected through a variety of different sources—business licensing processes, Occupational Safety and Health Administration (OSHA) reviews, small business loans, rapid response, layoff aversion, workforce training programs and even BLS data 6—but it is challenging, and often cost prohibitive, to link information without a standardized identifier. For example, a report7 by the Data Foundation found that “36 U.S. federal agencies are using up to 50 distinct, incompatible entity identification systems. Of these systems, many are proprietary, distinct, and incompatible with one another, raising costs and burden for federal agencies tracking non-federal entities in order to perform a regulatory, statistical, procurement, or assistance function.” To simplify human capital disclosure—including easing reporting burden for businesses—it will be critical to identify and utilize the human capital data that government agencies are already collecting (such as through Internal Revenue Service (IRS) reporting), and to take steps to standardize collection to enable data linkage.

To expand the availability of business-level data to federal agencies and investors, working group members proposed that federal agencies:

  • Adopt a standard identifier, such as the Legal Entity Identifier (LEI),8 a 20-digit code based on a standard developed by the International Organization for Standardization (ISO). This should be accompanied by development of a standardized employer taxonomy with metadata including firm locations and subsidiary relationships to further standardize the content in business records. Such an effort can begin with the DOL standardizing the collection across Workforce Innovation and Opportunity Act (WIOA) and non-WIOA programs, and eventually serve as an example of a harmonized standard for the broader federal community.
  • Establish a Memorandum of Understanding between government agencies which collect business-level data to facilitate data sharing among agencies and allow for data linking. Then, develop a standardized process, similar to that used for access to existing BLS data,9 for government agencies such as the SEC, along with investors, researchers, and businesses themselves, to access linked business-level data and utilize it in the public disclosure process.

3. Collect data to build the evidence base that good jobs are good investments.

While investors increasingly understand the relationship between job quality and firm performance, the body of evidence documenting the financial materiality of human capital metrics remains underdeveloped. Additional research clearly demonstrating that improved job quality is correlated with enhanced firm resilience, talent attraction and retention, and financial performance is important to helping investors, companies, and regulators understand why expanded human capital disclosure is critical.

Philanthropy can collaborate with researchers and investors to:

  • Support data partnerships between investors and researchers – including academics from business schools – to help build the evidence base that job quality is financially material10 to business performance and economic valuation, encouraging more investment firms to collect and utilize job quality data to compare investment targets. Private equity firms and investment platforms that are or would like to start collecting more human capital data from their portfolio companies or borrowers can test and demonstrate the correlation between job quality and long-term value, including the portfolio company’s ability to attract and retain talent, deliver innovation, and maintain operational resilience in the face of shocks.
  • Philanthropy and investors can partner to develop and share actionable tools, training, and frameworks to socialize and spread promising practices for human capital data collection and utilization. Firms like HCAP, Lafayette Square, and Two Sigma Impact have been pioneering new, good jobs investing strategies, including sophisticated ways to collect human capital and job quality data from portfolio companies, and a group of CDFIs like Pacific Community Ventures, Coastal Enterprises, and Northern Initiatives have long been innovating in new ways to collect and utilize such data. Learning from these leaders and developing more open source, actionable tools will help the market differentiate legitimate, data-driven investing strategies that demonstrably support and create good jobs.

Endnotes

  1. Charlie Mahoney, JUST Capital. Chart of the Week: More Evidence of the Rapidly Growing Importance of the “S” in ESG (December 10, 2020).
  2. Securities and Exchange Commission. Modernization of Regulation S-K Items 101, 103, and 105 (August 26, 2020).
  3. Human Capital Management Coalition. Statement Re: SEC’s Regulation S-K Final Rulemaking (August 27, 2020).
  4. Emily Bonta et al., JUST Capital. The Current State of Human Capital Disclosure in Corporate America: Assessing What Data Large U.S. Employers Share.
  5. McKinsey & Company. UK Gender Pay Gap Report 2021.
  6. Elizabeth Weber Handwerker and Lowell G. Mason, Monthly Labor Review, The United States Bureau of Labor Statistics. Linking firms with establishments in BLS microdata (June 2013).
  7. Matt Rumsey, Data Foundation. Envisioning Comprehensive Entity Identification for the U.S. Federal Government (September 2018).
  8. Matt Rumsey, Data Foundation. Envisioning Comprehensive Entity Identification for the U.S. Federal Government (September 2018).
  9. United States Bureau of Labor Statistics. BLS Restricted Data Access.
  10. David Lopez, Jared Gerber, and Jonathan Povilonis, Cleary Gottlieb Steen & Hamilton LLP. Harvard Law School Forum on Corporate Governance: The Materiality Debate and ESG Disclosure: Investors May Have the Last Word (January 31, 2022).

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