U.S. companies are sharing more details about employee turnover as part of new disclosure requirements. But for some investors, the effort doesn’t go far enough because finance chiefs handpick the information they provide.
Workforce spending is usually the biggest expense for companies, making up on average 57% of total operating costs for S&P 500 companies, according to MyLogIQ, a data provider. Turnover rates, which cover voluntary exits as well as layoffs, often indicate to shareholders how well managed a business is.
U.S. businesses slashed 41 million jobs in 2020, compared with 21.7 million cut the previous year, according to the Bureau of Labor Statistics. It isn’t clear how many of those will come back once the pandemic abates.
Companies up until recently weren’t forced to provide detailed information about their workforce, aside from the number of employees. But the Securities and Exchange Commission in August approved changes to Regulation S-K, which lists basic disclosure requirements for U.S. public companies. Now, listed firms have to provide investors with a description of “human capital resources,” which can include diversity figures, employee turnover rates and information about worker training and safety.
Still, the rule gives executives wide discretion over what to address, allowing CFOs to decide what to say and what not to. Companies are usually wary of extensive disclosures as they can cause more scrutiny from investors and regulators.
About 1,094 companies in the S&P 1500 talked about human capital in their year-end filings through March 16, with 16%—or 174 firms—including their turnover rate, MyLogIQ said. Although the average rate was 8%, freight broker CH Robinson Worldwide Inc. and research firm PRA Health Sciences Inc. reported among the highest percentage figures for 2020, at 18%, respectively. CH Robinson’s turnover rate is in line with that of other companies of similar size in its industry, a spokesman said. PRA Health declined to comment.
Some companies went further than others in terms of their disclosures. JetBlue Airways Corp. broke out human capital-related risks as a separate component. The airline on March 2 said the hours logged by full-time employees in 2020 fell by 16.6% compared with 2019 following voluntary separation and time-off programs. The company had 16,228 full-time and 4,514 part-time employees as of Dec. 31, down 1.6% and 11% from the prior year, respectively. A spokeswoman for JetBlue declined to comment.
Other firms said they struggled to fill positions. National CineMedia Inc., which runs advertisements on movie-theater screens, on March 9 said pandemic-related uncertainty could make it harder to find suitable candidates for the role of chief financial officer and other open management positions. The company didn’t immediately respond to requests for comment.
Although CFOs often had access to their company’s turnover data before—and therefore don’t have to spend a lot of money or time to meet the new reporting requirement—for investors, seeing these figures in black and white is largely new. Still, many of them said the disclosures remain incomplete, as companies don’t need to provide numbers for previous years.
“There may be companies out there that have a much higher turnover rate, but because they’re not disclosing it, we don’t know,” said Aeisha Mastagni, a portfolio manager at California State Teachers’ Retirement System, a major institutional investor with about $287 billion in assets under management as of the end of February.
The costs of employee churn also remains a mystery to investors. Companies typically bury spending on human capital in selling, general and administrative expenses or in other parts of the income statement. Investors would like to see firms supply new ratios, for example, comparing employee costs to revenue or the number of employees to revenue, said Sandy Peters, senior head of financial reporting policy at the CFA Institute, an association of investment professionals. Those metrics could help explain how personnel costs relate to financial performance, Ms. Peters added.
Some finance chiefs aren’t sure yet what to share. Fashion retailer Ralph Lauren Corp. is evaluating how much detail to provide in its coming filing for the year ended March 31, CFO Jane Nielsen said. The company discloses several workforce metrics in its annual sustainability report but not those on employee turnover. Ralph Lauren is now taking a look at what other retailers are doing, she said.
Ralph Lauren had 24,900 employees last March, up 2.5% from the prior year. The New York-based company, which last fall said it would lay off 15% of its workforce, declined to provide figures on job cuts or new hires.
Current employees and investors likely will consider exiting a company or selling its shares if it reveals a high turnover rate relative to its competitors, said Will Dorton, an attorney in the corporate and securities practice at Dickinson Wright PLLC.
There could be more burdensome disclosure requirements on turnover and other human-capital issues down the line, lawyers and advisers said. The SEC under its new leadership could ask companies for more clarity or consider requiring specific metrics on human capital, Mr. Dorton said.
The regulator is expected to give priority to environmental, social and governance issues under incoming Chairman Gary Gensler. SEC Acting Chair Allison Herren Lee has said the SEC should consider encouraging the reporting of specific metrics such as turnover and workforce expenses. The agency declined to comment further.
Disclosure on turnover likely will move to a place of prominence for CFOs because of these developments, said Darren Gardner, a partner and the head of the global human capital and compliance practice at law firm King & Spalding LLP. “You need to have thought through how it applies to your particular business,” he said. “That’s the aspect I don’t think anybody knows just yet.”
Write to Mark Maurer at [email protected]
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