Principles-Based Rules Leave Flexibility for Companies
HCR disclosures are largely principles-based. The current rule says that a registrant must disclose the following:
“A description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).”
A downside of the rule being principles-based, and not prescriptive, is that companies do not have clear guidelines for what and how they must report, or a clear definition of what is material. On the other hand, it gives organizations a flexible way of telling their human capital story. Public companies are now working out and refining their approach.
Private companies with the same range of stakeholders as public companies, and with the same interest in the sustainability and long-term success of their organizations, will likely take note of public company disclosures and develop their own approaches to HCR.
We are at the beginning of the HCR evolution, and still coalescing around which human capital strategies, goals and metrics public companies will report. Companies are determining what human capital information is material, and how best to report it. They are also ensuring that controls on data capture and reporting are as robust as those for financial reporting.
Telling our HCR Story, Across Functions and Metrics
Drafting the 10-K demands a cross-functional effort, particularly on discussions of risk and overall business outlook. To prepare for HCR compliance at II-VI, we assembled a cross-functional working team well in advance of our first HCR report. We had conversations about how to approach the requirement, and the story we wanted to tell. We recognized the opportunity to showcase our company’s culture and dedication to human capital management.
We opened our report with a summary of our mission, vision, and core values, and a statement: “Our people are essential to fulfilling our mission and working toward our vision. As a result, our human capital strategies are core to the long-term success of the Company.”
To demonstrate how we are effectively managing employees to maximize their contribution to success, we reported on the results of a Gallup employee engagement survey that was conducted in fiscal year 2021. According to Gallup, their employee engagement survey questions “work for measuring performance because they describe the fundamental psychological requirements for unleashing human potential.” We reported that we had a 94% participation rate in this survey, and an engagement mean of 4.16 out of 5.00. We also reported that these results demonstrated improvement from our prior, FY19, survey.
A significant part of II-VI’s HCR narrative is our commitment to safety. As a global manufacturer, with labs and factories around the world, employee safety is paramount. We stated that, “It is our highest priority to keep our employees … safe, as the health and safety of our workforce is fundamental to the success of our business.” We followed up with current data and a statement on our commitment to improve, writing, “The safety calculation recognized by the Occupational Safety and Health Administration, called the Total Recordable Incident Rate (“TRIR”), is closely monitored throughout the Company. As of June 30, 2021, our TRIR was 0.23 as compared to 0.26 for FY20. Each year, we strive to improve our TRIR as a part of our strong safety culture, as evidenced by a year-over-year reduction of 12%.”