Cover: Charting Employers' Human Capital Investments in Frontline Retail Workers

Charting Employers' Human Capital Investments in Frontline Retail Workers

Evidence from SEC Filings

Published May 6, 2024

by George Zuo, Gopal Trital, Sai Prathyush Katragadda, Jeffrey B. Wenger


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Research Questions

  1. What information do large retail employers disclose in their annual Form 10-K filings with respect to investments in human capital? In what ways did the SEC's 2020 mandate change the content of those disclosures?
  2. What do these disclosures reveal about how well companies specifically invest in frontline workers?
  3. To what extent do the content and quality of these disclosures translate to company valuations?

A company's value has become increasingly tied to the capabilities of its workers rather than its physical assets. Human capital — the knowledge, skills, experience, and social and intellectual capabilities that each worker possesses — plays a crucial role in driving productivity and innovation for firms. Human capital also provides a key pathway for frontline workers — typically low-wage hourly workers at the bottom of the career ladder — to achieve upward job mobility and economic security. Although most human capital formation occurs through formal education, many people continue to hone skills and develop specialized capabilities in the workforce.

Using information disclosed in annual filings to the U.S. Securities and Exchange Commission (SEC), the authors of this report explore how large retail companies invest in the human capital of their frontline workers. The authors' investigation was enhanced by a recent SEC mandate requiring publicly traded companies to disclose human capital management practices in their annual Form 10-K filings. To analyze these filings, the authors employ recent advancements in large language models that enable researchers to efficiently and accurately query and analyze large amounts of text.

Using this new method of data collection, the authors explore (1) how the SEC mandate shaped human capital disclosures in retail companies' annual filings, (2) what these disclosures say about companies' investments in the human capital of their frontline workers, (3) which companies' disclosures indicate the highest (and lowest) commitments to retaining and advancing frontline workers, and (4) whether human capital disclosures have a discernible impact on stock prices.

Key Findings

  • The SEC's decision in 2020 to mandate the inclusion of human capital information in annual filings substantially changed the content of large retail companies' disclosures.
  • However, the mandate provided minimal guidelines for what information the companies were required to disclose. Although most retail companies now discuss human capital in their filings, less than half provided any detail on policies that directly affect frontline workers.
  • Most large retail employers' disclosures about investments in frontline workers were low quality: abstract, vague, and sparse on concrete details.
  • Most aspects of human capital disclosures did not appear to affect company valuations. However, the authors document suggestive evidence that disclosures of higher-quality investments in frontline workers may increase stock prices.
  • Many companies with track records of investing in workers did not have high-quality disclosures. The authors' findings — alongside growing investor appetite for sustainable corporate practices — suggest that these companies could financially benefit from enhancing their disclosures with respect to their investments in frontline workers.

Research conducted by

The research described in this report was sponsored by the James Irvine Foundation and conducted by the RAND Lowy Family Middle-Class Pathways Center within RAND Education and Labor.

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