Workforce Data Insight Pitch

estimates turnover costs U.S. businesses over $1TT annually. 44 Beyond direct replacement costs, high rates of undesired turnover can be costly for companies due to loss of knowledge and social capital, lower productivity, and reduced product and/or service quality. 45 For the average company, the combined costs of turnover represent more than 12% of pretax income.46 Not only is turnover financially meaningful, but it is a numeric human capital metric that can be compared across companies. Indeed, the Embankment Project for Inclusive Capitalism (EPIC) reported that analysts want turnover data precisely because it is numeric. Of course, it is necessary to have sufficient context to understand the number within the context of the company's business and human capital strategy, but turnover that is inconsistent with peer companies can be a red flag.47 Turnover is a value-relevant and numeric disclosure that the Commission should require. The total cost of the issuer's workforce, broken down into major components of compensation. Labor costs are likely the most significant operating cost that companies incur. 48 Yet, this major cost is not disclosed under GAAP.49 Instead, labor costs are typically aggregated with other income statement line-item expenses, such as Cost of Goods Sold or Selling, General & Administrative Costs. As a result, only about 15% of S&P 500 firms disclose workforce costs.5⁰ Aggregating these expenses together means that investors cannot determine whether an expense such as Cost of Goods Sold increased because of a higher utility bill (a pure expense) or because a firm provided its employees with additional compensation (arguably an investment in employee retention and productivity). Disclosure of workforce costs would allow investors to 44 Shane McFeely and Ben Wigert, This Fixable Problem Costs U.S. Businesses $1 Trillion, GALLUP WORKPLACE (March 13, 2019), https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx LinkedIn provides a toll to help calculate the cost of employee attrition and disengagement. Interactive Workbook, Calculating the Cost of Employee Attrition and Disengagement, LinkedIn Learning slide deck, https://learning.linkedin.com/content/dam/me/learning/en-us/pdfs/lil-workbook-calculating-cost-of-employee- attrition-and-disengagement.pdf 45 Tae-Youn Park and Jason D. Shaw, Turnover Rates and Organizational Performance: A Meta-Analysis, 98(2) J. APPLIED PSYCH. 268 (2013), https://leeds- faculty.colorado.edu/dahe7472/Park%20and%20Shaw%20Turnover%20rates%20and%20organizational%20perfor mance %20A%20meta-analysis%202013.pdf 46 Society for Human Resource Management, Saratoga Driving the Bottom Line: Improving Retention, PricewaterhouseCoopers LLP (2006) https://www.shrm.org/hr-today/news/hr-magazine/Documents/saratoga- improving-retention.pdf 47 For example, Wells Fargo's retail banking turnover was higher than other banks, which was later found to reflect the company's toxic sales culture that led to widespread fraud. 48 Regier and Rouen, supra note 16, showing that personnel expense is close to 40% of sales using IFRS data. 49 In contrast, IFRS requires more extensive labor disclosures. See, IAS 19 Employee Benefits, The International Financial Reporting Standards Foundation (2023), https://www.ifrs.org/issued-standards/list-of-standards/ias-19- employee-benefits/. 50 Letter from Dr. Anthony Hesketh, Lancaster University Management School to Anne Cheehan, Chairman, Investor Advisory Committee, Sec. & Exch. Comm'n (March 21, 2019), https://www.sec.gov/comments/265- 28/26528-5180428-183533.pdf. INVESTOR ADVISORY COMMITTEE 11

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