As a general matter, SEC rules do not mandate companies to disclose details about the composition or location of their workforces; Reg S-K requires disclosure of only the number of employees, but no information about them. And the vast majority of companies provide little detail voluntarily. But now, as this article in the WSJ reports, companies are beginning to disclose more information about their workforces overseas, and the impetus for that disclosure is the new pay-ratio rule—all at a time when issues of overseas versus domestic employment are especially fraught.

The absence of more disclosure requirements regarding corporate workforces is not for lack of trying. In 2017, the Human Capital Management Coalition, a group of 25 institutional investors with more than $2.8 trillion in assets under management, filed a petition for rulemaking, asking the SEC to adopt rules requiring “issuers to disclose information about their human capital management policies, practices and performance.” Why? According to the petition, in light of the “key role of human capital, investors under current Commission disclosure requirements cannot adequately assess a company’s business, risks and prospects, for investment, engagement or voting purposes, without information about how it is managing its human capital.” Highlighting recent well-publicized tragic events, the petition also stressed that there are material risks related to human capital management, which can damage corporate reputation and create liabilities. Among the broad categories of information that the proponents viewed as “fundamental to human capital analysis” were workforce demographics, stability, composition, health and safety and human rights commitments and their implementation. (See this PubCo post. And for a discussion of advocacy on this topic by BlackRock, see this PubCo post and this PubCo post. )

To be clear, the pay-ratio rule does not have a blanket mandate to provide disclosure regarding foreign employees. Rather, disclosure can be triggered if the company elects to take advantage of one of the exemptions available under the rule. The most commonly used exemption, the de minimis exemption, allows the company, subject to certain limitations, to exclude from the calculation of the median employee non-US employees that account for 5% or less of its total employees. Companies excluding non-US employees under the de minimis exemption must disclose (i) the jurisdictions from which those employees are being excluded, (ii) the approximate number of employees excluded from each jurisdiction under the de minimis exemption, (iii) the total number of its US and non-US employees irrespective of any exemption, and (iv) the total number of its US and non-US employees used for its de minimis calculation.

More complex (and, so far, not widely used) is the data privacy exemption, which permits a company to exclude non-US employees from the calculation if the company is unable, notwithstanding its reasonable efforts (including seeking relief under the data privacy laws), to obtain or process the information necessary for compliance with the pay-ratio requirements because of the data privacy laws of the foreign jurisdiction where the employees are employed. A company taking advantage of this exemption is required to disclose details such as the excluded jurisdictions, the number of employees excluded, the specific data privacy law and how it would have been violated, as well as the company’s efforts to seek relief.

In addition, to put their pay ratios in the appropriate context, companies may opt, on a voluntary basis, to include supplemental narratives about their workforces. For example, companies with large workforces in low-wage countries could find that the median employee’s wages are lower—and that the resulting pay ratio is higher—than for companies in the same industry with primarily domestic workforces. Where the company has a large low-paid workforce overseas that has skewed the results, the company may conclude that disclosing the proportion of overseas employees would provide needed perspective to readers, especially if the company’s workforce differs significantly from the workforce of the company’s competitors or other companies in its industry.

According to the article, in a sample of over 180 companies in the S&P 500, about a third have so far disclosed the proportion of the workforce that is located overseas. (In March, Mercer reported that 51% of companies with global employees were using the de minimis exclusion for non-US employees. And that percentage could increase as companies become aware of practices of their competitors and increase the sophistication of their methodologies over time.) For example, in one case, almost 90% of the company’s employees were located overseas, mostly in Central America, the Caribbean and Asia. Consequently, the median employee made only $5,237, while the CEO made just under $10 million, resulting in a pay ratio of 1,830 to one—certainly an outlier. The company spokesman told the WSJ that “the company provided the extra detail because it is one of the few U.S. publicly traded apparel companies to own a majority of its international supply chain instead of outsourcing the garment work to third parties—which means many company employees live in lower-cost countries.” Because employment of foreign workers in lieu of US workers is a prickly issue, other companies have explained, where appropriate, that “the expansion of their workforce abroad isn’t about shipping jobs to low-cost countries, but rather about employing workers closer to customers.”

What’s the highest ratio reported so far? According to this online tracker from Bloomberg, as of April 12, the highest was 4,987 to one, reflecting the perfect storm of most workers located outside the US in low-cost countries, together with large make-whole sign-on awards to the new CEO