2. Human Resource Management Activities
Human Resource Management Activities:
Attraction
Selection
Retention
Development
Utilization
In the past, these activities were evaluated in
behavioral and statistical terms.
3. Behavioral Measures
Measures of the reactions of various groups of what
individuals have learned or of how their behaviors
have changed on the job.
These groups include:
Top Management
HR Specialists
Applicants
Trainees
4. Statistical Measures
Statistical Measures Include:
Ratios
Percentages
Measures of Central Tendency and Variability
Measures of Correlation
5. Measuring Activities
Today, because of rising costs, there is a need to
evaluate HR management activities in economic
terms.
This requires gathering information from:
Accounting
Finance
Economics
Behavioral Science
6. Relevancy of Economic
Measurements
These economic measurements are relevant to HR
programs because:
They can help senior executives assess the extent to
which HR programs are consistent with and contribute
to the strategic direction of an organization.
They give visibility to the HR department.
7. Human Resource Accounting
No generally accepted accounting procedures for
employee valuation.
The 1st major attempt at employee valuation was
made by R.G. Barry Corporation of Columbus, OH
in their 1967 annual report.
This attempt has been described as a 1st step in
developing sophisticated measurement and
accounting procedures to enable the company to
report accurate estimates of the worth of the
organization’s human assets.
8. Historical Cost Approach to
Employee Valuation
Asset model of accounting
Measures the organizations investment in employees.
Viewed most appropriate when used for external
reporting.
Objective
9. Disadvantages of Historical Cost
Approach
This approach is based on the false assumption
that the dollar is stable.
Because the assets valued are not salable there
is no independent check of valuation.
This approach measures only costs to the
organization. It ignores any measure of the
value of the employee to the organization.
10. Alternatives to the Historical
Cost Approach
Replacement Cost
Present Value of Future Earnings
11. Replacement Costs
Measures only the cost of replacing the employee.
Replacement Costs Include
Recruitment
Selection
Compensation
Training cost (income forgone during the training
period)
Biased estimates-an inefficient firm may incur
greater cost.
12. Present Value of Future
Earnings
The organization establishes what an employee’s
future contribution is worth to it today.
The contribution can be measured by its cost or by
the wages the organization will pay the employee.
Objective
Census income returns
Mortality tables
This measure is limited because it assigns a value
to the average rather than any specific group or
individual.
13. 2 Ways to Conceptualize Cost
Outlay Costs vs Time Costs
Outlay – materials used in training new employees
Time – Supervisors’ time spent orienting new employees
Distinguishes among fixed, variable, and opportunity
costs.
Variable Cost- sales commission
Fixed Cost- Salaries
Opportunity Cost- reflects what the organization might have
earned had it put the resources in question to another use.
14. Believe It or Not
All aspects of HRM can be measured and quantified in
the same manner as any operational function.
16. Microsoft
Total Market Value
$412 Billion
Total Value of all Physical Assets
(buildings, equipment, and furniture)
$24 Billion
Where is the extra $388 Billion coming from?
17. Soft Assets
Intangible Assets
Brand Names
Intellectual Capital
Patents
Copyrights
Expenditures for R&D
The shift to a knowledge based economy has
created a whole new category of assets which
are not recognized in financial statements.
Information is the essence of these soft assets.
18. The Information Revolution
Knowledge has become the fundamental
ingredient of what we make, do, buy, and sell.
Managing Knowledge
Finding & Growing Intellectual Capital
Storing It
Selling It
Sharing It
This new trend suggests a new way of strategic
thinking, rather than a technical approach
about “how to put people on the balance sheet.”
19. Valuing Intellectual Capital
The first firm to attempt to account for its IC was
Skandia AFS in a supplement to its 1994 annual report.
Skandia developed a framework called the Skandia
Navigator.
20. The Navigator
Intellectual capital in a company can be found in
one or more of three places:
Its people
Its structures
Its customers
Intellectual capital comprises:
Human capital
Structural capital
Customer capital
21. Human Capital
The knowledge, skill, and capability of individual
employees to provide solutions to problems that
customers think are important.
22. Structural Capital
Consists of everything that remains when the
employees go home, including databases, customer
files, software manuals, trademarks, and
organizational structures.
23. Customer Capital
The value of an organization’s relationships with the
people with whom it does business, including
suppliers.
24. Three Principles for Measuring
Intellectual Capital
1.
2.
3.
Keep it simple.
Measure what is strategically important.
Measure activities that produce intellectual
wealth.
25. Human Capital Measures
Measures of Innovation
Measures of Employee Attitudes
Measures of Tenure, Turnover, Experience, and
Learning
Customer Capital Measures
Structural Capital Measures
27. Many public programs and projects involve the
prevention of loss of life: dams, maintaining
roads, traffic signs, provision of health
care, employment of firefighters, etc.
How do economists value a life saved (death averted)
in the cost-benefit calculus?
28. 1.
Human Capital Approach
Value of life = present value of lifetime earnings
(= lifetime productivity in competition)
•represents productivity gains from extending life
(benefit side)
or
productivity losses from early death (cost side)
•
•for society as a whole, represents a loss in national
output due to mortality
29. Method often used in court cases, e.g., court awards the
family of a man who dies at 35 in a car accident the
amount of his expected PV of lifetime earnings =
$650,000
30. Problems with human capital approach:
•People who are not working for pay
(e.g., homemakers, students, retirees) are valued at 0! (Even for
the employed, time away from the job is valued at 0.)
•Implies that people with higher wages have higher social value.
•Does not account for labor market
imperfections, e.g., discrimination.
32. Suppose the cost of a safety device (e.g., smoke detectors, seat
belts, radon gas detectors) which reduces the probability of death
by 1 in 10,000 is $100, and people are WTP the $100.
Recall net benefits are maximized when
marginal benefit (MB) = marginal cost (MC).
Benefit of 1 more safety device (MB)
= (change in probability of dying) (value of life)
Cost of 1 more safety device = MC
Assuming people are maximizing NB, MB = MC
MC = (change in probability of dying) (value of life)
Value of life = MC/(change in probability of dying)
= 100 (1/10,000)
Value of life = $1 million
•
•
•
•
•
33. Advantages.
•Measures total value of life (not just labor market
value)
•Includes foregone earnings and nonmarket value of life
Disadvantages.
•Estimates vary widely
•Price may be less than true WTP, value will be
understated
