1. Haroon Bakari

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 organizations 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 employees 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.

15. Intellectual Capital What is it? Knowledge Information Intellectual Property Experience

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 organizations 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

26. Value of life Does society view life as infinitely valuable?

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.

31. 2. Willingness-to-pay (WTP) Approach Value of life is estimated from the amounts that people are WTP to reduce the probability of dying.

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

34. Any Questions?