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2017 | Book

Preface Read chapter Read first chapter

Valuation of Human Capital

Quantifying the Importance of an Assembled Workforce

Author: Kimberly K. Merriman

Publisher: Springer International Publishing

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

This book addresses the gap between the espoused importance of organizational human capital and how it is actually reported and assessed. It also discusses the current and potential uses of human capital measurement and a way for HR to position itself among other business functions such as finance, accounting, and operations. Readers will finish with an understanding of approaches for the valuation of a firm’s human capital, practical applications for the economic analysis of human capital, and gaps that are ripe for research and practice to address.

Table of Contents

Frontmatter
Chapter 1. Preface
Abstract
This chapter provides an overview of the author’s background‚ qualifications and perspective on human capital. It outlines the book’s purpose‚ what readers can expect to gain and a description of each chapter’s content. In short‚ human capital is defined for this book’s purpose as the organization’s assembled‚ trained and experienced workforce. In keeping with the author’s experience‚ the material is grounded in scholarly research and practitioner based knowledge‚ providing readers with a conceptual and applied understanding of approaches to human capital valuation. This chapter also clarifies what the book is not—that it is not an accounting approach‚ per se‚ to the valuation of human capital.
Kimberly K. Merriman
Chapter 2. Workers as an Asset vs. Cost
Abstract
This chapter describes the shifting perspective of human capital over time and how it is now increasingly considered an important business asset to be quantified. It discusses the current and potential uses of human capital measurement, introduces and defines basic terms that are essential to understanding human capital valuation, and generally sets the stage for the subsequent chapters.
Kimberly K. Merriman
Chapter 3. Cost Approach to Value
Abstract
This chapter provides an overview of the basic logic and steps involved in applying the cost approach. The cost approach is based on the economic principle of substitution, which equates the value of human capital to the cost to create a substitute workforce of comparable utility. Costs considered in applying this valuation method to the assembled workforce pertain to recruitment, hiring, training, lost productivity and entrepreneurial return. An illustrative example is provided. Further considerations and refinements of the cost approach are elaborated in chap. 4. In addition to presenting the fundamentals of conducting the cost approach, this chapter discusses the conceptual reasoning and legal precedents that justify the cost approach as an acceptable, and actually preferred method for workforce valuations.
Kimberly K. Merriman
Chapter 4. A Closer Look at Cost Approach Assumptions
Abstract
This chapter provides further discussion of several key assumptions underlying the cost approach and suggests ways to add rigor to the cost evaluation. Many of these points were brought up throughout the preceding chapters in a cursory fashion. We delve into further detail here in order to gain a more critical understanding of the primary approach to valuing the assembled workforce. Specific topics include the conceptual rationale of the assembled workforce as an “owned” asset, a closer look at the entrepreneurial return and lost productivity, refinements to workforce assemblage costs, and the special circumstances surrounding non-fungible and short-term workers.
Kimberly K. Merriman
Chapter 5. Income Approach to Value
Abstract
This chapter examines the income approach, an approach based on the economic principle of anticipation of future benefits. Under the income approach, valuation of human capital requires analysis of the expected net income stream directly attributable to the workforce. This chapter reviews several techniques for deriving the present value of the anticipated economic benefits of human capital. Economic benefits are measured as the value of worker outputs contributed to the firm, or alternatively, via employee earnings as a proxy of the value employees contribute to the organization, and as the excess earnings remaining after allocating an appropriate amount of earnings to all other assets of the business. Also discussed are the conceptual logic of the income approach and its contrast with the cost approach.
Kimberly K. Merriman
Chapter 6. Market Approach to Value
Abstract
This chapter examines the market approach to value, also known as the sales comparison approach. The market approach determines the value of an asset based on the selling price of comparable assets, in keeping with the economic principle of substitution. This chapter discusses the conceptual logic of the market approach and reviews three potentially acceptable ways to value the assembled workforce through the market approach. The primary method reviewed is the residual market value technique, which allocates the acquisition price of a business to its different components. The two additional techniques considered are a value extraction method that compares sales that are similar in substantive ways with the exception of the assembled workforce in place, and the direct sale of an assembled workforce by itself.
Kimberly K. Merriman
Chapter 7. Sustaining Human Capital Value
Abstract
This chapter examines a basic but essential premise underlying the value of the assembled workforce. That is, for the workforce to have an ongoing value, its value producing properties must be sustained. The ongoing value of the assembled workforce is dependent on how the human resources are developed, trained, and employed going forward to maintain, enhance, or deplete the aggregate human capital value. This chapter draws from a range of research literature to describe four areas in which employer investment in employees is shown to impact employee performance contributions over the long-term: regeneration of physical and mental health, regeneration of viable skills, and maintenance of motivation.
Kimberly K. Merriman
Chapter 8. Leveraging Human Capital via Organizational Social Capital
Abstract
This chapter examines organizational social capital, an intangible asset embedded in the quality of the relationships among organizational members. Organizational social capital emphasizes the interconnections between the people that comprise the assembled workforce. It is thought to generate “relational wealth” for an organization by facilitating individual employee commitment to the collective good. This chapter defines and distinguishes the organization’s social capital from its human capital, and discusses research on how social capital enhances the value of the assembled workforce. Also considered are ways organizations can develop social capital and the potential detractions to social capital value.
Kimberly K. Merriman
Chapter 9. Other Quantitative Views of Human Capital
Abstract
This chapter provides an overview of other quantitative tools for understanding an organization’s human capital. The previous chapters examined the overall value of the assembled workforce in place, which is the primary focus of this book. However, economic logic and quantitative measurement are also relevant to examining incremental changes in value associated with human capital practices and for informing human capital strategy decisions. In this chapter, we consider utility analysis, human capital metrics and workforce analytics as ways to evaluate specific aspects of the workforce and human resource practices that ultimately have a bearing on the value of the firm’s human capital.
Kimberly K. Merriman
Backmatter
Metadata
Title
Valuation of Human Capital
Author
Kimberly K. Merriman
Copyright Year
2017
Electronic ISBN
978-3-319-58934-3
Print ISBN
978-3-319-58933-6
DOI
https://doi.org/10.1007/978-3-319-58934-3