Accounting for the worth of employees: A new look at an old problem

British Accounting Review

(1992) 24, 311-329

A C C O U N T I N G FOR THE W O R T H OF EMPLOYEES: A N E W L O O K A T A N O L D PROBLEM R. R O S L E N D E R

University of Stirling J. R. D Y S O N

Napier University, Edinburgh Accounting for the w o r t h o f employees has long posed a challenge to the accountancy profession. Despite the attention it has received over the past 30 years, the subject has failed to develop much in the way o f practical apphcations and as a result it is effectively a non-issue today. This is rather disturbing since the 1990s are a time when accountmg for the w o r t h o f employees is probably more necessary than ever. The present paper seeks to rejuvenate interest in the subject and to see it returned to the research agenda. It proposes a third approach to the subject, one which overcomes the shortcomings o f previous efforts and which constitutes a much needed breakthrough m its development. Underlying the paper is the behef that accounting for the w o r t h o f employees will benefit from a major paradigm shift away from the narrow economic-accounting perspective o f the past, to a broader social scientific perspective, one which ~s consistent with a more strategic emphasis and the proposal to generate softer accounting numbers rather than those reqmred to put people on the balance sheet.

INTRODUCTION Accounting for the worth of employees has long posed a challenge to the accountancy profession. Thirty years ago human asset accounting emerged and rapidly rose to the upper reaches of the research agenda. Researchers soon recognised that there was more to the subject than putting human assets on the balance sheet, hence the development of human resource accounting. During the first half o f the 1970s this was to become one of the most researched subjects within accounting, consuming a vast amount o f academic endeavour. Yet despite the attention of so many, it continually failed to provide significant practical apphcations with the result that in the later 1970s it faded as rapidly as it had emerged. Only a handful of The authors with to thank Jane Broadbent, Rob Gray, Trevor Hopper,John Storey, Keith Maunders and an anonymous referee, together w~th partzclpants at seminars at the Universittes of Surhng, Dundee and Strathclyde, and at the EAA m Maastncht 1991 and the BAA m Warwick 1992, for their comments on previous versions of this paper, and Ehssa Ehngs for her assistance m preparing all of them so speedily. Address correspondence to. R. Roslender, The School of Management, University of Surlmg, Stirhng FK9 4LA 0890-8389/92/040311 + 19 $08.00/0

© 1992 Academic Press Limited

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researchers, most notably Flamholtz, continued to seek the breakthrough which had eluded both themselves and their predecessors. As a result, while accounting scholars are extending the boundaries o f research in seemingly every other direction, accounting for the worth o f employees is effectively a non-issue at the present time. It is not a subject, however, which will willingly disappear arguably due to the persistence o f employee worth itself. It keeps reappearing, for example, in the pages of the Institute o f Chartered Accountants o f Scotland's (1988) discussion document Making Corporate Reports Valuable which called for a major research project on 'the best w a y o f reporting to management and investors on the worth o f personnel' (p. 54). The following year the Journal of Accounting Literature published a pair o f review articles on the present state o f the art o f human resource accounting (Sackmann et al., 1989; Scarpello & Theeke, 1989). Both acknowledge the enormous potential which the subject possesses but reluctantly conclude that the accountancy profession is no nearer unleashing this potential than it was in the mid-1960s. In other words, the challenge o f accounting for the worth of employees has not been met with any great success to date. This paper is an attempt to rejuvenate interest in the subject o f accounting for the worth of employees, at a time when the challenge involved has reached new and more pressing heights. It argues for a further approach to the subject to be termed human worth accounting. The lingering balance sheet emphasis o f human asset accounting is demonstrated to be thoroughly moribund. The dualistic approach o f human resource accounting is also rejected in favour o f a more unified, integrated perspective which seeks to transcend the traditional distinctions between financial and managerial accounting. The role of 'soft' accounting information is highlighted, reaffirming the value o f a perspective which breaks with previous approaches to the subject. At a more paradigmatic level, this new perspective on accounting for the worth of employees evidences a shift away from the narrow economic-accounting emphasis o f previous efforts to a more holistic approach which embraces a broader range of social scientific thinking. For these reasons it is claimed that human worth accounting is the breakthrough which will return accounting for the worth o f employees to a central position on the research agenda. THE CASE F O R A C C O U N T I N G F O R THE W O R T H EMPLOYEES IN T H E 1990s

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W h y should accounting for the worth o f employees, a subject which for so long has promised so much but has in truth delivered so little in the way o f practical application, be rejuvenated at the present time? W h y should this proverbial blackhole of accounting enquiry be visited yet again

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when there are so many other, more promising subjects for research? The answer is as simple as it is compelling: rarely has there been the level of consensus which presently exists about the critical role that employees play in all organisations. People are a vital resource, perhaps the vital resource in organisations, and as such they must be managed in ways which maximise their worth. This challenge confronts all those who are party to the management process including the accountancy profession whose traditional role o f providing useful management information must be extended to include accounting for employee worth. The re-emergence o f what has been termed the people initiative is in large part the result of the work o f T o m Peters who throughout the 1980s has emphaslsed that it is critical for senior management to recognise their reliance on their employees. In 1982 together with Waterman, Peters outlined a set of eight prescriptions for the achievement of managerially driven excellence in organisations. If organisations were to be successful in achieving high levels of performance and thus commercial success, it was ~mperatlve that management recognised that the necessary ingredients such as quality, service, flexibility or product innovations were largely the result o f employee commitment. 'Productivity through people' and 'hands on, value driven' were how Peters and Waterman termed their people prescriptions. It is the job o f senior management to create, communicate and continually reproduce the corporate culture o f their organisation in the form of a 'strong' culture as Deal & Kennedy (1982) termed it. A key lesson is the need to recognlse, acknowledge and reward employee worth at all times thereby ensuring continued commitment to the organisation and its mission. At that t~me, Peters and Waterman argued that these were lessons which many of America's most successful corporations had already learned and that they were simply commending such an outlook to anyone else seeking to emulate their achievements. Subsequently Peters has provided a more detailed prospectus for 'empowering' people as he now terms it (Peters & Austin, 1985; Peters, 1988), one which constantly reaffirms the need for senior management to recognlse the full extent of employee worth. In a number o f ways the more enlightened approach to people management is only a rational response to a much more objective process which has been operative for the past 20 years. The post-industrial society theses of the late 1960s and early 1970s drew attention to major changes which were beginning to occur in the occupauonal structure of the advanced socieues (Touraine, 1971; Bell, 1973). For these writers the emergence of a much more knowledge-based social order meant that a rapidly increasing proportion of society's workforce needed to be highly educated. At the extreme some talked of shopfloor workers requiring advanced engineering degrees and the prospects for a state of mass leisure

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rather than unemployment (Stonier, 1983). Others were more concerned that while the number o f professional employees rose there was no guarantee that their employment prospects would mirror their contribution to the new order. They feared the emergence o f ranks of intellectual labour who would experience Taylorisation, de-skilling and proletarianisation and as a result become little more than a new working class in the postindustrial age (Oppenheimer, 1973; Cooley, 1976; Johnson, 1977). The passage o f time has seen a move towards many more professional and intellectual workers although they have not come to dominate the occupational structure. There is also a literature which documents the incidence ofunfavourable work experiences among professional employees (see Roslender, 1992a, chapter 3). Nevertheless, many employers have recognised that their professional and intellectual workers do provide them with a very valuable resource and are a key source o f competitive edge. They are also expensive to recruit, to develop and to replace, and should always be used to thexr fullest advantage. A decade o f demographic change resulting in a limited supply o f new professional employees has only served to heighten employers' awareness o f their continuing reliance on the scarce talents which such people offer. During the 1980s the long-established management function known as personnel was superseded in some organisadons by a new one known as human resource management. For many this was little more than a name change but in its most developed form human resofirce management involves a significant shift in managerial philosophy (Guest, 1987). Concern is n o w with the employee rather than the worker, with the individual rather than the group, and with the development o f individual employees rather than with the collective protection o f workers or the amelioration of the relations between capital and labour (Storey, 1989). Human resource management is not, however, simply another specialist management function. It is to be assumed by semor line managers and integrated into their planning process, reflecting the belief that the management of people is now a key element in the strategic planning o f any organisation. Legge (1989) takes the view that one o f the key distinctions between personnel management and human resource management is that whereas the former is something which managers do to their subordinates the latter is much more concerned with management itself and the need to develop the management resource as much as the development o f lower-level participants. In this way human resource management links with both the managerial excellence literature and the post-industrial themes discussed above. As a policy based upon wholehearted employee development and a contract to an employment partnership it also appears to embody the philosophy underpinning the Japanese approach to people management (Ouchi, 1981; Pascale & Athos, 1983).

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It is easy, even desirable, to be sceptical about any or all o f these ideas. However, they do appear to be finding increased favour within the higher echelons of management in many organisations, hence the reference at the beginning o f the section to the consensus which exists about the worth of employees. People are being recognised as a key source o f competitive edge and management are actively seeking new ways to build upon, although not necessarily to exploit the worth of their employees, especially those with scarce professional and intellectual skills. Competitive edge or competitive advantage is itself a c o m m o n theme within contemporary accounting, particularly managerial accounting. It is implicit in Johnson & Kaplan's (1987) iconoclastic thesis in which they call for management accountants to rediscover the benefits of managing costs rather than merely allocating them. Activity-based cost management is only one means of pursuing competitive advantage. Among the others currently being developed are strategic management accounting with its emphasis upon external information and marketing theory, and a variety of means o f accounting for quality, lead times, flexibility, stock holding, etc., in the context o f advanced manufacturing technology (see Roslender, 1992b). In this light accounting for the worth of employees can be conceived of as a further development in accounting to achieve competitive advantage, that is, accounting for strategic positioning. It is because senior management is increasingly recognising the worth o f their employees that the accountancy profession is again faced with the challenge o f providing some form of accounting information on the human resource. PERSPECTIVES OF A C C O U N T I N G FOR THE W O R T H OF EMPLOYEES The subject was widely researched and discussed in the 1960s and 1970s, initially as human asset accounting and then more fully as human resource accounting. The first classic statement on accounting for the worth of employees was the seminal w o r k of Hermanson (1964). Drawing on his earlier doctoral thesis Hermanson represents human asset accounting as being essentially a balance sheet issue. Indeed in the course of his text there is scant attention paid to anything other than balance sheet issues. Hermanson argues that human assets are 'operational' assets as opposed to 'owned' assets, and that in order to enhance the value of financial statements it is necessary that both types of asset are included in them. Having disposed of this particular problem o f financial accounting theory, Hermanson then explores some of the difficulties involved in determining the value o f human assets. He identifies two methods for valuation, the unpurchased goodwill method and the adjusted present value method. This is followed by a discussion o f how best to present human asset data in the position

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statement or balance sheet, and a pair o f chapters on the benefits which human asset accounting has for accounting and economics respectively. Rather interestingly, in his conclusion Hermanson makes no reference at all to human assets. A second classic statement in the development o f human asset accounting was entitled 'Put people on your balance sheet' (Hekimian & Jones, 1967). A title o f this sort was guaranteed to capture interest and to mould ideas particularly as it was published in the pages of the Harvard Business Review. However, in the paper Itself there is evidence o f a move away from a narrow financial accounting emphasis to a more integrated approach. Hekimian and Jones emphasise that the purpose o f accounting for human assets is to provide a means o f ensuring that senior management are able to recognise the value o f their employees, especially their professional and managerial staff. They seek a means o f placing a dollar value on such employees in the interests o f their better utilisation. They make the point that organisations which view their workforces as expense items fail to recognise their asset characteristics. The basis they advocate for human asset valuation also suggests a broader perspective on the subject. Rather than original cost or replacement cost, Hekimian and Jones commend an opportunity cost approach to valuation. This involves management in competitive bidding for the services o f individual employees on the basis that the value o f the latter to the former is the subjectively judged cost of being without the services o f particular individuals. B y implication if it is possible to recruit individuals readily then they are not, in fact, scarce resources and should not be valued as part of the bidding system. For Hekimian and Jones the greatest contribution a manager can make to an organisation is the development o f the individuals under his/her control. This is viewed as a long-term challenge and in this way they criticise the short-term profit-oriented emphasis which characterises so much of contemporary financial reporting, including the expensing o f human asset costs in the income statement. In 1967, Rensis Likert also produced a powerful case for developing accounting for the worth o f employees in his text The Human Organisation. As a management academic and consultant rather than an accountant his thinking was understandably rather managerial in emphasis. His thesis was that human asset accounting would play a key role in the process of developing the value and thus enhancing the performance o f an organisation by way o f introducing the progressive, participative management structures and processes he termed System 4 (Likert, 1961; Likert & Seashore, 1963). Likert argues that changes in causal variables such as management style, leadership strategies and organisation structures result not only in improvements in the productivity, costs, earnings, scrap levels, or similar end-result variables o f organisations, they also manifest them-

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selves in improved attitudes, loyalties, motivations, performance goals, perceptions, skills, etc., among employees. These latter improvements in what Likert terms intervening variables affect the internal state of health of an organisation. The challenge facing human asset accounting is to devise ways of measuring the interactions o f the causal and intervening variables and then to report this information to management in such a way as to motivate them to make further improvements to the internal health o f the organisation and to enhance their decision-making activities. Likert conceives o f accounting for human assets as an interdisciplinary project, not something which accountants are in a position to develop in isolation from their social scientist colleagues, In opposition to Hekimian and Jones who talk o f ifidividual employees having value, Likert focuses on the group or the collectivity which he terms the human organisation. This is one of a pair of aspects of human assets identified by Likert as being of value in any organisation. The other aspect he terms customer goodwill which he conceptualises as favourable customer attitudes which result in the motivation to continue to buy a firm's products. However, it is the human organisation itself which occupies his attention and in the course of his analysis he goes beyond the psychologistic indicators identified above as intervening variables to provide an extensive list o f desirable personnel characteristics. Among these are: level ofinteUigence and aptitude; level of training; qualities of leadership and decision-making; the capacity to achieve effective coordination (Likert, 1967, p. 148). The objective o f senior management is to ensure that these are developed in a continuous manner, human asset accounting being the means of communicating the relevant information throughout the organisation advising all levels o f management o f their success while simultaneously empowering them to make better decisions. Likert never satisfactorily explains w h y human asset accounting inevitably results in better decision-making. He merely claims that better decisions will be made at all levels because 'these will be based on more accurate facts' (p. 154). For Likert, accounting for the worth of employees in the form o f human asset accounting is a perspective, a way of seeing, and in particular it is a way of seeing for management and for those who they manage, one which readily can be commended to shareholders. As he himself expressed it: 'Managers and all other members of the orgamsation and shareholders need to be kept correctly informed on these matters, since the health, profitability and longrange survival of the enterprise depend upon sound decisions graded by measurements which reflect the current value of its human orgamsauon'. (L~kert, 1967, pp. 147-148).

A m o n g Likert's contemporaries at the University o f Michigan were three

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accounting researchers, Brummet, Flamholtz and Pyle. They provided a fourth classic statement on accounting for the worth o f employees in their Accounting Review paper and for the first time used the term human resource accounting. They had begun their work in 1966 and were involved m the development and introduction o f the first human resource accounting system actually in use, that at R. G. Barry. This was viewed as being only the first objective o f their research programme and at the time they were planning to extend the system at R. G. Barry and to develop similar systems in other organisadons. In their view human resource information is essential for each o f the several phases o f management's planning and control functions: recognislng and defining problems; searching for alternative solutions; evaluating alternatives; selecting among these and reporting on actions taken and results achieved. In the paper they also consider the various measures o f human resource cost and/or value presently available, including in their catalogue o f potential models a behavioural approach to valuation which is heavily infused with Likert's o w n perspective. The final paragraphs o f the paper further evidence a strong desire on the part o f the authors to establish human resource accounting as a managerial accounting development as opposed to one within financial accounting. Eric Flamholtz has subsequently become the principal figure in the development o f accounting for the worth o f employees. Throughout his work he has sought to highlight the dual nature of human resource accounting, its financial and managerial emphases. In his 1974 text he charactenses it as helping to facilitate the effective and efficient management of people, having an important role to play in manpower planning and utilisation and in the processes o f manpower acquisition, development, allocation, conservation, evaluation and reward. It also aids decision-making and the evaluation o f the effectiveness of the human resource management process. Turning to the financial reporting aspect, Flamholtz sees that it provides investors with information about the ways in which management builds and depletes human assets. In his view such information is o f assistance to them in deciding whether to acquire, retain or dispose of stock. In the second edition of the text Flamholtz (1985) comments on the fact that after over 20 years of writing on accounting for the worth of employees, it is still widely perceived as a single issue subject. Reflecting on his own experience of the practical side of accounting for human resources, and in particular the R. G. Barry experiment, he concludes: 'Unfortunately, the pubhcation o f those fnancial statements also had a negative side

effect, they led to the widespread erroneous impression that human resource accounting was concerned only with treating people as "financml objects". Although preparing financml statements that included human resources was undoubtedly a part of human resource accountmg, it was not by far the most significant part Yet

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precisely because it was dramatic and innovative "putting people on the balance sheet" became the dominant image o f l i R A for many people.' (pp. 2-3)

From a managerial perspective human resource accounting is n o w seen to have three functions: as a framework for human resource decision-making; to provide numerical information about the cost and value of people as organisational resources; and to motivate line managers to adopt a human resource perspective in their decision-making (Flamholtz, 1985, p. 10; see also Flamholtz, 1989). From a financial accounting perspective Flamholtz reiterates the claim that such information will be o f use to investors in their decision-making. More recently he has argued that in terms of external reporting human resource accounting can 'impact the decisions of financial statement users who evaluate management as part of their decision-making process' (Sackmann et al., 1989, p. 236). And in this respect, it is clearly of much greater importance than simply finding a means of putting people on the balance sheet.

A C C O U N T I N G F O R T H E W O R T H OF EMPLOYEES AS A FRAMEWORK FOR DECISION-MAKING Although Flamholtz identifies three functions which human resource accounting performs, there can be little doubt that the most important o f these is that it serves as a framework to facilitate decision-making, either by managers or investors. In general, however, this function has remained largely unexplored with researchers seemingly content to make do with only the most obvious o f observations. By contrast the reformation function has been o f much more interest to them hence the fascination with a succession o f models designed to provide a measure o f the cost and value of people as organisational resources. The motivation function needs very httle explication. Either you accept such endeavours as valuable, something which anyone who involves themselves in researching the means of accounting for the worth of employees does, or you don't and avoid the subject. Clearly the way forward for accounting for the worth of employees should begin with an investigation on the decision-making frameworks it informs. Since accounting for the worth of employees has implications for both managers and investors, it is essential that in any future development o f the subject both elements, the financial and the managerial, are fully acknowledged. Flamholtz is correct to emphasise the dual nature o f the subject but this in ~tself only serves as a reminder to anyone who might be tempted to emphasise one element at the expense of the other. It does not preclude such developments, however. By contrast, a much sounder position to embrace is that of developing the subject using a unified

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perspective (cf. Purdy, 1991). Rather than continue to highlight the traditional distinctions between financial and managerial accounting information, any new attempt at accounting for the worth o f employees should seek to develop and make full use o f a body o f integrated accounting information. As a result o f this initiative, investors would be provided with the same information on employee worth as management have available to them, albeit less regularly and in much less detail. Investors would then be able to use this information, together with the other information they receive in their annual reports, to evaluate the overall performance o f management. Although an obvious way forward, it necessitates overcoming a series o f difficulties which have hampered reporting employee worth to management and in turn to investors. While putting people on the balance sheet was quickly dismissed as a useful option, an alternative way o f incorporating employee worth within the existing reporting framework has certainly proved elusive. The seductive power o f 'hard' accounting information, i.e. accounting information which is commensurate with the prevailing framework for reporting, either internally or externally, has proved extremely difficult to resist. To the extent that researchers are unwilling to look beyond this framework the prospects for accounting for the worth of employees do not look favourable. In recent years there have been some signs that the value o f a softer form o f accounting information has been recognised. Earlier mention was made of the development o f ways of accounting for strategic positioning. This has involved accountants providing senior management with information on such things as product quality, manufacturing lead times, component flexibility, inventory level reductions, costs and benefits of product attributes, value chain configurauons, etc., information which they find useful m their pursuit of competitive advantage. Little if any of this information bears much resemblance to conventional hard accounting numbers but its value m performance evaluation is becoming increasingly apparent to senior management. As a result it is being incorporated into management reporting packages alongside more traditional financial statements. If similar information is believed to be useful to investors it could quite easily be commumcated to them. The same reasoning also applies to accounting for the worth o f employees, hence its earlier description as a further development in accounting for strategic positioning. The development of soft accounting information of this sort has a further merit in that it promises to contribute to making financial reports more accessible. Management are not the only constituency within an organisation who are interested in its performance. The workforce and any trade union or staff association may find that it is easier to identify with such performance indicators than it is with the numbers contained

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m balance sheets and profit and loss accounts. In turn this enhanced form of employee reporting may make it easier for them to make a range of decisions regarding their future employment commitments. Equally, investors are not the only external users of accounts. Prospective employees might be encouraged to step up their efforts to gain employment in enterprises which elect to report on the worth o f their employees, while trade union o~cers might £md reports of employee worth in one company a source o f leverage for the prospects o f their broader memberships. The public in a more general sense might also be rather interested in companies who are able to report a net contribution to the common well-being. In an increasingly self-conscious world order organisadons which are able to marry the pursuit o f commercial success with the need to provide for the continuing fulfilment of all their employees are likely to find themselves widely acclaimed. While the provision of accounting information on employee worth might e m p o w e r a wider range of potential users to make more informed decisions, it is important not to lose sight o f the fact that in the first instance the principal beneficiaries will be those responsible for the effective management o f human resources. This is such an obvious point that to date the literature has been surprisingly unspecific about the sorts of decision scenarios which might benefit from the availability o f such information which in turn has certainly added to the lack of clarity about the purpose of the whole exercise. Four human resource decision scenarios would appear to be particularly critical. The first is concerned with the best way to utilise employees and as a result to have them perform to their fullest effect. This must be done on an individual basis since each individual employee has his or her o w n particular needs. The guiding principle must be to retain the services of those w h o are viewed as being worthy of retention, and as far as possible to increase their worth by a careful process of development and deployment. Some may wish to learn new technical skills and keep abreast o f their chosen field o f expertise, others may wish to move into different fields, either technical or managerial. Some may seek more autonomy, the opportunity to engage in a measure of intrapreneurship. Others may wish to dissociate themselves from particular projects or programmes on a variety of grounds. The basis of effective decision-making in all of these circumstances is the availahihty of a measure of individual worth. This will serve as the foundation for determining the net effect o f acceding to the various requests which may flow across the desks of individual managers. Without such information effective human resource decision-making is likely to be the exception and not the rule. The second decision scenario in which some measure of employee worth is extremely valuable is that of a proposed short-term personnel lay-off in the face o f an unfavourable business climate. The need for decisions of this

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sort has always existed and is likely to increase as the market place becomes more dynamic. Traditionally management's response has been to lay-off a part o f its workforce and when conditions improve to take many former employees back. Inevitably such pohcies have led to organisations losing good employees to competitors although on the more positive side such interruptions to trade have also provided opportunities to shake-out less desirable elements in the workforce. In the context oforganisations seeking to attain or to retain a competitive edge, organisations which are crucially dependent on retaining the services o f the vast majority of their employees, there is too great a risk involved in letting valuable employees go, however temporarily. They cannot easily be replaced, they can take much of their k n o w - h o w with them, or they may not be willing to commit themselves to the organisation in the future if they believe that the organisation is not equally committed to them. All o f this will have detrimental effects on morale, on the internal cohesiveness and synergy o f existing teams and on the level o f employer-employee goodwill which is so important to commercial success. To the extent that an organisation's long-term success is built upon the contributions that its employees make, it is commercial folly to seek to secure the short term by making modest savings on the wage bill. The cost-benefit analysis which is necessary in the prospective lay-off scenario must set against any such savings the cost of losing valued employees, their commitment, goodwill and future services all conceptuahsed in terms o f the worth o f employees. Only_on this basis is it possible to make human resource decisions which will be fully substantiated in the long term. Recruitment decisions have always been recognised as being mtimately associated to the subject o f accounting for the worth o f employees. The link is an obvious one: it costs money to recruit employees and therefore the recruitment process consumes financial resources. As far as possible it is desirable to control such expenditure and aim for a value for money recruitment process. This is hardly a profound observation and it should come as no surprise to learn that the sort of recruitment decisions envisaged here are more strategic in nature. Perhaps the best w a y o f illustrating them is to think of professional football where individual players are recruited by clubs with the intention o f improving the performance o f the existing team. It is commonplace to find that managers can transform the fortunes o f a team with a comparatively modest outlay. In other cases it requires rather more money and perhaps many more transactions to assemble the team which the manager requires. By the same token, successful managers can go to successful clubs and find that the whole episode is a total disaster because plans fail to work out. However, such things are not simply a matter of luck. The successful football manager is one w h o is able to recognise the worth of the existing players, the worth of players with

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other clubs and most importantly to be able to visualise the increased worth generated by bringing the two together. Persuading the board to provide the necessary finance should be easy if a manager is convinced o f the worth of all the individuals concerned and how this can be translated into success on the field. Similar logics apply in instances o f recruiting management teams by means of acquiring companies or alternatively, when 'headhunting' individual employees. In the case of an organisation which is seeking sustained competitive advantage the greater part of its workforce fall into this category. Senior management must ensure that they recruit only those new employees who will enhance the worth o f the resultant organisation and in this way contribute to retaining competitive advantage. The fourth and final decision scenario is also strategic in nature and is concerned with decisions about the long-term direction in which an organisation might move. Any orgamsation must be dynamic if it wishes to continue to be successful. Its capacity for change is constrained by a range of factors, not least the competencies, actual and potential, of its existing employees. Business organisadons do not have the same turnover of employees as football clubs, nor are they able to dispose of their workforces at will. To some degree they are saddled with the employees they have, and because o f this any long-term decision-making must involve them. For any progressive orgamsation this is a very positive situation o f course, and such organisations will be enthusiastic about building upon the demonstrated skills and talents of their present employees. However, in order to do this successfully it is necessary to be in a position of knowing an individual employee's capacity to bring about change, to accommodate to change, to benefit from change. Projected developments may not suit some employees and it might be mutually beneficial to dispose of their services. N e w expertise might need to be recruited to ensure that objectives are achieved. For those who are judged to be able to meet the new challenges making the actual transition might take different lengths of time and require a variety o f formal and informal retraining programmes. Effective change management is critically dependent upon a reliable appraisal of employee worth. As in the other three decision scenarios discussed in the previous paragraphs, the contribution which a means of accounting for the worth of employees will make is highly significant. M E A S U R I N G THE W O R T H OF EMPLOYEES: THE E S T I M A T I O N OF R E T E N T I O N VALUES Having explored several dimensions of the decision-making framework it is necessary to turn to the question o f how to account for the worth o f employees. This is the more technical aspect of the subject, the one more

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closely related to the information function. As noted earlier, this aspect has been far more extensively researched to date although little in the way of a consensus has emerged. Almost aU o f the cost and valuation models which were developed in the 1960s and 1970s were designed to provide users with hard accounting information o f some description. Since the future success o f accounting for the worth of employees has been argued to be heavily reliant on the development and utilisation o f a much softer form o f accounting information, there is little in the extant literature which is viewed to be of much value in this paper. This should not be taken to imply that there is no case for further development o f models which are based in the traditional economic-accounting paradigm. H o w ever, anyone w h o wishes to pursue this option should not lose sight o f the earlier contention that unless researchers are willing to look beyond the prevailing reporting framework the prospects o f rejuvenating accounting for the worth o f employees do not look favourable. W o r t h is an inherently subjective phenomenon and is bound up with a range ofjudgmental issues. This fact must be faced head-on m the context o f accounting for the worth o f employees. It simply will not be possible to argue that estimates of the worth o f individual employees are objective or can be verified in some absolute sense. Nevertheless, this does not mean that any numbers will be acceptable. The point to be remembered is that management need information on their employees which is o f use to them in their decision-making activities. The information must be reliable, it must be useful in the decision-making context and it must be relatively easy to understand and employ. The history o f accounting for the worth of employees is littered with highly sophisticated but impractical measurement models. Moreover, since information on employee worth is intended to be of use to a much wider range o f interest groups it must be made as accessible as possible. In a dynamic market employee worth is likely to fluctuate with some regularity and for this reason it will be necessary for both senior management and their accountants to adopt an appropriate attitude to movements m worth. They must be willing to reduce their valuations in the event ofunfavourable movements in the skills market and at the same time resist the temptation to overvalue their employees when the organisation demonstrably has attained a competitive edge. In principle there ought to be some correlation between movements in the market value o f particular organisations and the worth of their employees if the market is itself efficient in assessing the contribution which an organisation's employees make to its capacity to perform effectively. Senior management should also be willing to make k n o w n to their employees the estimates which they place upon their worth together with the reasoning which underlies these estimates. In progressively managed organisations which are seeking

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competitive advantage a key objective will be the integration of all employees as extensively as possible. By communicating current assessments o f individual worth on a regular basis, it is more likely that such employees will feel positively disposed toward the organisation. It hardly needs to be added that levels o f reward should match current assessments of individual worth. To misrepresent assessments will constitute a major threat to the long-term prospects o f the organisation and its members. Earlier it has been argued that organisations which adopt the attainment and the subsequent retention of competitive advantage as their principal long-term objective must ensure that their employees are capable of achieving this objective at all times. It is this capacity which constitutes the basis o f the worth of these employees and the reason for employing them. At all times there is an imperative to retain the services o f such employees. For this reason some measure of individual employees' retention values is the logical means o f assessing or estimating ,their worth. These retention values are not identical to the levels o f remuneration which orgamsations pay out to their employees, their employment costs which can be measured objectively and which are conventionally expense items in an organisation's accounts. Rather they are estimates of the cost to the organisation of being without the individual, or more specifically being without the services the individual provides, the qualities and capacities which the individual employee demonstrates. It is because o f these that the employee is an asset to the organisation in the first place. Therefore to be denied them will pose a serious challenge to the potential operating capacity of the orgamsation, that is, a threat to the attainment or retention of a competitive edge. H o w is it possible to measure the cost of being without a particular employee? Earlier it was conceded that while such assessments are inherently subjective they must also be reliable, useful and easy to understand. For this reason some form of opportunity cost based measure of employee worth is proposed (cf. Hekimian &Jones, 1967). Being without the services of an individual employee, one w h o is viewed to have a worth to the organisation, constitutes a lost opportunity for the organisation as a whole. The extent of the lost opportunity and thus the estimate of the individual employee's worth is where judgment must be admitted. Assessing the 'contribution foregone', understood in a more literal sense than this idea is used in managerial accounting, can only be a relatively inexact science but it must be pursued no less rigorously if it is to enhance human resource decision making. It requires employers to be in a position to know the value of the best efforts of the organisation with the individual employee in post and the value o f the best efforts o f the organisation without the individual in post, perhaps replaced by a substitute who would need to be recruited for this purpose. By comparing the two valuations it will be

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possible to arrive at a measure of the cost of being without an individual employee, their worth to the organisation. W h e r e the worth of individual

employees is extensive then it is to be expected that the difference between the two assessments, and thus their retention value, will be large. And the greater the cost o f being without their services, the greater the imperative to retain these employees in the organisation, one which must be matched by a reciprocal desire on the part o f employees to remain in this employment. Conceptuahsing worth in this way highlights a damaging lacuna which has existed in previous attempts at accounting for the worth o f employees. Those who have pursued the subject have been much more interested in the measurement aspects o f cost or value than in conceptualising employee worth itself. As a result they have failed to pose the question: what is it that semor management actually view as constituting worth in their employees? This is surely one of the most fundamental questions which any researcher interested in developing accounting for the worth o f employees should ask. It is concerned with the 'what' o f the subject and in this way neatly complements the 'who', 'why' and 'how' questions which have been discussed in this and the previous sections. Perhaps the best starting point in the existing literature is Likert's list of the variables which he argued might explain w h y one organisation produces more and earns more than an identical organisation in the same industry (Likert, 1967, p. 148). Many o f the variables he hsts are at first sight more relevant to those who are engaged in managerial work, e.g. the quality of leadership, the capacity to achieve co-operation between different team members, the ability to communicate and to achieve effective coordination. However, these same variables might nowadays manifest themselves in individual employees in highly beneficial ways. For example, individuals who are capable of assuming a leadership role on an informal basis or w h o are not afraid to take decisions in the course o f their day-today work will undoubtedly be valued by their employers. The capacity to communicate with colleagues and the wider workforce is increasingly seen as a desirable characteristic for employees as is the ability to work with other employees. Likert talks generally of levels o f intelligence and aptitude as well as training. In the present climate these might be translated into the potential which individual employees have to be creative and inventive, their capacity to become adaptive, to be able to respond to change as a matter of course and to feel confident about the challenges which inevitably face them in their future careers. And in this era of quality and excellence individual employees who can demonstrate a commitment to the maintenance o f 'standards' must inevitably be viewed as worth retaining in the organisation. The precise determination of the various elements of employee worth

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is an empirical matter. There is httle point in excessive armchair-theorising about what it is that employers recognise to be o f value in their employees. If accounting for the worth o f employees is to progress it will be necessary for researchers to discover what it is that they are trying to account for, something which seems rarely to have happened to date. One of the problems with this is that it could prove difficult to determine who to ask to establish the worth proftle o f employees, not to mention what to ask them and indeed how to ask it. Logically it is with leading edge organ~sations that such investigations might start not least in the hope that such organisations already practice some means of accounting for the worth of employees, the main principles o f which they might be willing to share with other interested parties. C O N C L U S I O N : THE CASE FOR H U M A N W O R T H ACCOUNTING The present paper is sub-titled 'a new look at an old problem'. In the previous paragraphs there is evidence that this new look involves several facets. There is the call for a more unified perspective on the subject, one which attempts to transcend the traditional distinctions between financial and managerial accounting. The potential contribution of soft accounting haformatlon rather than hard financial numbers is highlighted. The broader range of users o f such information is also briefly explored together with a number of specific human resource decision scenarios which regularly confront senior management. However, arguably the most far-reaching facet of this new look is the emphasis on the Likert's uncharted concept of employee worth rather than the cost or value o f human assets or resources. Taken together it seems justifiable to conclude that what is being proposed here is that a third approach to accounting for the worth of employees is now pursued, one which might usefully be termed human worth accounting. Human worth accounting is offered as the accountancy profession's response to the challenge posed by the re-emergence o f the people initiative and the specific problems associated with the management of scarce human resources in the post-industrial age. As far as is possible human worth accounting should seek to make a contribution to the process of developing every employee. In this way its success, like human resource accounting before it, is bound up with the progress made by the human resource management function. The development o f human worth accounting might well benefit from a much more open dialogue with researchers working in that specialism (cf. Armstrong, 1988). If this does happen then human worth accounting will simply be following the trend established m other attempts to develop ways o f accounting for strategic positioning,

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e.g. strategic m a n a g e m e n t accounting and m a r k e t i n g , or accounting for advanced m a n u f a c t u r i n g t e c h n o l o g y and p r o d u c t i o n m a n a g e m e n t (Roslender, 1992b). In the final analysis, h o w e v e r , the success o f h u m a n w o r t h accounting ultimately depends on w h e t h e r the a c c o u n t a n c y profession is r e a d y to e m b r a c e such a progressive a p p r o a c h to an u n q u e s t i o n a b l y critical p r o b l e m but one w h i c h is not simply an accounting p r o b l e m . T h e same conclusion applies, perforce, to c o n t e m p o r a r y efforts in the direction o f e n v i r o n mental accounting. In b o t h cases w e should n o t lose sight o f the fact that the established r e p o r t i n g f r a m e w o r k , its u n d e r l y i n g p a r a d i g m and the hard i n f o r m a t i o n it dutifully provides are u n h k e l y to be discarded willingly.

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