Application of a human resource value model: A field study

Accounting.

Organizations and Sociefy.

Vol. 1, No. 2-3, pp. 195-217.

Pergamon Press. 1976. Printed in Great Britain

APPLICATION OF A HUMAN RESOURCE VALUE MODEL: A FIELD STUDY*

PEKIN OGAN Graduate School of Business. Indiana University

Abstract

This paper reports the results oi an application of a human re&wurce value model. The study was conducted in six offices of a regional certified public accounting firm. Forty-five members of the fiim were included in the assessment of adjusted and weighted net present values of individual employees. The uses of the human resource value data include monitoring the inpurs as well as the outputs of the model. Suggested data evaluation and use involve establishment of a human resource accounting system, preparation of a statement of value change and plotting of a human resource value lie curve.

Human resource accounting is a topic which has attracted considerable attention during the last decade. Some writers have proposed conceptual frameworks to formalize procedures for quantifying the human resources of formal organizations. Other studies in the literature have reported the results of attempts to operationalize some of these conceptual frameworks in on-going organizations. The purpose of this paper is to briefly summarize prior research on human resource models and thereafter to report the results of an attempt IO operationalize a human resource value model (hereafter HRVM) suggested by Ogan (1976) in an on-going formal organization. The main objective of the research was to measure in monetary terms the net present values of some of the human resources of a certified public accounting firm.

RELEVANT

PRIOR RESEARCH

“Cost “based measurements The

first

operationalization

of

a

human

resource accounting system was reported by Brummet, Flamholtz & Pyle (1969). This system was based on the concept that costs incurred to recruit, train, develop and maintain (salary and fringes) represent the organization’s investment in their human resources. Consequently the human resource accounting system installed at the R. G. Barry Corporation uses historical costs as inputs. Other efforts to implement human resource accounting systems which use historical cost inputs are reportedly under way in some offices of G.T.E. and General Motors. Alexander (19’71) discusses the use of a human resource accounting system based on both historical costs and opportunity costs (for example, billings foregone when an employee is being trained for a particular position) in a Canadian certified accounting firm. Flamholtz (1974a) discusses the establishment of a human resource accounting system which is designed to measure positional replacement cost and its operationalization in an insurance company. The system was based on a model explained in an earlier study by Flamholtz (1973). In this model, an individual employee’s positional replace-

*This article is a revision of one. condensed portions of which were presented at the American Accounting Association-Midwest Region Meeting in Chicago, 5 April, 1975. I am indebted to J. Stacy Adams, John D. Bazley. R. Lee Brummet, and James E. Littlefield of the University of North Carolina for their helpful comments during the research on which this article is based. Eric Flamholtz, University of California, Los Angeles, provided seestions which improved the organization and readability of the article. Harry W. Cherry, Managing Partner (now Chairman of Partners), Charles J. Bekaert, Director of Personnel and Professional Development (now retired) and other partners of the certitied public accounting firm of Cherry, Bekaert & Holland made the research possible by their financial and data support. 195

196

PEKIN OGAN

ment costs would be measured by using three major determinants. The first determinant is the acquisition costs, comprised of direct costs such as recruitment, selection, hiring and placement and indirect costs such as cost of promotion or transfer from within. The second major determinant, learning costs, is based on direct costs such as formal training and orientation and on-the-job training. The indirect cost of the trainer’s time would also be included. The third major determinant, separation costs, again has direct and indirect components. The direct costs would be separation pay whereas the indirect costs would be comprised of loss of efficiency prior to separation and the cost of having a vacant position while searching for a new employee. Carper (1973) operationalized Flamholtz’s mode1 in a national certified public accounting firm and stated that the model is reliable and possesses internal validity. “Value” based measurements In another study, Flamholtz (1972b) reported the results of a field experiment conducted in the offices of a large firm of certified public accountants. The objective of the experiment was to assess the validity of “A Theory of Human Resource Value” (see Flamholtz, 1972a). The study used two types of subjects. The first were the members of the firm’s personnel department (N=2) and the second type of subjects was comprised of the members of the audit staff (N=39). The members of the personnel department were “. . . selected on the basis of their reputed (by other firm members, principally audit partners) in-depth knowledge of all the members of the audit staff. They served as judges or evaluators in the experiment” (1972b, p. 249). The evaluators were then asked to rank order the second type subjects (members of the audit staff) according to three major determinants of the model, namely, an individual’s Expected Positional Value, Expected Conditional Value and Expected Realizable Value. The evaluators’ degree of agreement on the rankings were evaluated by using Kendall’s r and the inter-evaluator correlations ranged from 0.51 to 0.68 at a significance level of .!I01 . Flamholtz (1974a, p. 149) concluded that the results support the proposition that the model is reliable and “. . . the evidence obtained in this study supports the validity of the model’s hypothesized determinants”. Flamholtz & Lundy (1975) described the

longitudinal application of the above model in three offices of Lester Witte & Co. The objective of me experiment was “. . . to develop a ‘valid, reliable and practical’ system for valuing (the company’s) human resources (accounting staff) for managerial purposes” (p. 45-46). According to the authors (p. 46) Lester Witte & Co.‘s primary interest in human resource accounting “. . . was to develop a tool that could be used to help manage staff more effectively and efficiently . . .“. The rationale of the experiment was to attempt to influence the behavior of the subjects at all levels so that they would “. . . be concerned about human resource development and conservation, and to develop valid, reliabie and practicable measures as a means of accomplishing this objective” (p. 46). The stated uses of the information generated by the HRA systems applied at Lester Witte & Co. include: (1) evaluation of management’s development of the firm’s human resources, (2) individual career planning, (3) human resource planning, and (4) planning and evaluating the expected contribution of (a) different service states to the firm, and (b) different offices to the firm in developing human resources. To date, the above cited studies are the only ones reporting on the application of models designed to quantify the human resources of formal organizations either using historical costs, positional replacement costs or an individual’s value as inputs. THE RATIONALE FOR FURTHER RESEARCH The importance of measuring human resource vah_tes in monetary terms has been explained by Flamholtz (1972, 1975). According to Flamholtz (1972a. p. 666), the “. . . failure to measure and report the value of human resources to management can conceal suboptimal decision-making in organizations”. Further, measuring the human resource values may be beneficial in manpower planning. Flamholtz, (1972a, p. 666) states that such measurements “. . . are expected to be useful in manpower acquisition, development, allocation, replacement and compensation decisions”. Also, by obtaining measures of human resource value, the manpower resources can be translated “. . . into the common denominator on which many organizational decisions are based”. (Flamholtz, 1974a, p. 167).

APPLKATIONOFAHUMANRESOURCEVALUEMODEL The research reported in this paper is the second attempt to operationalize (after Flamholtz 1972b) a human resource model using as inputs an individual’s “value” to a formal organization. The study’s anticipated contributions are: (1) an experiential framework to aid in future applications of the human resource value model, and (2) delineation of possible uses of the human resource value data by management in a formal and ongoing manner.

THE RESEARCH

ENVIRONMENT

The study was conducted in a large regional public accounting firm with 17 offices in N. Carolina, S. Carolina, Georgia, Alabama- and over 400 accountants, Florida employing computer specialists, clerical personnel, and 39 partners. To minimize pre-data collection publicity and consequent possible bias and Hawthorne effects, the initial phase of the study involved only the researcher, the managing partner and the senior partner of the participating firm. The management of the firm was already involved in ranking and evaluation of their personnel which made it unnecessary to train them for their participatory role in the study. This research environment provided a logical setting for the application of the HRVM because management was generating data about the professional staff for Internal uses before this research began. The research plan The research plan was to obtain subjective evaluations of partners in the selected offices. These evaluations regarding particular determinants of the HRVM pertaining to subject personnel constituted the primary data (e.g. an employee’s probability of continued employment). The primary data were combined with or adjusted by secondary data (e.g. age, present salary, etc.) which were either directly taken or derived from existing records. Research sites Six offices of the participating firm were chosen as research sites. The number of professional personnel included in the study ranged from four in the smallest office (in terms of number of personnel) to eight in the largest with a total of 34 professional employees for six offices. Inclusion of

197

the partners brought the number of professional subjects included in the study to 45. All of the employees in the six offices were included in the study regardless of their professional status to ensure complete coverage. The evahdationplan The collection of the primary data entailed the quantification of the subjective expectations of management regarding particular determinants for each selected employee. In order to quantify management’s expectations a questionnaire (see Appendix I) was developed and partners of the participating firm were asked to respond to it at three levels: (1) first level evaluators, (2) second level evaluators: and (3) same level evaluators. The first level evaluators were the managing partner of the firm and the senior partner who was the director of personnel and professional development. These evaluators provided data concerning all of the 45 professional employees. The second level evaluators comprised the resident partners in each participating office and they provided data regarding the employees in each specific office. The same level evaluators were also the resident partners in each office who answered questions concerning each other.

THE HUMAN RESOURCE VALUE MODEL The Human Resource Value Model (Ogan, 1976) utilized in the research has seven major determinants, shown schematically in Fig. 1. These determinants are: 1. Monetary value benefit potential. 2. The individual performance index. a. Efficiency index. b. Standard work index. 3. Maintenance costs (salaries or wages). 4. Start-up costs (recruiting, initial training). 5. Training and development costs. 6. Probability of continued employment. 7. Probability of survival. The measurement described below.

of each of these variables is

Monetary value benefit potential The monetary value benefit potential is the maximum benefits an employee can generate for the organization given certain working days or

PEKIN OGAN

198

monetary value benefit potential to the expected benefits of each employee. The main determinants of the individual performance index are: (1) the Efficiency Index, and (2) the Standard Work Index. The efficiency index In principle; this index should be influenced by the individual’s related experience, the complexity of the task, the individual’s health profile, his motivation level as well as his psycho-motor ability. However, the operationalization of the HRVM was limited to a surrogate measure. Management’s subjective expectations were quantified by soliciting their perceptions of each subject employee’s efficiency in the performance of a given task (see Appendix I, Question 4). This surrogate measure is based on the past performance of each employee as well as management’s intuitive feelings as to the future.

II_._

Fig. 1. Major determinants model.

of the human

resource

value

hours within a year and the employee’s benefit rate per day or hour. It is measured as the billing rate times the chargeable hours of each employee. The participating firm has a billing rate per hour which is based on one and a half per cent of each employee’s monthly salary.’ For instance, if an accountant’s monthly gross salary is $1000, then his’ hourly billing rate would be S 1.5. Thus, the application of the HRVM was simplified; if an employee’s future salary can be predicted, then his billing rate can also be predicted. Predictions of future salary were based on management’s expectations about the salary merit raises that each employee is likely to get each year, future patterns of promotion and the accompanying salary increases. The individual perjbrmance index An employee’s monetary value benefit potential, however, is the maximum monetary benefit that he can generate for the organization assuming that he will work at this job 100% of his working time and will be 100% efficient while performing it. Therefore, the HRVM has an individual performance index that is used to adjust the ‘Some Study”

employees for further

’ In this article,

had billing discussion.

the male gender

(benefit)

rates which

Standarri work index The standard work index is a normative expression of management’s concept of the direct and immediate benefit producing percentage of each job classification. The HRVM hypothesizes would expect a junior that management accountant to devote a higher percentage of his working time to revenue producing activities for the firm than a partner who may be expected to get involved in client development, training or community relations. Subjective expectations of evaluators were used as inputs in the measurement of the standard work index (Question 9. in Appendix I). Maintenance costs. (Salaries or wages) Maintenance costs were based on the procedure used for operationalizing the monetary value benefit potential (Question 3 in Appendix I). Start-up costs. (Recnditing, initial training) The majority of the employees were recruited at different time periods in the past when no formal records were kept of the recruiting or initial training costs incurred. Since the study involves quantification of the future value of selected employees, the inclusion of recollections

did not exactly

is used for convenience

and readability

follow

only.

this scale. Refer

to the “Limitations

of the

APPLICATION OF A HUMAN RESOURCE VALUE MODEL

of

past costs, which may not be material in amount. would not contribute to the study and could possibly confound the results. Accordingly, no attempt was made to measure start-up costs. Training arld development costs Management’s expectations of the future contributions of the firm to the formal training and development of each selected employee were solicited (Questions 5 and 6 in Appendix I).

hobability ofcontinued emplovment The two main determinants of the probability of continued employment are: (1) the Individual Equivocation Index and, (3) the Expected Individual Satisfaction. A surrogate measure of the probability of continued employment was based on management expectations of the likelihood of the selected employees staying with the organization over the relevant time periods (Question I in Appendix I).3 Probability of survival The joint probability of survival of each employee was derived from the Cominissioner’s 1958 Standard Mortality Table.

DATA COLLECTION Data were collected through interviews and a questionnaire (refer to Appendix I) and from existing records of the firm. The questionnaires were pretested, and then administered personally by the researcher under controlled conditions, after having assured the respondents that their replies would be kept strictly confidential.

199

Computation of adjusted net present value patterns Primary data provided by the evaluators and secondary data obtained from the existing records were processed by a specially developed FORTRAN-IV program. First, the training and development costs that each evaluator thinks will be incurred for the employees were included in the computations. Then the employee’s future salary was calculated using the inputs provided by the evaluators. A price-level increase adjustment of 4% per year of the base-year partner salary was used in the computations. This adjustment figure was based on top management expectations. The necessary computations in the study begin as of the end of 1974, and operate under the assumption that benefit and cost flows occur at the end of each year in the future. The future salary4 of the employee and the and development costs were total training aggregated to arrive at the total cost of the employee to the organization. The monetary value benefit potential was computed using the future salary of the employee for each period of his estimated useful life for the organization. The salary, an annual figure, was converted to the employee’s hou@ billing rate. The product of the employee’s hourly billing rate and the maximum chargeable time available during the year constituted the employee’s monetary value benefit potential. The chargeable time for each employee involved in this study was based on a 40 hr week, and a 50-work-week yr. Overtime, which is difficult to predict, was not considered. Each employee’s efficiency index as provided independently by the individual evaluators and his standard work index made up the employee’s

31deally, the measurement of .the Individual Equivocation index would involve assessing each employee’s attitude toward change. Similarly, the measurement of the Expected Total Individual Satisfaction would involve employee surveys, tests and other measuements which were not presently desired by management. Another reason that the probability of continued employment was not measured by using its two major determinants is the lack of previously established measurement devices and thus the absence of any meaningful data concerning employees. The HRVM suggests measurement of several variables at the time an employee enters the organization’s employment. Those determinants which requke such “at-the-time-of-employment” measurements are Changes in Desired Job Lomtion, Changes in Desired Job Climate, Changes in Desired Quality of Life, and the Individual’s Goal Congruence Index. There were no data regarding these determinants. ‘In many organizations, some employees are not promotable to a higher position for a number of reasons but nevertheless are invaluable to the organization in their present capacity. Therefore, in those cases where the evaluate: indicated that an employee was not promotable to partnership the future salary of this employee was allowed to increase by annual merit salary raises and salary increases which accompany previous promotions and even exceed the partner salary levels existing at that time.

200

PEKIN OGAN

individual performance index. Multiplying the monetary value benefit potential by the individual performance index, the employee’s expected benefit was calculated. The standard work index was measured by soliciting the consensus opinion of the evaluators (N=13) with the following results: ’ Standard Code Benefit position work index Secretary-Clerk 1 60% 2 Junior Accountant 92 3 Senior Accountant 88 4 Supervisor 81 75 5 Manager Partner 58 6 The difference between the employee’s expected benefit and his total costs were the net benefits that he is expected to generate for the organization in the opinion of each evaluator. The annual net benefits thus calculated were adjusted for risk of the employee resigning or dying by the use of the certainty factor. The certainty factor is the product of the joint probability of continued employment and the joint probability of survival for each year of the estimated useful life of the employee. Net benefits adjusted by the certainty factor were thus converted to periodic certaintyequivalent net benefits. Considering the time value of money, the periodic certainty-equivalent net benefits were discounted and aggregated to arrive at the adjusted net present value patterns of the employee for the organization over his estimated useful life. The discounting and aggregation was done as follows: Let F denote a discount factor related to the denote certainty chosen discount rate; ? e uivalent net benefits of ‘Employee i at time 4’ck kj the ith individual’s adjusted net present value at time k; L denote the useful life of the employee, and t some time period from 1 to L which is a point in the useful life of employee to which the certainty equivalent net benefits that occur after t are discounted; and 4 = k+t, then: SThe mean values for the standard Appendix II. 6 Since employee rate. The reason organization such from organization qualifications and

W,=Lot Fk . (~~j) k=t

To illustrate, the J? value of the first employee the next 10 yr is given by: (~~,~).(F~)+(~,I).(F?)+(~~,,) t . . , +&.rW,,)=&l “\, % V’2,l). V’t) +V’3,1). +. . .

.(Q

(F,)

+&,,l) .(Fg)

In the computations used .6

for

=@2,1

a discount

rate of 11% was

The independent multiple evaluations method Each evaluator responded to the questions pertaining to the employees under consideration. The independent multiple evaluations method (hereafter the IME method) was used in the evaluation of the data provided by each evaluator regarding each employee as follows: Each adjusted net present value pattern calculated for each individual evaluator represents this evaluator’s expression of the perceived value of the employee for the organization. The employee’s adjusted net present value patterns computed by the IME method are aggregated and averaged over the number of evaluators participating in the IME. The resulting figure is the mean value of the employee to the organization over his estimated useful life. Symbolically, if we let: i=ithevaluator,i=l,..,n ANPV = adjusted net present value j=jthemployee,j=l,..,n k = time period in the future,

work index were derived from the evaluators’ responses which are shown in

compensation costs would bear heavily on the cost of capital this figure was not used as the discount was to avoid circularity in the computations which would exist in a human resource intensive as the participating firm. The fum’s opportunity cost was not used because opportunity costs vary to organization even when the organizations have the same human resource organization with similar benefit generating potentials.

APPLICATIONOFAHUMANRESOURCEVALUEMODEL

201

every year for the rest of his estimated useful life to the organization. Mean ANPVp = i?l ANPVi, + E The evaluator’s opinion was that the firm i=l ’ = should incur only $50 of training and development costs for this employee. However, this should not Computation of weighted net present value imply that the employee is not considered patterns ’ valuable. On the contrary, examination of the The adjusted net present value patterns for each evaluator’s opinion of the employee’s efficiency employee were computed using each individual index indicates that this employee is regarded as evaluator’s inputs into the HRVM. However, quite efficient and expected to remain so until during the evaluation process, it is reasonable to retirement. expect that the best estimate of an employee’s Since employee #425 is a junior accountant value will be provided by those who know the (benefit position #2) this means that he should employee best. Let Iqj indicate the visibility devote 0.92% of his working time to direct and rating (a measure of how well the evaluator knows immediate revenue generating (chargeable) activithe employee) for the ith evaluator and ANPVii ties. The product of the employee’s efficiency denote the adjusted net present value of the jth index (EFI) and standard work index (SWI) is his employee computed by using the inputs provided individual performance index (IPI) which in turn by the ith evaluator. then the weighted net present interacts with the monetary value benefit potential value of the jth employee for each year of his (Beta) to give his expected benefits. The difference estimated useful life (k) is given by: between expected benefits and total cost is the employee’s net benefit streams for each year of his working life (see Appendix III, p. 213). Weighted ANPVir, = r$I WI (ANpV)ij f $1 Wi. Evaluator #l also believes that the probability of continued employment of this employee is 1 .O The adjusted net present value of each’ employee through 3 yr of his estimated useful life (See as determined by the ith evaluator is multiplied by Appendix III, p, 213, bottom schedule). The the visibility rating given by the zth evaluator, and probability of survival of this employee is given in the sum of these values is divided by the total the third column in this schedule. The certainty visibility* ratings of the evaluators. The following factors for employee #25 are quite high in spite scale was used to obtain the visibility ratings: of his age because of his very high probability of continued employment. The certainty factors for each year of this .” Scale “I know this person _ employee’s useful life are used to adjust his net 4 Extremely well benefit streams to arrive at the certaintyWell . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 equivalent net benefit streams. These streams are Adequately ... ........ ........... 2 then discounted and aggregated using a stepwise Less than adequately . . . . . . . . . . . . . . . . 1 previously and the procedure as explained Notatall ........................ 0 employee’s adjusted net present value pattern is found. This procedure is repeated for three evaluators. RESULTS The results of each evaluator’s inputs through the IME method are given in Appendix III. After the employee’s adjusted net present value pattern is Illustrution of adjusted net present value pattem calculated independently by the evaluators, these computation results are aggregated and a mean value is The computation of adjusted net present value computed (see Appendix III, p. 216). pattern of an employee (Code #25) is illustrated in Appendix III. Employee 7!425 is a 50 yr-old Illustration of weighted net present value pattern junior accountant. According to evaluator #1 this computation employee will be promoted within 1 yr to a senior The computations for the weighted net present rank beyond which he is perceived to be non-promotable. However, the evaluator has value pattern are made by weighting the adjusted indicated that the employee will merit salary raises net present values by a visibility rating. For then,

PEKlN OGAN

202

and for the second year in the future:

420 38 3

‘..\*

34

-_ ..____-

----------*. .\

\

26

[(S56,150) (51,626)

\ \

22

~(3) •t (1534,210) a(3) f *(4)k 10 = 527.758.

\ \

Computation oj‘human resource value patterns jbr the offices: an example (office #I) Office #l has a total employment of eight, two of whom are partners of the same age and who served as evaluators of the employees subordinate to them and also of each other. Figure 2 shows the individual adjusted net present value patterns and the total human resource value for this office.

‘\

! I

I

_.....***...

l . .

.,....

I

Employee I02

* I04

A I36

Total

POSSIBLE MANAGERIAL USES OF HUMAN RESOURCE VALUE DATA

loa

* D I32

s I07 ----

.

yr

#

D IO1

.

. .

Monitoring changes in the inputs of the HR KM Before the end results of the HRVM through the IME method are obtained, each employee’s efficiency index for the future years, his probability of continued employment, the merit salary raises that the evaluator believes the employee deserves, his rate of movement from his present benefit position to higher levels along with the salary increase and his professional development costs are indicated by each evaluator. These inputs can have additional uses besides serving as computational variables of the HRVM.

0 I39 for the

offtce

Fig. 2. Individual adjusted employees in office No. 1.

net present

value

streams

of

example, the visibility rating given to employee #425 by evaluator #l is a 3; by evaluator #2 again a rating of 3; and by evaluator $3 a visibility rating of 4. The computations for weighted net present value patterns are repeated for each year the employee is expected to stay with the organization. For instance, the calculation of the weighted net present value in the summary statement of Appendix III for the first year in the future would be as follows: [($59,491) ($10,924)

Uses of the HRVM inputs in retention and promotion decisions The promotion matrix of each employee can be used for management decisions pertaining to each employee’s status in the organization. The matrix shows the pattern that each employee is expected to display when moving from one position to

l(3)

+ ($40,234) l(3) + - (4)k 10 = 534,287 TABLE

1. Comparative

Employee

promotion

Employee

code +I104 Age: 21 Position: Senior Liapsed

Evaluator No.

Supervisor

Manager

matrices:

years between

Partner

benefit Supervisor

an esdmple

code $2 13 Age: 26 Position: Senior positions

Manager

Partner

1

2

3

4

0

1

2

I

1

2

1

1

1

3

1

2

3

0

1

2

4

2

NP*

NP’

0

1

1

*Non-promotable.

I

APPLICATION OF A HUMAN RESOURCE VALUE MODEL

203

formalized information such as this ought to provide a better framework for assessing each employee’s promotion pattern. The comparative promotion matrices may be utilized when mutually exclusive promotion decisions are contemplated.

another in terms of years elapsed between each position. The comparative promotion matrices for employees #104 and $213 are shown in Table 1. In the first column of the matrix are listed the four evaluators who responded about these employees. For example, evaluator #I thinks that employee #104 will take 2 yr to move from senior to supervisor, 3 yr to manager and 4 yr to partner status, a total of 9 yr. The same evaluator, however, feels that employee #213 will achieve partner status in 2 yr as can be seen from the evaluator’s responses on the first row. The matrix reveals that three evaluators believe employee #IO4 has partnership potential by indicating that they perceive this employee will move to partner level within 4-9 yr. However, evaluator #$4 has indicated that he believes this employee to be promotable to supervisor but not beyond. On the other hand, there is unanimous agreement that employee #213 is definitely of partnership quality and should reach this benefit position within three years. After the inputs to the HRVM are independently provided by each evaluator,’ the promotion matrix of each employee can be reviewed by the evaluators. As evaluator #4 explains why he thinks employee #104 is non-promotable beyond the supervisor level, he may reveal some information about the employee of which the other evaluators are not aware. Additional

Monitoring changes in outputs of the HR VM Ongoing procedures may be developed which would monitor the changes in the outputs of the HRVM. The outputs which are the adjusted and weighted net present value patterns of employees will provide insights to management about each employee’s value to the organization. The change from year to year of each employee’s adjusted and weighted net present value would be anticipated to prognose the employee’s value to the organization. On the other hand, the variables causing the changes, when isolated, ought to provide diagnostic insights. An example of the prognostic aspect would be a case where an employee’s net present value patterns show a declining tendency. On closer examination this decrease may well have been caused by the employee’s promotion to partner status which has a 0.58 standard work index compared to a manager’s standard work index of 0.75. Further, it may also be that the other parameters concerning this employee may have been increasing but not enough to offset the drop in the standard work index. Continuous

‘ln order to assess the internal validity of the model the degree of agreement between the evaluators concerning their responses to the questionnaire was sought. However, because of the large data set “technical” and “overall effectiveness” ratings of the subject employees were used as surrogate measures of the inputs provided by the evaluators. The ratings given by the evaluators to the subject employees were scaled as follows: RATING Poor-bottom 5% . . . . . Below average-bottom 20% . . .

SCA LE .

.

.

.

. Average-middle 50% . . . . . Abow average-top 20% . . . . Excellent -top 5% . . . . . . . .

. . . .

. . . . . . . . . . . . . . . . . . . . . . . .

.

.

.

.

.

.

.

.

_ . . . . . . . . . . , . . . . .

0

1

2 3 4

It is suggested that when the evaluators respond to the questionnaire, they compare an employee with the other employees. in particular, they express this comparison in their answers to the questions related to each employee’s efficiency index, salary merit raises, training and development costs. This comparison is ultimately expressed in the ratings given to each employee by the particular evaluator. (See Questions 7 and 8 in Appendix I.) The inter-evaluator correlations (i.e. the degree of agreement between evaluators) were computed by a multiple regression procedure with step-wise inclusion. A better statistic to use when ratings of subjects are involved would be the weighted Kappa. Refer to Cartwright (1956). Cohen (1968), Fleiss (1971). and Light (1971). However, Kappa is a relatively new statistic and procedures for removing error terms inherent in ratings are yet to be devised. For a complete list of inter-evaluator correlation coefficients in each office, see Pekin Ogan A Human Resource Value Model and its Operationalization at a CPA Firm unpublished Ph. D. dissertation, University of North Carolina, 1974, Chapter V.

204

PEKIN OGAN

monitoring of the changes in human resource values is essential for establishing a HRA system.

Statement of changes in human remurce value Human resource values were increased by:

A hypothetical example of the conversion of the HRVM into a human resource accounting system The example assumes that the HRVM was operationalized in a particular office 2 yr in a row using the IME method, and the total weighted net present value of the office for 1 yr into the future (t=l) was found to be $750,000 compared to the $500,000 total of the previous year (HI). The $250,000 difference is a substantial change for 1 yr and part of it can be explained by using the Statement of Value Change of Current Employees as illustrated below: St’atement of value change of current employees

New employees Increase in value of current employees Employees transferred in

5300,500 8,000 175,000

Total Increases

$483,500

Human resource values were decreased by: Termination

$ 23.000

Retirement

75,000

Death

45,000

Employees transferred out

38.000

Decrease in value of current employees

52500

Weighted Net Present Value Total Decreases Employee code no. 745 763 785 789 791

Previous $ 75,000 3 3,000 118,000 (9,000) 98,000

Current

Increase) (Decrease)

$70,000 15,000 97,000 ( 1,000) 89,500

% (5,000) (18,000) (21,000) 8,000 (8.500)

Total

S(44500)

The above statement clearly does not explain the $250,000 change in the total weighted net present value of the office. in order to isolate the other causes of the change the “Statement of Changes in Human Resource Value” is prepared. This statement shows that the decrease in the office total was due to: (1) the decrease in the value of the current employees as seen above, (2) retirement of a partner who had a weighted net present value of $75,000, (3) termination of employee #759 with a weighted net present value of $23,000, (4) transfer of employee #767 with a weighted net present value of $38,000, and (5) death of employee #798, who had a weighted net present value of $45,000. However, there were five new employees who were hired with a total weighted net present value of $300,500 and two transfer employees with a total of $175,000, which completes the explanation of the $250,000 than e. T I!e direction of movement of the weighted net present value patterns may be observed in Fig. 3 it is assumed where that the HRVM is

Net increase or (decrease) Add:

Previous HRV balance

Current Human Resource Value

$233,500 250,000

sod,ooo $750,000

operationalized every year for 10 yr. When the “first future” year totals of each operationalization are connected, the Human Resource Value Life curve would be obtained. Other uses of the HR VM outputs Another simple but pragmatic use of the HRVM outputs is to regard the periodic adjusted and weighted NPV patterns for each employee as the opportunity costs related to the employees if and when they exit the fii for reasons other than death or retirement. Also, by using the firm’s desired rate of return in the discounting, management may be able to isolate those employees with marginal net present value patterns. (For a detailed discussion of other possible uses of the HRVM, see Ogan, 1974, Chapters 4 and 6.) A NOTE OF CAUTION ABOUT THE RESULTS When using the inputs and outputs of the HRVM internally, management needs to be very cautious because it has been found that results of research findings may adversely affect the attitude and behavior of persons in authority. Therefore, it

205

APPLICATION OF A HUMAN RESOURCE VALUE MODEL

Yr

Operot~onol~rot~on Operotional~zot0n Operot~onal~20t~on Operot~onol~zot~on Operottonoli2atlon The human

ot yr I ^ ofyr 2* ot yr 3 l at yr46 ot yr 5 x

resourte

value

Operatlonolizatton ot yr 6 3 Operot~onol~2ot~on ot yr 7 l Operot~onoll2otlon ot yr 8 / Operat~onol~rat~onot yr 9c Operot~onol~2ot~on life

ot yr IO?

Curve -

Fig. 3. Total weighted net present value streams of hypothetica: office resulting operationalization of the HRVM and the human resource value life curve.

is important to avoid the “self-fulfilling prophesy” syndrome. It is vital for the organization’s health that management use extreme discretion and care so that unauthorized or untrained people do not handle sensitive data. The solution is to have only the researchers handle and monitor the changes in the inputs and outputs of the HRVM in the beginning. This way independence and objectivity can be achieved to avoid potentially harmful results for the individual, and consequently, for the organization. Limitations of the study The human resource value model that was operationalized has two major limitations which are: (1) the “total” value of the individual is not considered, and (2) the model is limited for use in professional service organizations. The “total value” of the individual is not considered because the model specifically dwells on the “monetary values” of employees which can be measured primarily by objective data such as billing rates or maximum billable hours in a year. The model does not concern itself with the value of the complement of the standard work index. This complement comprises the employee’s involvement in community affairs, professional associations, administrative duties, client development and training of subordinates.

from repeated

At present, the HRVM can be used only in organizations where the benefit rate and the employee costs can be objectively determined. A professional service organization where customers are billed for services rendered at standard rates based on time spent seems to be an ideal setting for the operationalization of the HRVM. In addition, the operationalization has two limitations: (1) the billing rates are not graded and, (2) the net present values that were computed for the 45 employees contain error terms. The billing rates which determine the monetary value benefit potential were assumed to be uniform for each benefit position in the participating firm. This may be an unrealistic assumption because it is possible, say, for a senior accountant in one office to have a higher billing rate than another senior accountant in the same office or a different office. The error terms include the “constant leniency”, “halo effect”, and “trait-evaluator interaction” errors which were caused by some evaluators who were found to be “poor” evaluators. No attempt was made to remove the error terms from the inputs of the HRVM because of the complicated computations involving a large data set, and because absolute precision of numbers at this stage cannot be properly justified

PEKIN OGAN

206

(see Ogan, !975b, Appendix III for procedures isolate and remove these errors). CONCLUDING

to

REMARKS

Can management use the data generated by the HRVM for internal purposes? The answer is a qualified “yes” because while the HRVM generates data that are amenable for use in an ongoing manner like a performance evaluation system or a human resource value accounting system. extreme caution should be exercised in the interpretation of the data at present. Management may use the data if, and only if, they are completely aware of the urn&dated condition of the model and the limitations of its outputs. Reliance on human resource measurements exclusively and use of data generated by quantification approaches before the ethical questions of quantifying human resources are completely resolved, may have undesirable implications for the profession in particular, and for the society in general. So far there have been few attempts to operationalize human resource value models because of the recent nature of the topic and the difficulty of obtaining data from organizations which may be apprehensive about the potentially

dangerous implications of providing data which concern their current employees. Therefore, the computational results of the study do not lend themselves for use in comparisons or generalizations. The results of the study ought to be viewed as outcomes of an initial operationalization of the human resource value model. Research in the area of human resource value assessment and human resource value accounting will have to recognize the far reaching implications of the data generated by the quasi-consultant relationships that exist between research researchers and the participating organizations. The impact of the human resource value data on existing social norms and ethics needs to be carefully evaluated to insure that human resource value information is utilized in a socially desirable manner. The need for discretion and judicious use of the human resource value data in its presently uncertain and generally urn&dated stage has to be underlined strongly if the approach is to evolve into a viable and strong instrument for management and employees without acquiring a sinister reminiscent of the characteristic “scientific management” era (which, according to some, left deep scars on the socioeconomic fabric of the society).

BIBLIOGRAPHY Alexander, Michael O., Investments in People, Gmadian Chartered Accountant (July, 197 1). Bnimmet, R. Lee, Flamholtz, Eric G. & Pyle, Wilham C., Human Resource Accounting: Develppment and Implementation in Industry (Ann Arbor: Foundation for Research on Human Behavior, 1969). Carper, William B., An Inquiry into the Nature of Accounting for Human Resources and its Feasibility for CPA Firms. Unpublished Ph.D. dissertation, University of Alabama, 1973. Cartwright, Desmond S., A Rapid Non-Parametric Estimate of Multi-Judge Reliability, Psychometrika (March, 1956). Cohen, Jacob., Weighted Kappa: Nominal Scale Agreement with Provision for Scaled Disagreement or Partial Credit, Psychological Bulletin (October, 1968). Flamholtz, Eric G., A Model for Human Resource Valuation: A Stochastic Process with Service Rewards, The Accounting Review (April, 1971). Toward a Theory of Human Resource Value in Formal Organizations, The Accounting Review (1972a). Assessing the Validity of a Theory of Human Resource Value: A Field Study, Empirical Research h Accounting: Selected Studies, 1972b. Human Resource Accounting: IMeasuring Positional Replacement Costs, Human Resourcehanagement (Spring, 1973). Human Resource Accounting (En&o, California: Dickenson PubL, 1974a). 1 Human Resource Accounting: A Review of Theory and Research, Journal of Management Studies (February, 1974b). Flamholtz, Eric, & Lundy, S. Todd, Human Resource Accounting for CPA Firms, The CPA (October, 1975). Fleiss, Joseph L., Measuring Nominal Scale Agreement Among Many Raters, Psychological BuIZetin (1971).

Light, Richard J., Measures of Response Agreement for Qualitative Data: Some Generalizations and Alternatives,Psychologicui Bulletin (1971). McGill, Dan M., LifeInsurance (Revised ed.: Homewood, Ill: Irwin, 1967).

APPLICATION

OF A HUMAN

RESOURCE

VALUE

MODEL

Ogan, Pekin.. A Human Resource Value Model for Professional Service Organizations, The Acwunting Review (April, 1976). A Human Resource Value Model and its Operationalization at a CPA Firm. Proceedings of the Alierican Accounting Association Annual Meeting - Midwest Region, Chicago (1975a) (Forthcoming). , Assessing the Operational Potential of a Human Resource Value Model, Discussion Paper No. 43. Division of Research/School of Business. Indiana University, Bloomington, Indiana, July (1975b). A Human Resource Value Model and its Operationalization at a CPA Firm. UnpubLishkd Ph.D. Dissertation, University of North Carolina 1974.

207

208

PEKIN OCAN

APPENDIX I THE QUESTIONNAIRE

CONFIDENTIAL

SURVEY

This questionnaire is an integral part of a larger study concerning the human resources of your organization. Your name has been selected because of your position in the organization. The information you supply wilI be kept confidential and can not be traced back to you by any other party. For this reason I ask your cooperation in answering the questions as frankly and completely as you can. There are 10 questions in this confidential survey which concern selected employees. At the end of each row pertaining to a particular employee you wilI find a column entitled “CONFIDENCE RATING”. This rating is NOT the amount of confidence you have in each employee about whom you have answered a particular question but the amount of confidence YOU have in the ANSWER you just wrote for that employee. In answering this column use the following scale: CONFIDENCE RATING

1do not feel confident at all about my answer.

. .

. .

I have some reservations about my answer

. .

I have an average amount of confidence in my answer. . 1 have a good amount of confidence in my answer. .

I am very confident about my answer .

.

. .

. .

. . .

.

1

.

2 3

.

. . .

0

. .

4

I appreciate your cooperation in this confidential survey which is part of a doctoral dissertation

I am doing.

THANK YOU!

Question 1. LIKELIKHOOD OF STAYING WITH THE ORGANIZATION In this question you are requested to quantify your opinion as to the likelihood of each employee staying with your organization for the years indicated below. Please enter your answers using percentages as in the example. Note that the researcher has not supplied figures for the percentages columns 1 through 6 in an effort not to bias your answers. However, if you think a particular employee has a higher likelihood ofstaying with your organization than another employee the percentage figure you use for the first employee should be higher than the second for the appropriate time period. In column 1

the estimated researcher.

In column 2

you are asked a difficult question: please answer it frankly. If you think a particular employee will leave the organization either through resignation or termination, state the YEAR that you expect this event will take place. In such a case till out the requested information for the periods that you expect the employee to stay with the organization and “X” the remaining columns being careful to fill out column 8. If you believe that an employee will refire in this firm, IGNORE this column. please enter your estimate of the likelihood of each employee to stay with your organization through the years 1974-1976. the same kind of information is requested but for a five (5) year period between 1976 and 1981. Note that the answer you give will be an average percentage figures. again the same kind of information is requested but for an eight (8) year period for the years 1982 and 1990. This ligure too will be an average percentage. the same kind of estimate as to the likelihood of particular employees staying with organization for each year beyond the year 1990. enter your confidence rating for your answer for each employee as per previous instructions.

In columns 3-5 In column 6 In column 7 In column 8 In column 9

useful lives of selected employees

for the organization

are entered

by the

APPLICATION OF A HUMAN RESOURCE VAL UE MODEL QUESTION I.* In my best estimate the employees organization :

NAME

Code number

209

listed below have the following likelihoods of staying with this

(1)

(2)

(3)

(4)

(5)

Estimated useful life to firm

Will resign OR will be terminated (state year)

Through 1974

Through 1975

Through 1976

(6)

(7) Each year between 1982 and 1990

Each year between 1977 and 1971

(8)

(9)

Each year thereafter

CONFIDENCE RATING

Question 2. SALARY MERIT RAISES This question concerns the annual percentage salary merit increases that employees listed below are likely to get. In answering this question DISREGARD promotions to higher positions which are treated in the next question, and think of raises that you think each employee is likely to get each year. The merit salary increases are considered in terms of percentage of the previous year’s salary. In column 1

the code numbers confidentiality.

of

selected

employees

In column 2

you will find the estimated maximum possible useful lives of selected employees. This figure is calculated by deducting the age of each employee from the man&tory retirement age.

In column 3

you will find the present salary of each employee. please pencil in your corrections.

In column 4

you are again asked if you think a particular employee will leave the fiim &her through resignation or termination. Please answer this question frankly and state the YEAR that you expect this event will take place. In such a case fill out this column as well as the columns for the periods that you expect the employee to stay with the organization and “X” the remaining columns.

In columns 5-7

please enter the percentage salary increase that you think this employee will likely get for the years 1974 through 1976.

In column 8

the same kind of information and go to column 9.

In column 9

you are again requested to enter the percentage salary increase that you think this employee is likely to get for the last ten (10) years of his estimated useful life.

In column 10

write the CONFIDENCE RATING that you choose for your answer for each employee as per previous instructions.

is requested.

are entered

by

the researcher

to maintain

If there have been changes in these figures,

If this column is blocked out IGNORE this column

Question 3. PROMOTIONS AND RELATED SALARY INCREASES lhis question is designed to quantify your subjective opinions as to the promotability of the employees in the study. The present job classifications of the selected employees are given by this questionnaire. However, there may have been changes while this questionnaire was being prepared. In such cases please enter your correction next to the erroneous job classification and also state the date of this change. After a correction or if the given data is correct proceed in the following manner:

*The columns where the evaluators entered their responses are shown here as an example. In the remainder of this Appendix only the questions will be presented to save space. The complete Questionnaire is available from the author upon request.

PEKIN OGAN

210 In column 1

the code numbers confidentiality.

of the selected

employees

are entered

by the researcher

to maintain

In column 2

the present job classification of the employees are again given by the researcher.

In column 3

the possible future job classifications researcher.

In column 4

write your opinion of the number of months that will pass before the person is promoted. Consider each promotion level independent of others. If you think a particular employee is not promotable from a given job classification even though there is room for promotion enter NP (not promotable) in the appropriate space. If on the other hand the subject is promotable but you think there may not be upward room in the promotion hierarchy enter NA (not applicable) in the appropriate space. enter the amount of salary increase you expect will accompany a particular promotion to a particular level. This is a difficult task but feel free to temper your answer with your organization’s promotion-compensation policy and past experience related to such matters, as well as your feelings as to the salary increases that a particular employee deserves. indicate the amount of confidence you have in your particular answer using the CONFIDENCE RATING SCALE which is given at the beginning of this confidential survey.

In column 5

In column 6

that employees

can be promoted

to are given by the

Question 4. NET WRITE-DOWNS AS A PERCENTAGE OF EACH EMPLOYEE’S TOTAL BILLINGS In this question the employees’ ner writedowns as a percentage of their total billings should be estimated and expressed in percentage terms; also what you perceive this employee’s efficiency will be in the future should be indicated. It is recognized that your answer will be predicated on the particular employee’s past and present performance as well as your expectations about the future. For instance, a particular employee’s total writedowns for the past year may have been $300. If the total billings attributable to this employee are $3.000 then his past writedown percentage would be 10%. However, this employee may be a very efficient worker but was written down due to factors outside of his control. Therefore, you need to indicate his efficiency as a percentage figure in the same column where his net writedown percentage is entered. in columns 2-7 first indicate an employee’s efficiency index, then his net write-down percentage in the same column. You should feel free to adjust such past figures by your expectations about the future performance of the particular employee. In cases where there have been abnormally high write-downs across the board for a particular office indicate this in the “remarks” column. In columns 2-7

you are kindly requested to enter percentage figures for each employee to represent your opinion as to the percentage net write-downs that you expect for the years indicated. If columns 6 and 7 are blocked out IGNORE them and go to the next column.

In column 8

indicate the reason why there have been abnormally high write-downs across the board for a particular office which would have an effect on the total write-down for a particular employee.

In column 9

indicate the amount of confidence you have in your answers for each employee.

Question 5. FORMAL TRAINING COSTS This question is designed to elicit your estimate of the Formal Trainint Costs of the selected employees. Formal training costs are defined as the expenses that are associated with educational programs that employees might voluntarily participate or be expected to attend such as evening college programs or part-time course work for credit to satisfy cerfificafion requiremenfs. These DO NOT include executive development programs or similar activities which

are treated in the next question. The expenses in question are the out-of-pocket costs incurred by the company. These include Tuition, Travel, Living expenses (if away from home) and Training supplies and DO NOT include costs related to lost work hours or expenses incurred for substitute workers. In columns l-2 In columns 3-5

you will find the code numbers and estimated useful lives given. kindly write your estimate of formal training costs for the years 1974-1976 that will be incurred for each employee.

APPLICATION OF A HUMAN RESOURCE VALUE MODEL

211

In column 6

you are requested to enter your estimate of Formal Training Costs that will be incurred by the organization for each employee. This figure will be an average amount for the five (5) years in question.

ln column 7

please enter your estimate of annual Formal Training Costs that will be incurred for a particular employee for an eight year period. This, too, will be an average amount. please enter your estimate of annual Formal Training Costs for the particular employee each year thereafter.

In column 8 In column 9

please enter your Confidence Rating as per previous instructions.

Question 6. DEVELOPMENT COSTS In this question please enter your best estimate of the DEVELOPMENT COSTS for each employee whose name is given. Development costs are defined as costs assoctated with executive development programs, management seminars, professional conferences and conventions. These costs include: Travel, Tuition, Living expenses (if away from home), and Program supplies. In column 1

you will find the code number of the particular employee given by the researcher.

In column 2

the estimated useful life of selected employees are given. If any of those are in error please pencil in your corrections next to it. ‘please enter your estimate of development costs for the years 1974-1976 that will be incurred for each employee.

In columns 3In column 6

_

.:

you are requested to enter your estimate of Development Costs that will be incurred by the organization for each employee. This figure should be an average amount for the five (5) years in question.

In colun& 7

please enter your estimate of annual Development Costs that will be incurred employee over an eight @).year period. This, too, will be an average amount.

In column 8

you are requested to fill in the same kind of information for the particular employee going beyond the year 1990. This column is necessary because the estimated useful lives of some employees go beyond the year 1990.

In column 9

please enter your confidence rating as per previous instructions.

Question 7. TECHNICAL EFFECTIVENESS

for each

RATING

In this question please rate the employees’ effectiveness, taking into account each employee’s job performance and technical expertise. DISREGARD the employee’s ability to work well with peers and supervisors. Use the following scale : RATING Poor-bottom

5%.

SCALE .......................

0

................... Average-middle 50% ...................... Above average -top 20% ..................... Excellent-top 5% ....................... Below average-bottom

In column 3 In column 4

20%.

1

2 3 4

please enter the CONFIDENCE RATING of your choice. please enter the degee that you think indicates how well you know this person. Use the foliowing scale: l

“I know this person

.

. . . . . . . . . . . . . . . . . . . . . . _ . Lessthan adequately . . . . . .

Extremely well Well. . Adequately Noneatall

. . . . . . .

. . . . . . . . .

. .

. . . . . . . . . . . . . . . . . .

4 3

2 1 0

212

PEK:N OGAN

Question 8. OVERALL EFFECTIVENESS RATING In this question please rate the overall performance effectiveness of each employee taking into account the employee’s job performance, technical expertise AND ability to work well with peers and supervisors. Use the following scale : RATING Poor-bottom

5%

SCALE .

.

.

.

.

.

.

.

.

.

_ .

.

.

.

.

.

.

. . . . . . . . . Average-middle 50% . . . . . . . . . Above average-top 20% . . . . . . . . . . Excellent -top 5% . . . . . . . . . . Below

average -bottom

20%.

.

0

. . . . . . .

2 3

1

4

In column 3

please enter the CONFIDENCE RATING of your choice.

In column 4

please rate each employee’s potential overall effectiveness that you think may be realized in the future. Use the rating scale given above. please enter a CONFIDENCE RATING for your answer to column 4.

In column 5

Question 9. STANDARD WORK INDEX In this question you are requested to quantify your opinion as to the amount of time that employees in particular job classifications ought to spend on revenue producing work out of their available working time. Therefore, if available working time represents one hundred percent (loo%), the percentage figures that you enter for appropriate job classifications may range from one hundred to zero. The standard work index is the opposite of administrative, and community relations, and client development work which do not involve DIRECT monetary benefits for the organization. It is instead a measure of how much of an employee’s working time ought to be spent on the kind of work which results in DIRECT, and IMMEDIATE revenue for the organization. The answers you give may be a combination of company policy, past experience AND your opinion as to what this percentage ought to be for each job classification. you will find that the specific job classifications used by your organization have been entered by the researcher. enter your normative opinion about the standard work index for each job classification. indicate the amount of confidence you have in your answers for each job classification.

In column 1 In column 2 In column 3

(I) Job Classifications

(2) Standard Work Index

Clerk . . . . . Assistant accountant

. . . Senior . . . . Supervisor . . Manager . . . . . Partner. . .

(3) CONFIDENCE RATING

% % % % % @7 ,o

Qlestion 10. CLOSE PROFESSIONAL ASSOCIATIONS WITH COLLEAGUES WITHIN THE FIRM This question concerns colleagues, regardless of rank, with whom you are closely associated in of preference in the accounting field. Please list their names below in column 1.

your

particular area

please enter the number of years (months) that you have been aware of this close professional association with each particular colleague.

In column 2

(1) Name

(2) Duration of Association

APPLICATION OF A HUMAN RESOURCE VALUE MODEL

213

APPENDDi II DETERMINATION OF THE STANDARD WORK INDEX FOR SIX BENEFIT POSITIONS IN THE FIRM (RESPONSES IN PERCENTAGES) Benefit positions Evaluator

1

2

3

4

Ml

50

95

85

80

75

65

80

80

70

70

40

5

6

M2

60

Pl .I

60

85

80

70

60

50

P2.1

85

95

85

80

75

60

PI,2

50

95

95

85

75

60

P2,2

75

100

95

88

80

65

PI ,3

50

95

90

80

70

50

‘2.3

50

90

85

80

70

60

P1,4

50

90

85

80

75

50

PI ,5

98

98

95

92

85

75

‘2,5

50

90

90

80

80

70

P1,6

50

90

85

80

80

60

P2,6

50

95

90

90

85

50

Mean (rounded)

60

92

88

81

75

58

Standard deviation

16.1

5.0

5.2

6.5

6.9

9.6

PEKINOGAN

214

APPENDIX II1 3'TERflINATION OF NET BENEFITS GENERATED INPUTS BY EVALUATOR PRESENT POSITION

NO:

1

YEARS ELAPSED BE'tXEEN PROROTIONS 1

2

999

999

DEGREE OF VISIBILITY TO EVALUATOR: ACE TLD COST FUT.SALARY 50

si

52 53 5u 55 56 5; 5e 59 60 61 G2 63 64 65

50. 50. 50. 50. 50. 50. 50_ 50. 50. 50. 50. 50. 50. SO_ 50. 50.

TOTAL COST

9000. 10920. 11794. 12737. 13623. 1458). 15603. 16696. 17530. 18407. 19327. 20234. 21308. 22374. 23692. 24667.

9050. 109ro. 11844. 12797. 13679. 111633. 15653. 167U6. 17580. 18~57. 19377. 20344. 21358. 22u24. 23542. 2U717.

ADJUSTED NET PRESENT VALUE

STREAflS

BETA 22500.

EFI

0.920 0.920 ;;M;. . 0.920 31843. 0.920 34072. 0.920 36457. 0.920 3YOOY. 0.920 41739. 0.920 U382G. 0.920, 46017. 0.920 48318, O-920 50734. 0.920 53271. 0.920 55934. 0.920 58731. 0.920 61667. 0.920

OF

1

kCE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

CBTY FACTOR 0.9891 0.9773 0.9753

P (SURV) 0.983110 0.077340 0.975255 0.972975 0.970471 0.967724 0.964726 0.961448 0.957672 0.953791 0.949766 0.9UU285 0.939261 0.931Q18 0.92J5Ul 0.925028

999

3

INPUTS BY EVALUATOR NO: CUfi.P(CONS) 1.0000 1.0000 1.0000 0_9000 0.8100 0.7290 0.6561 0.5935 0.2952 O.l47r, 0.0738 0.0369 0.0185 0.0092 0.0046 0.0023

BY E(IPLOYEE NO:425

ERPLOYEE

SYI

IPI E(BEtlEPIT)

0.92 0.92 0.88 0.68 0.88 0.88 0.88 o.ee 0.88 0.88 0.68 0.88 0.88 0.88 0.88 0.88

0,846 0.84G 0.810 0.810 0.810 O.ElO 0.010 0.910 0.810 0.810 0.810 0.810 0.810 0.810 0,810 0,810

NO:425

(CONTINUED)

0.8757 0.7861 0.7055 0.6330 0.5671 0.2828 O.lUO8 0.0701 0.0348 0.0173 0.0086 0.0043 0.0021

C-E-NET 9995. 11962. 11729. 11377, 10931. lOU9%. 10082. 9678. 5063. 2647. 1384. 722. 377. 196. 103. 54.

DEN.

ADJ.NPV s9491. 56150. 50464. 44286. 37780. 3100s. 23916. 1646G. 8599. 4483. 2328. 1200. 610. 300. 136. 48.

19044. 23107. 23870. 25780. 27584. 29515. 31581. 33792. 35482. 37256. 39118. 41074. 43128. 45284. 4754y. 49926.

NET

BENEFIT 9954. 12137. 12027. 12993. 13906. 14883. 15928. 17046. 17901. 18799. 19741. 20731. 21770. 22861. 24006. 25205.

APPLICATION

Appendix

PRESENT

BENEFITS

NET

IRPUTS BY EVALUATOR POSITION

NO:

DEGREE TtD

COST 100. 100. 200. 0. 0. 0. 0. 0. 0.

VISIDILITY

TO

FUT.SALARY 9000. 11100. 12210. 13431. 14774. 16251. 17877. 19664. 19664.

999

19664. 19664.

0.

19664.

19564.

0. 0. 0. 0. 0. 0.

19664. 13664. 19664. 19664. 19664. 19664.

19664. 19664. 19664. 19664. 19664. 19664.

BY EVALUATOR

VALUE STREANS NO:

CUR. P (CONS) P(SURV) 1.0000 0.989110 1.0000 0.977340 1.0000 0.975255 0.5000 0.972975 0.2500 0.970471 0.1250 0.967724 0.0625 0.964726 0.0313 O.Yh1448 0.0156 0.957872 0.0078 0.953991 0.0039 0.949766 0.0020 0.944285 0.0010 0.939261 0.0005 0.931418 0.0002 0.928541 0.0001 0.925020

NO:425

PHOflOTIONS

2

999

3

TOTAL COST BETA EFI 9100. 22500. 0.950 11200. 27750. 0.950 12410. 30525. 1.000 13431. 33577. 1.000 10774. 36935. l.OCO 16251. 40629. 1.000 17877. 44691. 4.000

60 61 62 63 64 65

ADJUSTED NET PRESENT

ENPLOYEE

999

EVALUATOR:

59

INPUTS

BY

2

1 OF

GENERATED

TEARS ELAPSED BETWEEN

2

AGE 50 51 52 53 54 55 56 57 50 59 60 61 62 63 64 65

215

III (cont.)

DETERt'iINATIONOF

ACE 50 51 52 53 54 55 56 57 58

OF A HUMAN RESOURCE VALUE MODEL

49161. 49161. 49161. 491bl. 49161. 49161. 49161. 49161. 49161.

OF

1.000 1.000 1.000 1.000 1.090 1.000 1.000 1.000 1.000

EIPLOYEE

SYI IPI E(BENEFIT) 0.92 0.874 19665. 0.92 0.874 24253. 0.88

O.RcJO 0.8dO 0.880 0.830 0.880 0.833 0.880 0.880 0.080 o.Bao 0.830 0.885 0.8RO 0.8RO

0.88 0.88 0.08 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.88 0.08 0.88

NO:425

(CONTINUED)

CRTY FACTOR 0.9891 0.9773 0.9753 0.4865 0.2426 0.1210 0.0603 0.0300 0.0150 0.0075 0.0037 0.0018 0.0009 0.0005 0.0002 0.0001

C.E.NET BEN. 10450. 12750. 14094. 7841. 4301. 2359. 1293. 709. 353. 176. 88. 44. 22. 11. 5. 3.

ADJ. NPV 40234. 34210. 25215. 13894. 7582. 4115. 2208. 1158. 576. 286. 142. 70. 34. 16. 7. 2.

26862. 29548. 32503. 35753. 39328. 43261. 43261. 43261. 43261. 43261. 43261. 43261. 43261. 43261.

NET

BENEFIT 10565. 13053. 14452. 16117. 17729. 19502. 21452. 23597. 23597. 23537. 23597. 23597. 23597. 23597. 23597. 23597.

PEKIN OGAN

216

Appendix

III (cont.)

DETEK~INATION

OF NET BENEFITS GENERATED BY E!lPLOYEE NO:425

INPUTS BY EVALUATOR NO: PRESENT POSITION

YEARS

2

3 ELAPSED EETYEEN PROlOTIONS

999

999

DEGREE OF VISIBILITY TO EVALUATOR: AGE

50 51 52

53 54 55 56 57 58 59 60 61 62 63 64 b5

TCD COST PUT.SALARY 50.

50. 50. 0. 0, 0. 0. 0. 0. 0. 0. 0. 0. 0. 0":

9000,

9900.

999

999 U

SYI IPI E(BENEPIT) TOTAL COST BETA EPI 19665. 9050. 22500. 0.950 0.92 0.874 21631. 9950.

10890. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979. llY79. 11979.

10940. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979. 11979, 11979. 11979. 11979. 11979.

299u7. 29947. 29947. 29947. 29947. 29947. 299117. 29947. 29947. 299u7. 29947. 29947. 29947.

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

0.92 0.92 O-Y2 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92

0.0 0.0 O-0 0.0 0.0 0.0 O-0 0.0 0.0 0.0 O-0 0.0 0.0 O-0

ADJUSTED NET PRESENT VALUE STREAilS OF ERPLOYEE NO:U25 INPUTS BY EVALUATOR AGE

50

NO:

CU?l.P(CONS) P(SURV) 1.0000 0.983110

51 52 53

1.0000 1.0000 0.0

54

0.0

55 56 57 58 59 60 61 62 63 64 65

0.0 0.0 0.0 0.0 O-0 0.0 0.0 0.0 0.0 0.0 0.0

0.9773uo 0.975255 0.972975 0.970471 0.967724 0.964726 0.9614U8 0.957872 0.953991 0.949766 0.94U285 0.939261 0.931418 0.928541 0.925028

3

(CONTINUED)

CETY FACTOR 0.9891 0.9773 0.9753 0.0 0.0 0.0 0-O 0.0 0.0 0.0 0.0 0.0 0.0 0.0 O-0 0.0

C.E.NET BEN. lOUY9. 11417. -10669. 0, 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0.

ADJ.NPV 10924. 1626. -9612. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0.

0. 0.

0. 0. 0. 0, 0. 0.

0. b.

NET

Bi?NEFIT 10615. 11681. -10940. -11974. -11979. -11979. -11975. -11975. -11979. -11979. -11979. -11979. -11979. -11979. -11979. -11979,

217

APPLfCATlONOFAHUMANRESOlJRCEVALUEMODEL

Appendix

III (cont.) l,CJDSTED NET PRESENT VALUE STREAM SOHIIARY OF' RESULTS FOR YEICHTED AGE 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

NPV 34287. 27758. 18859. 17454. 13639. 10536. 7837. 5207, 2753. 1431. 741. 381. 193. 95. 43. 15.

HEAN t 36883. 30662. 22022. 19394. 15121. 11707. 8708. 5874. 3058. 1590. 923. 423. 215. 105. 48. 17.

OF EtIPLOYEE NO:@25

3 EVILUATOES:

STANDIRD 3 ADJUSTED NPV STREARS DEVIATION OF 59491. 40234. 10924. 19968. 22400. 56150. 3U210. 1626. 24630. 50464. 25215. -9612. 18493, 44286. 1389Uw 0. 16319. 137u9. 10792. 7504. 3925. 2049. 1066. 550. 280. 138. 63. 22.

37780. 31005. 23916. 16466. 8599. 4483. 2328. 1200. 610. 300. 136. 48.

7582. r115. 2208. 115a. 576. 286. 142. 70. 38. 16. 7. 2.

0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0.