Ultimate Performance: Measuring Human Resources at Work

Human Resources Accounting: Well Intentioned, but Not Well Received

The state-of-the-art in Human Resource Accounting is Dr. Eric Flamholtz’s Stochastic Rewards Valuation Model. The model develops concepts such as expected realizable value of an employee and an organization service state matrix—concepts that are best reviewed during a semester in graduate school, not in this book.

However, we can grasp the essence of the Stochastic Rewards Valuation Model. It looks at the return an employee generates through that person’s entire career (for example, from retail shop assistant to assistant manager to store manager), taking into account the probability of promotion and the probability of turnover. For example, shop assistants will, on average, generate a certain return to the company. The chances that they will be promoted to a more valuable position (or quit) can also be estimated. So with a little math the value an average employee will return over, say, a ten-year period can be estimated. This is the best the field of Human Resource Accounting provides, but it is hard to imagine a firm using this except in unusual situations. It requires too much data that is not readily available. Human Resource Accounting has not made the transition from academia to practice because, to date, it has not produced methods of everyday usefulness to firms.