Discuss the Monitor Measurements in Human Resource Valuation.
Monitory measures of human resource are very important because many decisions of an organization are based on it only. There are various methods of valuation which are needed to find the solutions to the unsolved problems. There is no single valuation measure which is developed that can be validly used for decisions pertain to individuals, groups and total human organization.There are two related approaches to measure the expected conditional value and expected realizable value. They are direct and indirect approaches. In case of direct approach there is an effort to derive a principal measure of a person’s value.
Flamholtz’s Stochastic Reward Valuation Model:
The SRVM, originally developed by Flamholtz for human resource valuation is a five step process that begins with defining the various service states or organizational positions that an individual may occupy in the organization. The next step is to determine the value of each state to the organization, the service state values, which can be calculated either by using a number of methods such as the price-quantity method or the income method.
Then the person’s expected tenure or service life in the organization is calculated and the person’s mobility probability or the probability that a person will occupy each possible state at specified future times is derived from archival data. Next the expected future cash flows that the person generates are discounted in order to determine their present value.
According to Flamholtz, there is a. dual aspect to an individual’s value:
- The amount the organization could potentially realize from his or her services if the person maintains organizational membership during the period of his or her productive service life.
- The amount actually expected to be derived, taking into account the person’s likelihood of turnover.
Lev and Schwartz’s Present Value of Future Earnings Model:
The Lev and Schwartz model is a basically economic concept which emphasizes on the humans as wealth providing source of income. The human capital embodied in a person of age is the present value of his earning from employment.
Under this model, the following steps are adopted to determine HR value:
- Classification of the entire labor force into certain homogeneous groups like skilled, unskilled, semiskilled etc. and in accordance with different classed and age-wise. e.g. In Infosys the classification is based on software professionals and support staff etc.
- Construction of average earning stream for each group. e.g. in an organization incremental earnings based on group/age to be considered.
- Discounting the average earnings at a predeterinined rate in order to get present value of human resources of each group.
- Aggregation of the present value of different groups which represent the capitalized future earnings of the concern as a whole.
Hermanson’s Adjusted Discounted Future Wages Model.
Present value of future wages payable for the next five years discounted at the adjusted rate of return considered as the value of the organizational HR. The adjusted rate of return refers to average rate of return on owned assets of all firms in the economy multiplied by the efficiency ratio of the organization defined as: organization specific rate of return on owned assets during the past five years on an weighted average basis in relation to the average rate of return on owned assets for all firms in the economy during the past five years on an weighted average basis, with comparatively lower weightings as we move to the previous years.
Hekimian and Jones Competitive Bidding Model.
In this method, an internal market for labor is developed and the value of the employees is determined by the managers based on their judgements. Managers bid against each other for human resources already available within the organization. The highest bidder ‘wins’ the resource. There are no criteria on which the bids are based.
Validation of Surrogate Valuation.
When the above said methods were reviewed it was Flamholtz who observed that it is not sufficient to assert that the various methods bear a close correspondence between the true unknown economic value of individuals or surrogate measures.