HUMAN RESOURCE VALUATION MODEL

HUMAN RESOURCE VALUATION METHOD

1. HERMANSON'S MODEL

(I) Hermanson’s Unpurchased Goodwill Model:

According to this model the value of human resource of an organisation may be assessed by capitalizing earnings in excess of normal earnings for the industry or group of companies of which the firm is a part.

(ii) Hermanson’s adjusted discounted future wages model:

In this model Hermanson suggested that the discounting of future compensations with an adjustment is made with the use of ‘efficiency ratio’ to determine the value of an individual.He suggested a five year period and applied an adjustment which is calculated ratio of the average earnings rate on owned assets of the employing firms to the average rate on owned assets of all firms in the economy. This model is criticized on the ground that future compensation is a much a measure of the liability of the firm employing the individual as it is an asset





(iii) Hekimian and Jones competitive bidding model:

profit centre managers bid for the services of valuable employees of their various divisions. The maximum bid price would be used as the value of the individual since it would represent the estimated current equivalent of the optimum use of the individual s services among the profit centers.

This approach has the potential for estimating the value of some individuals and provides an investment base for high bidder to encourage a performance to yield a reasonable return.

One long-standing limitations of this model is that it offers only a very partial solution since it would apply to and only be manageable for a very small subset of the total human resources of the enterprise.

(iv) Lev and Schwartz’s present value of future earnings model:

Baruch Lev and Aba Schwartz used the economic concept of human capital propagated by Irving Fisher and contend that “capital is defined as a source of income stream and its worth is the present value of future income discounted by a rate specific to the owner of the source…” This approach suggests that the estimated human capital value of a person ‘y’ years

(v) Brummet, Flamholtz, and Pyle’s economic value model:

Brummet ET. all have suggested multiple measures of human resources including an economic value concept involving several components such as-forecasting of future earnings, the discounting of these forecasted future earnings and the pro rata association of this almost with all assets including the human resources.

Though akin to that of Hermanson’s model, this proposal place human resources on a level with other resources in their contribution to earnings rather than relating only excess of normal earnings, if any, to human assets

(vi) Flamholtz’s Stocastic rewards valuation model:

In the Flamoltzs recent model, he visualised the movement of individuals trough different roles or positions in the organisation as a stochastic process depending on prior roles or services states held by the individual in the system.

(vii) Likert’s causal, intervening and end-result model:

Rensis Likert, a behavioural scientist, has advocated model based on group processes or interactive process among people, Likert’s model is based on measured relationships among three groups of variable known as causal, intervening and end-result variables. The terms imply longitudinal cause-and-effect relationships which he has thoroughly documented through his research.

(viii) Myers and Flower’s five dimensional models:

M. Scott Myers and Vincent S. Flowers in their ‘Framework for Measuring Human Assets’, have proposed a procedure for assessing the workforce of an organisation and estimating the costs of various inputs to improve the effectiveness of human organisation.

The five dimensions listed out by them include:

(a) Knowledge,

(b) Skills,

(c) Health,

(d) Availability, and

(e) Attitudes.

(ix) Organ’s discounted certainty equivalent net benefits model:

Yet another model of human resource valuation is developed by Pekin Organ through his doctoral dissertation, wherein Organ considers both cost and benefit aspects of the value of human resources to an organisation.

(x) Brummet and Taylor’s human resource value index model:

R. Lee Brummet and Robert Taylor have suggested that knowledge of the dynamics of human resources values in an organisation is more important than knowledge of an estimate of the value at a particular time. On the basis of this suggestion, Brummet and Taylor have proposed the development of human resource value index, known as HRVI. The HRVI is determined by applying interactive multiplier (IM) to the summation of the products of individual performance ratios (IPRs) and corresponding measures of position contribution potential (PCPs). That is to say,

HRVI = IM [ à (IPR x PCP)]