Page 90 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 7: Approaches of HRA

7.2.1 Monetary Measures for Assessing Individual Value Notes

The following are the key models of monetary measures for assessing individual models:
1. Flamholtz’s Model of Determinants of Individual Value to Formal Organisations:
According to Flamholtz, the value of an individual is the present worth of the services that
he is likely to render to the organisation in future. As an individual moves from one
position to another, at the same level or at different levels, the profile of the services
provided by him is likely to change. The present cumulative value of all the possible
services that may be rendered by him during his/her association with the organisation, is
the value of the individual. Typically, this value is uncertain and has two dimensions. The
first is the expected conditional value of the individual. This is the amount that the
organisation could potentially realize from the services of an individual during his/her
productive service life in the organization. It is composed of three factors:
(a) Productivity or performance (set of services that an individual is expected to provide
in his/her present position);
(b) Transferability (set of services that he/she is expected to provide if and when he/
she is in different positions at the same level);
(c) Promotability (set of services that are expected when the individual is in higher
level positions).
These three factors depend, to a great extent, on individual determinants like activation
level of the individual (his motivation and energy level) and organizational determinants
like opportunity to use these skills or roles and the reward system.
The second dimension of an individual value is the expected realizable value, which is a
function of the expected conditional value, and the probability that the individual will
remain in the organisation for the duration of his/her productive service life. Since
individuals are not owned by the organisation and are free to leave, ascertaining the
probability of their turnover becomes important.

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Caution The interaction between the individual and organizational determinants
mentioned above, leads to job satisfaction. The higher is the level of job satisfaction, the
lower is the probability of employee turnover. Therefore, higher is the expected realizable
value.
2. Flamholtz’s Stochastic Rewards Valuation Model: The movement or progress of people
through organizational ‘states’ or roles is called a stochastic process. The Stochastic Rewards
Model is a direct way of measuring a person’s expected conditional value and expected
realizable value. It is based on the assumption that an individual generates value as he
occupies and moves along organizational roles, and renders service to the organisation. It
presupposes that a person will move from one state in the organisation, to another,
during a specified period of time. In this model, exit is also considered to be a state. Use of
this model necessitates the following information:
(a) The set of mutually exclusive states that an individual may occupy in the system
during his/her career;
(b) The value of each state, to the organisation;
(c) Estimates of a person’s expected tenure in the organisation;
(d) The probability that in future, the person will occupy each state for the specified
time;
(e) The discount rate to be applied to the future cash flows.

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