Assessing the Validity of Selected Surrogate Measures of Human Resource Value — a field study
| DOI | https://doi.org/10.1108/eb055288 |
| Pages | 37-50 |
| Published date | 01 March 1975 |
| Date | 01 March 1975 |
| Author | Eric Flamholtz |
| Subject Matter | HR & organizational behaviour |
Assessing the Validity of Selected
Surrogate Measures of Human Resource
Value - a field studya
Eric Flamholtz
Associate Professor and Director, Accounting-Information
Systems Research Program, Graduate School of Management,
University of
California,
Los Angeles
Abstract
Although there has been a great deal of interest in the idea
of accounting for human resources and considerable
theoretical discussion of the problems of measuring human
resource value and cost, there has been virtually no
empirical research on the validity of proposed methods and
models. This paper reports some preliminary evidence on
the validity of selected surrogates of a person's value to an
organization. It describes a field study conducted to
determine the convergent and discriminant validity of three
possible surrogates of a person's value to an organization:
replacement cost, compensation, and a performance
measure.
The method used was 'criterion-validation'. It involved
testing the empirical relationship between the value of a
person represented by each of the surrogates and secondly
the value assigned by organizational representatives using
traditional personnel rating methods. The research site was
a branch of a medium-sized mutual insurance company.
Two independent groups of subjects (claims personnel and
salesmen) were used to test the reliability of the findings.
The statistical method used to perform criterion validation
was convergent and discriminant validation analysis.
The study found that proposed measures of 'positional' and
'realizable' value using replacement cost and compensation
I wish to acknowledge Mr Chi Chen for assistance in computer
programming. Dr. Diana Troik Flamholtz, Assistant Professor of
Accounting, California State University, Los Angeles and Post-
Doctoral Scholar in Accounting at UCLA, provided assistance in
data analysis and interpretation for the section on results, inter-
pretation and conclusions. Dr. William McKelvey, Associate
Professor of Organizational Science at UCLA was helpful giving
critical comments on a previous draft of this paper. Comments by
participants of UCLA's Accounting Research Methodology Work
Shop,
especially the two formal discussants, Alan Cherry and Joseph
Nash, are also appreciated. This paper was first presented at the
58th Annual Meeting of the American Accounting Association, New
Orleans, August 20,1974.
as surrogates are acceptable surrogates of individuals, but
the proposed measure of 'conditional' value using
replacement cost and compensation do not appear to be
valid. Future research is needed to replicate these findings
and assess their generality.
Recently, there has been increasing academic and
managerial interest in the idea of accounting for human
resources. Although there has been considerable theoretical
discussion of the problems of measuring human resource
value and cost, there has been virtually no empirical
research on the validity of proposed methods and models.
This paper reports some preliminary empirical evidence on
the validity of selected surrogates of a person's value to an
organization . It describes a field study conducted to
determine the convergent and discriminant validity of three
possible surrogates: replacement cost, compensation, and a
performance measure.
The Problem
In principle, a person's value to an organization is the
present worth of services expected to be rendered. Ideally,
then, a person's value should be measured directly by
forecasting expected future services, measuring their
monetary worth, and discounting them to their present
value. For several reasons, discussed in a previous paper, the
This paper presents a revised and extended analysis of a study
previously reported in Eric Flamholtz, Human Resource
Accounting, (Dickenson Publishing Company, Encino, California,
1974),
pp.
216-231.
The major differences in the analysis are: (1)
The previous report only applied the stochastic rewards valuation
model to replacement cost and not to compensation as a surrogate;
the compensation measure used as a surrogate was simple annual
compensation; (2) the replacement costs used in this paper are
standard replacement costs, while anticipated (budgeted) replace-
ment costs were used in the prior analysis. I am indebted (!?) to
participants of the University of Chicago Accounting Workshop
(1969),
especially David Green, for comments which motivated this
revised and extended analysis.
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