The Development and Implementation of the Stochastic Rewards Model for Human Resource Valuation in a Human Capital Intensive Firm
| Published date | 01 March 1978 |
| Pages | 20-34 |
| Date | 01 March 1978 |
| DOI | https://doi.org/10.1108/eb055364 |
| Author | Eric Flamholtz,Jack B. Wollman |
| Subject Matter | HR & organizational behaviour |
The Development and Implementation
of the Stochastic Rewards Model for
Human Resource Valuation in a
Human Capital Intensive Firm
Eric Flamholtz
Associate Professor and
Director,
Accounting-Information Systems Research
Program,
Graduate School
of
Management,
University
of
California,
Los
Angeles
Jack
B.
Wollman
Professor,
De Paul
University,
Chicago
and
Partner,
Lester
Witte
and
Company,
C.P.A.
Introduction
Human resource accounting' (HRA) is a term of relatively
recent origin: research on HRA only began during the
1960s.[1] Initially, the objective was to improve corporate
financial reporting by accounting for 'human assets' and,
in turn, to increase the representational validity of income
and asset numbers.[2] A related purpose was to prevent
prevailing accounting conventions from motivating sub-
optimal treatment of people — specifically, to reduce the
likelihood that liquidation of human resources would not
be revealed in financial reports because of the failure to
account for investments in people as assets.[3]
More recently, there has been an increasing interest in
developing HRA as a managerial tool rather than for the
financial reporting purposes alone.[4] Although this
managerial orientation is quite different from the role
initially ascribed to HRA, it seems more promising in
terms of its potential usefulness.[5] From a managerial
perspective, the term 'human resource accounting' is
somewhat of a misnomer; for it denotes (at least to some)
'putting people on the balance sheet'. More aptly, it might
be termed, 'human resource management accounting'
(HRMA), denoting that its principal purpose is to apply
accounting information systems to the management of
personnel as organisational resources. In its development
as a managerial tool, HRMA is consistent with the develop-
ment of many aspects of management science. It seeks
the optimal use of a resource
—
people
—
based upon the
application of interdisciplinary concepts and techniques.
Purpose and significance of study
This articlea builds upon and extends previous research in
the area of human resource management accounting. Its
purpose is to present a study involving the development
and application of a stochastic rewards model for human
resource valuation that is intended as a managerial tool in
a human capital intensive organisation. Specifically, it
presents a snapshot of an ongoing longitudinal field experi-
ment designed to develop and apply the model in a US
certified public accounting (CPA) firm. The study is
potentially significant to three areas of management:
personnel, accounting-information systems and manage-
ment science. Its potential contribution to each area is
described in turn below.
Role in personnel management
There is a dual aspect of this research for personnel manage-
ment. First, the stochastic rewards valuation model
(SRVM) can serve as a 'psycho-technical system' to
facilitate various aspects of the human resource manage-
ment process, including the acquisition, development,
allocation, conservation and utilisation of peopleb. This
means that both the measurement process required to
implement the SRVM as well as the numbers derived per
se can play a role in human resource planning and
control.[7] Second, it can provide the foundation for a
value-based paradigm for personnel decisions.[8] Although
a comprehensive discussion of the role of the generic
SRVM in personnel management is beyond the scope of
this article and has been treated elsewhere,[9] it is useful
to highlight some aspects of its potential contributions.
Specifically, we will describe the model's role as a measure-
ment process as well as a technique for generating human
resource value numbers.
Functions of measurement process. Although we tend to
think of the principal function of measurement systems in
personnel management as providing measurements per se,
the measurement process or act of measurement may
itself have profound effects. The measurement process
may have what has been termed previously 'catalyst',
'motivational', 'set' and 'criterion' functions. [10] In
a This paper was prepared for presentation at a session entitled
'The Role of Management Science in Human Resource Accounting'
at the XXIII International Meeting of the Institute of Management
Sciences, Athens, Greece, 25-27 July 1977. The authors are
indebted to Mr Masao Tsuji for helpful comments on a previous
version of this article.
By a psycho-technical system we mean any technology (including
measurement) that operates in tandem with a set of psychological
processes to achieve certain predefined organisational
ends.
[6]
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