Should Employees Be Characterised as Human Assets?
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“Our employees are our greatest asset”, is one of the statements that are commonly made by CEOs in organizations almost on a daily basis. Of course this is a true statement, as it is only through people, employees, can the strategic plans of organizations be successfully accomplished. However, do people count as “assets” in the true sense of the word? According to investopedia.com an asset is “…a resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.” (Investopedia.com n.d.) However, people are not assets like tangible fixed assets such as equipment, which is what is alluded to in the foregoing definition, people cannot be owned and do not depreciate; if they are assets, people are intangible assets. Investopedia.com defines an intangible asset as “…an asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, and business methodologies), goodwill and brand recognition…while intangible assets don’t have the obvious physical value of a factory or equipment, they can prove very valuable for a firm and can be critical to its long-term success or failure.” (Investopedia.com n.d.)
It is the view of this position paper that employees can be characterized as “human assets”, intangible assets, in which organizations invest on a regular basis with the intention of building long term economic value. Training and development, compensation, employee benefits such as savings and pension plans, employee assistance programs, health plans, are just a few of the investments that organizations make in their human intangible assets which drive their financial success; in spite of these investments being treated as expenses on income statements.
While it is true that organizations do not “own” or “control” their employees as it does its physical assets, the knowledge, skills, abilities and talents which employees bring to bear on the organization while in its employ, does in fact redound to the benefit of the organization as on an aggregate level is responsible for the economic success of the organization and its competitive advantage in the market in which it operates. Salaries, employer contributions to pension, savings and group health plans and other employee benefits which organizations invest in on behalf of their employees are in fact payment for the use of these knowledge, skills, abilities and talents. Also, human resource policies and procedures which outline and guide expected and approved employee behaviors while in the employ of the organization, can be viewed as controlling mechanisms used by organizations to ensure that its ‘human assets’ conform to its rules and regulations. Failure to conform, results in consequences as spelt out in organizations’ disciplinary policies and procedures.
The term “human assets” is considered derogatory to some, as it gives the impression that employees are the “property” of an organization. However, the term merely ascribes worth and value to employees and allows organizations to strategically invest in these “assets” in order to exact optimum benefits out of them. As identified in Strategic Management of Human Resources by Jeffrey A. Mello the following exhibit outlines some of the value employees bring to an organization:-
(Mello 2011, 2006)
In recognizing the sources of value that employees bring to bear on the organization, as outlined above, organizations can determine how best it can invest in its employees, the rate of return and long-term benefit it can derive from its investments. As always, there is risk involve in making such an investment in people, such as the flight of capital after investment e.g. resignations. By devising strategies which makes it less likely that employees would want to leave, would ensure high probability of return on investment. These strategies would ensure that employees are retained long enough so that the new knowledge gained from training and development is passed on to others in the organization, and therefore become “owned knowledge” by the organization.
There is also the belief that employees and assets are quite different on many levels such as the following:-
* Mobility – assets such as plant, machinery and land do not leave organizations, but people do for various reasons such as resignation, retirement, death; * Ownership – organizations do not own their employees as they do their physical assets; * Creation – physical assets do not create, people do, with their knowledge, skills, new ideas, talents and abilities * Value – over time physical assets are devalued or depreciated as a result of wear and tear, and improved technology, however, with organizations investing in training and development of its employees, there is an increase in the value and contribution of employees over time.
* Financial Accounting – physical assets are recorded on financial statements as assets whereas employees’ salaries and other benefits such as pensions are recorded as expenses or liabilities. This is so because in order for an asset investment to appear on a balance sheet one of the criteria that it must meet is that the company must control (own) the asset and be able to transfer that control.
While the reasons outlined in the counter arguments are viable, the term “human assets” should not be viewed as derogatory, but “…rather it is way of viewing people as critical contributors to the organization’s success…how businesses invest in their human capital asset, in order for it to add value…” (Human Capital White Paper V. 1.1 n.d.). It is important to note that individuals or employees can only be termed as “human assets” as long as they choose to invest their skills, knowledge, talents and abilities in an organization, in other words their human capital.
In treating with employees as “human assets” organizations must demonstrate its commitment to and appreciation of its employees, by providing a healthy and safe environment that encourages growth and development, reward and recognition. Otherwise, the employer would just be viewed as paying lip service to the expression “human assets”, rather than supporting by its actions its belief that it does in fact value its employees and their commitment to the organizations growth and financial success.
Today, organizations are less industrialized and more knowledge-based and service-oriented, and therefore the emphasis is more on customer service, technology, new ideas and intellectual property. It is therefore important that organizations, if it wants to gain and maintain a competitive advantage in the market in which it operates, seek to attract and retain the best and the brightest employees in its industry. By recognizing the importance of its “human assets” to the continued growth and success of its business, organizations must develop a human resource strategy that will invest in competitive compensation packages and training and development programs, which would ensure the retention of employee from its competitors.
Employees should be characterized as human assets as they provide the human capital which contributes to the success of businesses. Human capital is the “…collective sum of the attributes, life experience, knowledge, inventiveness, energy and enthusiasm that its (organization) people choose to invest in their work…” (Leslie A. Weatherly 2003). The elements of this human capital include the following:-
* Tacit Knowledge•Professional Qualification
* Education•Work-Related Know How
* Vocational Qualifications •Work-Related Competence
(Leslie A. Weatherly 2003)
It is the sum of these attributes which makes each employee’s contribution to the organization unique and valuable or overall organizational success. The valuing of the job of human assets in an organization is done via job evaluation exercises which seek to value each job in an organization, it establishes and qualify differences in employee contribution across jobs; these differences provide a foundation for employee compensation decisions. Job value refers to the job’s degree of contribution in meeting an organization’s goals and the degree of difficulty in filling the job. A job evaluation exercise also allows for the comparison of jobs within the organization and between similar organizations in an industry. By valuing jobs within an organization fair and equitable compensation can be determined, as well as reward and recognition for accomplishments. The organization can then develop a compensation strategy that seeks to offer competitive compensation packages for jobs with higher values and of greater demand in its industry. The compensation package would serve as a valuable tool for attracting and retaining the best human capital available.
A well-designed performance management system (PMS) is also important to ensure the measurement of employee accomplishments and achieved targets and objectives established. A PMS sets targets and objectives, in consultation with employees, at the beginning of the appraisal period, monitors the work of employees periodically, and communicates findings and suggestions for improvement along the way. Attached to a PMS is a system of rewards and bonuses tied to the outcome/results of the appraisal. An effective PMS would also set standards of operation and identify gaps in employee performance. Data obtained from the PMS would aid in the training and development program of the organization.
The fact remains that organizations can only accomplish their overall strategic goals and objectives through their employees, their “human assets”. The characterization of employees as human assets would mean that human resource functions must be viewed as critical investment strategies, which must be directly aligned to the organization’s overall strategy. Ex. 2-1
(Allied Consultants Europe (ACE) n.d.)
As illustrated in Exhibit 2-1 above the strategic human resource functions directly feed into and are linked to the overall financial success of the organization. Therefore, it is critical that HR keeps abreast of new technologies and opportunities available in the environment and position its “human assets” to be on the cutting edge of these technologies, in order to give the organization the competitive advantage over its competitors.
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