By Tony Samson
CEOs routinely declare in speeches to the troops that people are the company’s greatest assets. Such sentiment is not reflected in the financial statements. Vehicles, computers, and desks are booked as “assets” and depreciated accordingly. While employees rate higher than furniture and fixtures in items to save in a fire, they are still recorded only as cost.
So, when companies are required to cut costs, headcount reduction is at the top of the list, above product launch events and promotional giveaways.
Total compensation costs saved, including benefits and bonuses (with the modifier “fat”) is easily calculated when jobs are eliminated. The possible deterioration of service is not quantified. In investor statements, it is the positions removed that are highlighted, not the ones holding them. While organizational boxes do not have to pay tuition fees and rent, their occupants are another matter. Anyway, boxes have no feelings. Neither do they have any emotional attachments to their calling cards which now only serve as bookmarkers to note the page where they stopped reading to answer a text message.
But what if accountants treat people as assets, even if not the company’s greatest?
An individual can then be depreciated though his useful corporate life. Is the asset carried until retirement age? Hardly. Maybe ten years before that time, attractive exit packages are dangled to a targeted group. Realistically, if depreciation is to be applied, it cannot be longer than the one set for motor vehicles. Obsolescence in terms of technical skills and marketing connections can be factored in.
What is the book value then of a person?
The practice of marking to market relies on the current prices of publicly listed stocks or regularly traded securities. Can the executive be similarly valued? Some method can be devised internally in terms of contribution to revenue or attendance of small meetings, with higher points for those he presides over? When the value an executive adds is diminished, can he be marked down to market?
As in other commodities, seasonal price surges can occur, as in flowers on Valentine’s Day or function room bookings for Christmas parties. Lawyers and PR men may see their value shoot up in times of crisis, like investigations of internal fraud or tax evasion cases. Maybe, HR heads become more valuable in CBA negotiations and pickets over labor-only contracting issues.
As for more objective pricing of human assets, one reliable indicator is the “poaching premium” dangled by headhunters. Someone being recruited by competition at triple her talent fee at negotiation time clearly must have her stock reviewed. (Let her go to the other network which can then be burdened with the new fees?) So, those in entertainment and media have a readier barometer of pricing driven by competition, ratings, and advertising loads. Those poached from one noontime show to another also drive down the market value of incumbents booted out by a “new format.”
But is it as simple to price corporate talents where supply can outstrip demand, even for rocket scientists working on risk assessment, stock price charts and designing derivatives? Some CEOs believe that executives who move frequently to ever higher positions in different companies are “highly marketable” and therefore targeted for retention. The corollary of this principle is that those honored at service awards night must be “unmarketable.”
If an executive has stayed twenty years in one company, is this not a sign that nobody else wants him? Did you say company loyalty?
Thus, the marked-to-market valuation in human resources will conclude that old fogies with their war stories of the good old days when the company had 70% market share need to be pushed out the door. (It’s called early retirement.) In this scheme of things, serving the company for a long time is no longer an indicator of wisdom and experience. It’s simply a product that has stayed on the shelf too long. Shouldn’t this asset be marked down and listed as disposable?
Even if people are a company’s most important assets, they are still the easiest to dispose of. It’s as quick as changing the lock on the office door over the weekend, with the personal effects just outside in a box.
A.R. Samson is chairman and CEO, TOUCH xda.