Value creating drivers for effective human capital management

• Main Author: ANG, Ser Keng
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Generally Accepted Accounting Principles; human capital; corporate assets; Corporate Finance; Human Resources Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6786; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7785/viewcontent/Ang_Ser_Keng_HCL_1.pdf
• Institution: Singapore Management University

It is common for modern-day corporate leaders and academic writers to make claim that human resources is one of the most important assets in their organization (Guest, 2001). If that were the case, effective management of human capital would be a critical factor in the success of any organization. As an important organizational resource, human capital is expected to generate significant economic benefits from its deployment, development and retention (Flamholtz, 1999). There is widespread evidence that the effective use of human capital can also create durable competitive advantage for an organization (Barney, 1991; Becker & Gerhart, 1996; Lado & Wilson, 1994). Given its importance, the purpose of this article is to highlight the key drivers of value for effective human capital management. Generally Accepted Accounting Principles (GAAP) governing the preparations and reporting of financial information of the firm, prescribes that rental value of the critical human resources (e.g. wages and perquisites arising from the hiring of such resources) are recorded as expenses in income statement. These are matched against the revenue generated as a result of their use. However, GAAP prohibits the inclusion of the sum of future benefits that accrues from the “ownership” of such resources to be captured as assets of the firm.