OPPapers.com

Talent Retaintion

Valuation of Human Capital                                                                                                

Valuation of Human Capital  

Research By – Navin Bhutoria





"Our employees are our greatest assets, and the ability to attract and retain them is the key driver

of our future success."



Sound familiar? This is now a routine sentence for any company reporting on its health and its

future. But for many of those companies, its meaning and implications are limited to that

sentence. Let's step back to quantify more precisely what it means to have human capital, to

attract and retain it.



The human capital can be defined as "the knowledge that individuals acquire during their life and

use to produce goods services or ideas in market or non-market circumstances."



Good managers know that measurement is a prerequisite for good management: We've heard the

axiom that, "What gets measured gets managed." This suggests then that the fundamental source

of wealth creation—human capital—is seriously under managed in most organizations. That is

because most organizations' systems of measurement, shaped in part by accounting and reporting

requirements, are still unduly influenced by measurement concepts dating back to the industrial

era when physical capital was the primary source of wealth creation. Using these out-of-date

1
© www.hrfolks.com All Rights Reserved




Valuation of Human Capital                                                                                                 JBIMS

measurement systems to manage today is roughly analogous to steering a car with the rear view

mirror.



There have been only three eras in all of economic history: the agrarian era, the industrial era, and

the knowledge era. Each era has been defined by the factor of production that has served as the

foundation for wealth creation. Not surprisingly, in...