Conclusion

This book has focused on applying finance and accounting principles to HR management systems. From that perspective, it is a technical book.

More often than not, the soft side of human resources is emphasized in practice. But HR management has a harder side, too. This book has attempted to explain the hard side, with an emphasis on the compensation and benefit function.

As discussed at the beginning of this book, the discipline of HR management has multidisciplinary underpinnings. The HR profession is guided by influences from psychology, economics, sociology, philosophy, mathematics, and statistics, as well as from accounting and finance. Many stakeholders suggest that accounting and finance are the languages of business and organizations. In many ways, accounting and finance are core functions in the management of nonprofits as well. HR management is a very important component for both for-profit and nonprofit organizations. Therefore, HR management should also use the core language of organizational management. This book encourages and has attempted to facilitate the use of this language by HR professionals.

We focused on compensation and benefits because this is where accounting and finance has the most impact. The hope with this book is that in ongoing HR management education, especially compensation management, this book can be used to add to the required technical know-how.

The topics and subjects covered in the book are not new. The ideas and concepts can be found in many textbooks and other publications. In this book, we have attempted to compile all relevant topics, ideas, thoughts, concepts, principles, and subjects in one text. We focused on the core dimensions of compensation and benefits management. We covered accounting and finance implications in base, incentive, sales, international, and equity compensation. We also covered accounting and finance implications of employee benefit plans.

Our primary objective was to develop a single-source publication to serve as a knowledge repository and a reference source. Overall, our hope is that this book will be the impetus to help develop the accounting and finance knowledge of HR professionals.

HR professionals come to this discipline from various paths. There is no discernible singular career path to becoming an HR professional. Quite often, therefore, HR professionals lack accounting and finance knowledge and know-how. This clearly hinders HR professionals in many ways. Some of these hindrances can be seen in HR professionals lacking credibility with senior management. HR professionals are mainly considered “soft-side” professionals and considered advisors and counselors but not core decision makers. Therefore, HR professionals are not always brought to the “decision-makers table.” One of the main ways to change these perceptions is for the HR professional to talk the language of business in a credible fashion using accounting and finance knowledge and know-how. We hope this book facilitates that end. For the HR professional, this knowledge enhancement is not a want, but a need.

An HR Finance and Accounting Audit

We conclude with various questions HR professionals should ask themselves with respect to applying accounting and finance principles to global HR management systems. If an HR professional does not have adequate answers to these questions, he or she should take the necessary steps to develop the requisite skills and knowledge to implement these principles. The questions are in no particular order:

• Does your organization have an adequate system of accurately projecting total compensation expenses that is tied in to the organization’s financial budgeting system?

• If your organization has a defined benefit plan, do you participate in cost determination activities? Do you understand the funding issues of the plan? Do you understand the calculations involving the ongoing pension expense?

• Are you aware and knowledgeable about the financial triggers used in the determination of sales commissions earned?

• If your organization sends expatriates overseas, who manages the expatriate tax program? Do you understand the specifics of the calculations involved?

• From an accounting point of view, what are the implications of capitalizing HR expenses for your organization?

• Do you know the difference between the VBO, ABO, and PBO in pension accounting?

• Does your organization have a stock option program? Do you know how the stock option expenses are calculated for that program?

• Do you know how the intrinsic value of any business is calculated?

• Do you know how the economic value of any business is calculated?

• Do you understand the various financial ratios commonly used to evaluate the performance of a business?

• Are the linkages between HR programs and the intrinsic value of your organization clearly delineated?

• Can you suggest ways in which HR programs can add economic value to the organization?

• Can you justify HR programs using ROI methodologies and capital budgeting techniques?

• Do you know and understand the details of the stock option pricing models?

• What are specific connections between HR programs and the financial ratios used to measure operating profits?

• In what ways can the HR function improve the company’s free cash flow position?

• Do you exclusively rely on outside consultants for technical accounting and financial issues that need to be addressed for HR programs?

• Does your organization regularly monitor and then report performance on HR metrics to senior management?

• Do you engage in industry benchmark comparisons for HR metrics?

• Do you annually engage in employee benefits program costing in coordination with your outside vendors?

• Do you participate with the senior management team in developing linked incentive compensation financial triggers?

• Do you understand the tax implications of your compensation and benefit programs?

• Are you knowledgeable about governmental reporting requirements for (DOL and ERISA) your compensation and benefit programs?

• Are you knowledgeable about accounting requirements under the current accounting standards (GAAP and IFRS)?

• Do you know how your equity compensation programs affect the company’s balance sheet, especially the Accumulated Paid-in Capital account?

• Do you know how your equity compensation program affects your company’s earnings per share?

If your knowledge is limited in answering these questions, a good place to start is this book.