Part II

The second part of this book covers compensation, benefits, and human resource (HR) management topics that are on the periphery of the accounting and finance disciplines. It also covers some concepts that make a connection between HR management and accounting but are not part of current accounting principles or standards. Specifically, you will learn about HR accounting. HR accounting has been a subject of interest for many years. However, because the ideas presented are not accepted within the current Generally Accepted Accounting Principles (GAAP) standards, the subject has remained in the domain of academic research and discussion. This part also examines the concept of HR analytics (metrics).

HR executives should use the basic financial concepts underlying return on assets to determine human asset return on investment (ROI). HR professionals should calculate human asset ROI as the profit generated by an HR program divided by the investment made for that program.

It can be difficult to figure out what to include in the “investment” amount or how to attribute the profit to the HR programs. However, it is important that there is a metric of the HR program ROI because it allows senior management to evaluate the effectiveness of these “soft” programs. It assists with quantifying the benefits the HR department provides the organization. In periods of tight budgets, such an analysis can assist HR departments to avoid budget cuts.

Let’s first start with the concept of HR analytics.