A Comparative Analysis between Traditional Accounting and ...

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A Comparative Analysis between Traditional Accounting and

Human Resources Accounting (HRA) Practices on HR Managerial

Decision-Making Process

By

Nivedita Sarker & Georgios Koilakos- Chouzouris

Department of Business Administration

Master´s Program in Management and Accounting

Master's Thesis in Business Administration III, 30 Credits, Spring 2021

Supervisor: Zsuzsanna Vincze

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Acknowledgements

First and foremost, we would like to express our sincere gratitude to our thesis supervisor,

Zsuzsanna Vincze, for her assistance and constructive criticism throughout the research study.

Her immense knowledge and insightful comments guided us in the study and writing of this

thesis.

Furthermore, we would like to thank our study participants for providing us their valuable time

to conduct the interviews. We would not have been able to conduct this qualitative study without

their valuable knowledge on the subject. This contribution helped us to begin on this journey to

enhance our understanding of accounting, human resource accounting, and human resource

managerial decision-making process.

We would also like to express our heartful gratitude to our families for their unconditional

support and encouragement all through this intense semester.

May 21st, 2021

Umeå School of Business, Economics and Statistics

Umeå University

Nivedita Sarker & Georgios Koilakos- Chouzouris

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Key Words: Human Resource Management (HRM), Human Resource Practices, Human

Resource Accounting (HRA), Traditional Accounting, Decision-Making Process.

Abstract

Human Resource Accounting (HRA) is a concept that was created to deal with the problem of the

measurement of the value of human capital. This concept can be very influential for many different

human resource practices. This concept is of the utmost importance as it deals with one of the

biggest problems within the sectors of accounting and human resources, the constant seeking of

an acceptable way of acknowledging human capital in the financial statements as asset and not as

an expense. The skills and knowledge that people can bring into a company are vital for its

prosperity and yet no realized. Here by identifying the similarities and differences in the decision-

making factors of HR managers between traditional accounting and human resources accounting

(HRA) focused organizations, we want to examine the perceptions of managers who work under

both types of organization. Therefore, the research question we have formulated is the following:

What are the similarities and differences between the decision-making processes of HR managers

of Traditional accounting and Human Resource Accounting focused organizations?

The field of HRA is not new. It is approximately 70 years old, but progress in it has stopped for a

while now. The problem beside that is that it is not accepted by the international accounting

principles. However, nowadays more and more companies try to find a way to allow them to use

HRA. In this paper we have managed to interview HR managers that are currently working under

HRA or traditional accounting practices. We selected HR practices in which HRA can have a

strong influence, so that we can understand and examine how it influences the decision-making

process of the managers.

The choice of the Patterson´s model was based on the fact that it contains four HR practices

(recruitment and selection, training and development, retention and turnover and performance

management), in which HRA has a strong influence. Overall, our findings showed us that when it

comes to recruitment & selection and retention & turnover there are more differences between

HRA focused and traditional accounting focused organizations than in the practices of training &

development and performance management. The main difference in recruitment and selection is

that HRA-focused organizations make decisions based on measuring the total cost and value of

their resources; in training and development the main difference is that HRA-focused

organizations calculate the cost of learning by HRA; in retention and turnover the main difference

is that HRA focused organizations can calculate and forecast all cost have already spend and need

to spend for replacement an employee; and finally in the performance management the main

difference is that HRA focused organizations take into serious consideration the job level of their

employees in contrast to traditional accounting focused ones. This offered us the chance to develop

a suggested framework. It is based on the Patterson’s model, but also includes our findings.

Finally, we believe that this paper has the possibility to contribute in many different ways. For

example, it can be used as a manual from HR managers in order to help them see and understand

the differences and similarities between HRA and traditional accounting and extensively manage

to focus on the important factors for each respective practice. Moreover, the findings could

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contribute to the general evolution of HRA, as this paper is one of the few that have approached

the HRA concept via qualitative research.

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Table of Contents 1. Introduction ............................................................................................................................. 1

1.1. Choice of Subject ................................................................................................................. 1

1.2. Problem Background and Knowledge Gaps ........................................................................ 2

1.3. Research Question ............................................................................................................... 4

1.4. Purpose of the Study ............................................................................................................ 5

1.5. Knowledge Contribution to Existing Research.................................................................... 6

1.6. Delimitations ........................................................................................................................ 6

1.7. Definition of Key Concepts ................................................................................................. 7

1.8. Disposition of the Study....................................................................................................... 8

2. Literature Review and Theoretical Framework ........................................................................ 10

2.1. Human Resources management ......................................................................................... 10

2.1.1. Human Resource Practices ......................................................................................... 10

2.2. Accounting ......................................................................................................................... 11

2.2.1. The challenges of Traditional Accounting that led to the creation of HRA ............... 12

2.3. Human Resource Accounting ............................................................................................ 12

2.3.1. Chronological Stages of HRA .................................................................................... 13

2.3.2. Literature review of HRA ........................................................................................... 15

2.3.3. Value-based and cost-based models of HRA.............................................................. 16

2.3.4. Benefits of HRA ......................................................................................................... 18

2.3.5. Challenges of HRA ..................................................................................................... 18

2.3.6. Human Capital Theory ................................................................................................ 19

2.4. Concept of Decision making .............................................................................................. 21

2.5. Theoretical Framework of the Study ................................................................................. 22

2.5.1. Patterson’s HRM Model ............................................................................................. 22

3. Research Methodology ............................................................................................................. 28

3.1. Reflection on the Choice of Literature ........................................................................... 28

3.2. Research Philosophy ...................................................................................................... 28

3.2.1. Ontology ................................................................................................................. 28

3.2.2. Epistemology .......................................................................................................... 29

3.2.3. Axiology ................................................................................................................. 29

3.3. Theoretical Methodology ............................................................................................... 30

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3.4. Research Approach ........................................................................................................ 30

3.5. Practical Methodology ................................................................................................... 31

3.5.1. Research Design & Strategy ....................................................................................... 31

3.5.2. Data Collection Technique ......................................................................................... 32

3.5.3. Interviewee Selection .................................................................................................. 32

3.5.4. Conducting the Interviews .......................................................................................... 33

3.6. Data Analysis ................................................................................................................. 35

3.6.1. Comparative Analysis ............................................................................................. 35

3.6.2. Alternative Methods................................................................................................ 35

3.7. Quality Criteria ............................................................................................................... 36

3.7.1 Dependability ............................................................................................................... 37

3.7.2 Credibility .................................................................................................................... 37

3.7.3. Transferability ............................................................................................................. 38

3.7.4 Authenticity criteria ..................................................................................................... 38

3.8. Ethical Consideration ..................................................................................................... 38

4. Empirical Findings ................................................................................................................ 40

4.1. Contextual Information .................................................................................................. 40

4.2. HR Practices ................................................................................................................... 42

4.2.1. Recruitment and Selection ...................................................................................... 42

4.2.2. Training and Development ..................................................................................... 47

4.2.3. Retention and Turnover .......................................................................................... 53

4.2.4. Performance Management ...................................................................................... 57

5. Analysis and Discussion ....................................................................................................... 60

5.1. Analysis .......................................................................................................................... 60

5.1.1. General differences and similarities between traditional accounting & HRA

focused organizations............................................................................................................ 61

5.1.2. HR Practices............................................................................................................ 61

5.2. Discussion ...................................................................................................................... 78

5.2.1. Recruitment & Selection ......................................................................................... 78

5.2.2. Training and Development ..................................................................................... 79

5.2.3. Retention & Turnover ............................................................................................. 80

5.2.4. Performance management ....................................................................................... 80

5.3. Summary of the Discussion ............................................................................................... 81

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6. Conclusion ............................................................................................................................ 83

6.1. General Conclusion ........................................................................................................ 83

6.2. Knowledge Contribution ................................................................................................ 83

6.3. Social and Practical Contributions ................................................................................. 84

6.4. Limitations and Suggestions for Future Research ............................................................. 85

7. References ............................................................................................................................. 87

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List of Tables

Table 1: Interview Summary ........................................................................................................ 34

Table 2: List of the participants .................................................................................................... 41

Table 3: Decision Making Factors of Recruitment and Selection ................................................ 43

Table 4: Decision Making Factors of Training and Development ............................................... 48

Table 5: Decision Making Factors of Retention and Turnover .................................................... 53

Table 6: Decision Making Factors of Performance Management ................................................ 57

List of Figures

Figure 1 : Lev & Schwartz Model ................................................................................................ 16

Figure 2: Model for Measurement of Human Replacement Costs ............................................... 20

Figure 3: Patterson’s HRM Model ................................................................................................ 23

Figure 4: The most influential factors of Recruitment & Selection decision-making process ..... 66

Figure 5: The most influential factors of Training & Development decision-making process .... 72

Figure 6: The most influential factors of Retention & Turnover decision-making process ......... 75

Figure 7: The most influential factors of Performance management decision-making process ... 78

Figure 8: Comparison between traditional accounting and HRA organizations decision-making81

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1. Introduction In this chapter, we present the problem background that underpins the chosen subject, followed

by the knowledge gaps found in the literature. Following that, we explain the aim of the study and

present the research question. Lastly, we present the expected knowledge contributions and

address the existing delimitations of the study. We include a brief overview of the main concepts

of the thesis and disposition of the study in the last section of this chapter.

1.1. Choice of Subject Human Resource Management (HRM) professionals must deal with immense challenges and make

decisions on a wide range of topics, including recruitment, selection, compensation, performance

evaluation, labor and employment relations, training advancement and many more. To

successfully execute decisions in all of these fields requires vigilance and avoiding the pitfalls of

poor decision making (Pate & Ryder, 1987). HR decisions can be made for a variety of reasons.

However, the aim of this study is to explore the impact of traditional accounting information and

human resource accounting standards on the HR manager’s decision-making process. With a first

look, it seems that accounting and HR have no overlapping points, but if we dig deeper, we can

see that there are some areas that these two fields intersect. One example, in which the

collaboration of the accounting and HR teams looks necessary is for recruiting and retaining talent.

Because it is important for accounting and HR teams to work together to evaluate the cost of

recruiting and replacing employees versus retaining them. By collaborating on compensation

reviews and programs and rewards for employee engagement, accounting and HR can also help

you identify and retain top performers and build stronger teams and morale throughout your

company (Levin, 2020).

One major part of human resource decision making involves determining the most appropriate

ways to invest in individuals. Modern organizations recognize that their employees are the main

factor that provides them with a sustainable competitive advantage (Haddad, 2014) but assessing

the value of human resources is not easy. It is true that if a company invests in their employees,

their resources will develop faster. This contributed to the effective performance of the workforce

and thereby benefited the company as a whole. This is mainly considered a managerial

responsibility valuing their resources, utilizing and retaining them correctly. Furthermore,

accounting is a key piece of information about an entity's financial position and overall

performance which can assist managers to enhance expertise about the organization in various

ways (Socea, 2012). To keep both aspects in mind, the choice of the subject of this study is the

outcome of the authors' interest in accounting for human resources management. We intend to

concentrate on the impacts and assess the experiences of managers who have worked with the

support of HRA practices and managers who have worked with the support of traditional

accounting practices. The two authors of this thesis come from two different business

administration backgrounds. One is studying Master’s in Management and the other one is

studying Master’s in the Accounting program at Umeå University. Since the nature of this thesis

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focused on accounting for human resources, both authors can contribute their knowledge and bring

more perspectives to this field.

Companies often claim that their labor market is their most valuable commodity, while at the same

time struggling to consider it in management strategy, decision-making and in released annual

reports (Avazzadehfath & Raiashekar, 2011). As a result, the aim of this paper is to delve deeply

into the experiences of high-level managers who have dealt with various types of accounting

information and made decisions based on it. In order to begin, we attempted to comprehend how

the primary players perceive the concepts of traditional accounting and human resource

accounting. Furthermore, we believe that accounting information is a key component of every

industry in every country, serving as the basis for understanding an organization's accurate

financial status, which leads to making specific decisions. Without taking geographical location

into account, the purpose of this research is to investigate and compare the experiences of different

HR managers (those who work under HRA practices versus those who do not) in order to reach

valid and informative conclusions about the effects of traditional accounting and HRA practices.

1.2. Problem Background and Knowledge Gaps

Nowadays, the importance of estimating the value of human capital has not been conceived yet at

a high level from many organizations. Human capital is a significant factor as it has the potential

of either enhancing an organization’s performance or damaging it. It is understandable why this is

happening, as human capital is constituted of the human workforce and subsequently the decisions

that these people make, concern the future of a firm. Human capital can be defined as the

knowledge that individuals acquire during their lifetimes and use to produce goods, services or

ideas in market or non-market circumstances (Kodwani et al., 2007, p.2). Flamholtz (2004) stated

that companies such as Intel, Microsoft and Amgen rely completely on their intellectual capital

(human capital the most significant proponent) for their survival and profit. It is visible that he

wanted to emphasize on the importance of human capital, by using the aforementioned example.

These organizations were therefore forced to pay attention to the development and management

of accounting and the accounting for their intellectual capital, especially their human capital

(Flamholtz, 2004, p.23). Many organizations, big and small, acknowledge that “our biggest asset

is our staff”, however, no organization knows how to account for its employees on their financial

statements (Biswas, 2013, p.1). The source of the problem here is the accounting standards are

conservative. For example, in India, there is no accounting standard for the measurement and

reporting of the value of human capital for an organization (Das, S.,Topno, H., 2012, p. 95). This

problem affects HR decisions for areas such as recruitment and selection, training and

development, retention and turnover and performance management. All these managerial

decisions are directly connected to the employee performance. According to Levin (2020), the

aforementioned are some of the areas that accounting, and HR intersect, and to make solid

decisions about them, clear and good communication between HR and accounting teams will be

needed.

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Human Resources Accounting (HRA) has been formulated in order to regulate these problems.

American Accounting Association (1973), defined Human Resource Accounting (HRA) as the

process of identifying and measuring data concerning human resources and communicating this

information to interested parties (Okpako et al., 2014, p.232). HRA as a concept sounds interesting

but when it comes to practicing it the challenges are many, and that is where the problem lies. To

begin with, absence of specific procedures and guidelines for determining the cost and value of

human resources, makes it untenable to implement HRA in an organization (Islam & Sarker, 2016,

p.44). Therefore, it is understandable that because of the lack of clear accounting guidelines on

how to estimate the value of human capital, HRA has been a failure when practiced. Another

important challenge here is that human being is not recognized as an asset under Tax Law in spite

of its significance and necessity (Islam & Sarker, 2016, p.45). Since the Tax Law does not

recognize humans as assets within a firm, the accounting job becomes even more hard. Human

beings are very complex entities, and their efficiency varies from time to time, so expressing it in

certain physical measurements is very tough (Kodwani et al., 2007, p.3). Finally, if there was a

way of measuring the actual value of human beings for an organization, it could offer HR managers

a more in-depth understanding of the firm’s workforce, and subsequently would lead to better

decisions made by them.

Researchers these past years have been trying to formulate and propose models that could solve

the practicality issues of HRA. The problem with all these models is that they cannot be free of

limitations, which means that they cannot be absorbed within the accounting principles. The

biggest problem that has been generated due to the inability to value Human Resources is the

distortion of the actual value of the business. For instance, imagine a very productive worker, who

at the same working hours as his colleagues manages to be double as productive as his colleagues

and despite that he still gets the same salary as his coworkers. Isn't that unfair to him? Of course,

it is, but due to the lack of a generally accepted method of evaluating his actual productivity for

the organization, this problem will remain unsolved.

According to Biswas (2013), we are currently in the 5th stage of HRA (1980-). There was a sudden

renewal of interest in the field of HRA partly because most of the developed economies had shifted

from manufacturing to service economies and realized the criticality of human assets for their

organizations (Biswas, 2013, p.2). Nowadays, service-based businesses have become very popular

and expanding at a very fast pace, and so the need for accounting practices, that can realize and

estimate the actual productivity of a working person, has been increased. According to Biswas

(2013), the need for improvement in HRA practices stems from the fact that organizations have

realized that they are more dependent on their intellectual assets rather than on their physical assets.

Intellectual capital is of the utmost importance as a concept, and it is defined by its use of regulating

all the intangible assets and the interactions among them (Ahmadi et al., 2016, p.179). Human

capital lies under this big ‘umbrella’ of intellectual capital and potentially constitutes the most

important one. If we manage to create a generally accepted model of calculating the value of

human capital, a lot of the aforementioned problems will be solved. There are several models and

methods that stem from accounting and can be used for HRA purposes, but all of them come with

limitations. In this current paper we will try to understand through semi conducted interviews the

potential significance that HRA practices may have in employee performance, so that we will be

able to draw conclusions on whether HRA practices and theories are efficient or not. Our main

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aim here is to compare firms that use HRA practices to those that do not and draw conclusions

concerning how HRA can enhance or limit this process.

We are not going to pursue a specific sector as we want to investigate the decision-making process

of HR departments based on the traditional accounting system or HRA, regardless of the industry.

Thus, Human Resources must be taken into serious consideration and managers must use the best

practices to help them handle the human resources department in the best way possible.

Additionally, there has not been a qualitative research in the past, in which the authors tried to

understand the experiences of managers that are connected to HRA; thus, we believe that our

research has the potential to contribute within the field of human resources accounting.

Conclusively, HRA practices may be an extremely helpful tool for HR managers but there is a gap

there as there is little literature exploring this relationship. Furthermore, most of the previous

research analyses concerning HRA have been conducted mostly in a quantitative form. This means

that there has not been any specific focus on human’s opinion about how they experience the whole

concept of HRA. Overall, this is the gap we aim to focus and contribute to with the findings,

analysis, and discussion of our research.

The experiences of managers within the HR departments in relation to HRA practices have not

been studied before and we believe that the study of them could offer great insights. First of all,

experienced HR managers, worldwide have developed a set of skills throughout their working

years which could help us explore more in-depth the potential challenges and benefits that HRA

can bring into play. These managers help us in grasping the bigger picture of what happens when

an organization works under the HRA practices and under a traditional accounting system. A series

of questions can be answered here. For instance, how do the employees feel about it, do they feel

that they get treated more fairly when they work under HRA or under a traditional accounting

system and extensively do they think that their actual value is being reflected on their salaries, etc.

1.3. Research Question

Accounting information is widely used in strategic decision making. However, there has been little

study on the extent to which accounting information is used by HR for decision making over

various HR practices. Furthermore, human resource accounting (HRA) is a significant focus of

this research. Based on the discussed problem background and identified research gap regarding

traditional accounting and human resource accounting the following research question aim to

explore in this study:

• What are the similarities and differences between the decision-making processes of HR

managers of Traditional accounting and Human Resource Accounting focused

organizations?

Through this report, we intend to contribute to the analysis by investigating HR managers'

decision-making processes and how that can be altered and differentiated when HRA is used or

not. According to Collier (2003), the accounting information here plays a major role as it provides

a window from which the actual operations of the company can be tracked. It is used as a

management tool to monitor cost and revenue and allocates money to meet the priorities of the

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company. Moreover, skilled employees can be more important than physical assists and

investments. Several studies addressed the role of accounting HR in organizational performance,

but analysis also struggles to suggest that HR assets are essential in generating value for

organizations (Okpako et al., 2014). In order to answer our research question, we need to

emphasize several theories and topics in this study: traditional accounting, human resource

accounting, human capital, human resource management, decision making and so on. And we

want to focus on some specific areas of human resources management where accounting

information can play a significant role for the managers to make proper decisions. Recruitment

and selection; training and development; performance management; and retention and turnover are

some highlighted areas.

1.4. Purpose of the Study

The main purpose of this research is divided into two aims. Our first aim is to explore the

relationship between the two major areas of business administration, accounting, and human

resource management by examining the similarities and differences between two types of

organizations. Human resource accounting (HRA) is a new branch of accounting, and it is the

measurement of the cost and value of people to organizations. According to American Accounting

Association (1973), human resources accounting is an effective tool in the management of

organizations that acts as evaluator of human resources management regarding employees’

performance. Traditional accounting information can help managers to understand their roles more

effectively and reduce uncertainty before making their decisions (Chong, 1996). Therefore, we

want to investigate the similarities and differences between these two major categories of

organizations in order to explore which practice can improve the quality of the decision-making

processes of HR managers.

Our second aim was to investigate how the proper value of human resources in an organization

can enable managers to make the right decisions by efficiently using their workers, or how

traditional accounting by treating employees as an expense can also help them make the best

decisions. Therefore, by exploring traditional accounting practices and HRA practices in general,

we expect to achieve a deeper understanding of the importance of using it as a constructive factor

in organizational productivity. However, during our data collection we also anticipate that HRA is

not widespread practice for many companies, and they would not use it for their HR decisions.

• Identify the similarities and differences between traditional accounting focused and HRA focused

organizations, when it comes to the decision-making process of HR managers.

• How proper valuation of human resources can help HR managers during their decision-making

process.

In order to serve the aims of the research, we decided to carry out a qualitative study. This includes

semi-structured interviews with HR managers, mostly in Bangladesh, to obtain knowledge of their

existing practices. Transferability is very important quality criterion for this study as it is limited

by the inclusion of companies from only two Asian countries. Initially, the authors intend to focus

on organizations located in various countries for this study. However, due to a lack of accessibility

and difficulties in communicating with HR managers in other countries, the authors ended up

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choosing Bangladesh. Since one of the authors has a broad social network there as a result of

working there for many years as an HR manager, we were able to meet our desired participants.

Finally, we hope that our research will provide more perspectives into this field and generate more

value for future research.

1.5. Knowledge Contribution to Existing Research

The use of human resource accounting is at an early stage as not so many companies have

attempted to integrate their human capital in their financial statements. As the authors have

aforementioned the biggest problem is that it does not come in line with the traditional accounting

systems. Researchers in the past years have contributed a lot by developing different methods and

models (cost based and value based), so that the actual value of the employees can be estimated.

The biggest volume of the research thus far is mostly quantitative, something that is reasonable,

because the main aim was to develop methods and models. The authors here have approached the

whole concept by qualitative research in a way that they seek to understand and analyze the

opinions of HR managers about the HRA. All the HR managers that have been interviewed in this

dissertation have HRA knowledge or past experience of the concept. By collecting their inputs,

the authors abled to show the advantages and challenges in different HR decisions when HRA is

used. The authors also conducted interview HR managers that work under the traditional way of

acknowledging human capital as expenses, so that they can compare the two different approaches

and make crucial conclusions.

The findings and the analysis part could be used as a manual for HR managers in the future, in a

sense that it could assist them in understanding the concept in a more profound way. It could also

provide companies that want to follow the concept, with crucial information. Overall, the existing

literature provides qualitative research to support even more the quantitative development that has

been done so far.

1.6. Delimitations

According to Theofanidis & Fountouk (2018), Delimitations are essentially the constraints that the

authors consciously impose on themselves. They are concerned with the concepts that the

researchers intend to use as the guidelines or limitations of their work so that the study's aims and

targets do not become difficult to accomplish. In this regard, it can be argued that delimitations are

within the researcher's control (Theofanidis & Fountouk, 2018).

With the aim in mind, certain constraints are examined to identify the scope of this study. First,

issue with sample and selection. This research does not focus entirely on any one industry, which

can be considered as a delimitation. Initially, the authors of this study intended to focus on a

specific industry to discover more about the impact of traditional accounting systems and HRA.

However, we believe that to investigate the influence of accounting information and HRA on HR

the managerial decision-making process of a specific industry is not important, rather focusing on

labor intensive organizations would create more insights.

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The second delimitation of this study is its method. Most of the literature and previous research

we found were based on quantitative methods. However, we follow a qualitative method for this

study that can be considered as a delimitation. This is because the authors of this research intend

to investigate what are the current practices of the organizations and want to learn managers´

experiences about using different kinds of accounting information that could help them during

decision-making processes. The main source of information will be the HR managers that will

constitute our interviewees. We are unable to find more secondary information as HR manager´s

experiences from previous qualitative studies. Alternatively, qualitative research methods,

especially in new contexts or situations, can be used for this purpose.

The theoretical framework can be considered as the third delimitation of this study. There are

several HR practices and models, yet we preferred Patterson's HRM model for this research. We

believed Patterson's model is its best fit for connecting the four main HR practices where

accounting information would influence HR managers to make better decisions. In general, this

model focuses on how HR practices improve organizational performance, which is connected to

the decision-making process of managers. In the theoretical framework section, we will go through

more about the choice of this model.

1.7. Definition of Key Concepts

HRA (HUMAN RESOURCES ACCOUNTING)- Human resource accounting (HRA) is an

attempt to identify, quantify and report investment made in Human resources of an organization

that are not presently accounted for under traditioal accounting practice (Kodwani et al., 2007,

p.1).

HRM (HUMAN RESOURCES MANAGEMENT)- Human resource management is defined as

a system of practices that concentrate on effectively managing workers at all levels of the company

to achieve organizational objectives (Byars & Rue, 1999).

ACCOUNTING- According to American Accounting Association (1966), accounting is a method

of identifying, calculating, and communicating economic information that helps people to make

informed judgments and decisions that are connected to the financial part of the company.

HUMAN CAPITAL- N. Bontis, N. C. Dragonetti, K. Jacobsen and G. Roos (1999), has described

human capital as the human factor in the organisation; a combination of intellect, skills and

expertise that gives the organization its distinctive character. The human components of the

organization are those that are capable of understanding, evolving, innovating, and creating an

entrepreneurial spirit that, if correctly inspired, will ensure the longevity of the organization.

ACQUISITION COSTS- According to Flamholtz (1974), acquisition costs include all the direct

and indirect costs that have to do with the recruitment, selection, hiring and placement costs (direct

costs) and costs of promotion and transfer from within (indirect costs).

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LEARNING COSTS- Flamholtz (1974), advocates that learning costs include the costs of formal

training and orientation as direct costs and costs of trainer’s time as indirect costs and is a method

that stems from the historical cost approach.

SEPARATION COSTS- Separation costs contain the separation pay as direct cost and the costs

of loss of efficiency prior to separation and cost of vacant position during search as indirect costs

(Flamholtz, 1974).

DECISION- MAKING PROCESS- According to Koontz & Weihrich (2010), decision making

is a method that includes the steps of making an assumption, defining alternatives, comparing

alternatives in terms of the target achieved, and selecting the best alternative to accomplish the

goal.

1.8. Disposition of the Study

Chapter 1: Introduction

In the introduction part, we started with the choice of subject, in which we justified why we decided

to pursue HRA. After we continued with the problem background and the research gaps, so that

we can end with our research question, lastly, we included some key concepts and their

definitions.

Chapter 2: Literature Review and Theoretical Framework

In this chapter, we will review the existing literature in a search for important information for our

paper. In the literature review parts we will cover literatures concerning the human resource

management, traditional accounting, the history and evolution of HRA, the Patterson's HRM

model and its dimensions, the decision-making factors for each dimension.

Chapter 3: Research Methodology

In this chapter ontology, epistemology and axiology will be analyzed. Then we will explain the

research approach and design as the practical methodology part. Furthermore, we will include the

interviewee selection and interview design. We will also analyze our choice of qualitative

comparative analysis (QCA) as our data collection method, as well as alternative methods that

could be used. We finish this chapter by commenting on the ethical considerations and quality

criteria.

Chapter 4: Empirical Findings

The aim of this chapter is to present the findings of our data collection from interviews. We will

begin by providing a brief overview of the companies interviewed. We will divide the interviews

into four categories based on Patterson's dimensions. Overall, in this chapter we will explain and

interpret the data we obtain.

Chapter 5: Analysis and Discussion

This chapter is dedicated to the analysis of the findings of the previous chapter based on qualitative

comparative analysis. In this chapter the research question will be answered and discussed the

similarities and differences. The discussion part concerns the link of the analysis to our selected

literature.

9

Chapter 6: Conclusion

In this chapter we will provide a clear answer to the research question, as well as we will address

the potential contributions that this paper can offer. Lastly, we will finish the chapter by

acknowledging the limitations of our thesis and identifying possible recommendations for the

future research.

10

2. Literature Review and Theoretical Framework

We have divided our literature review into three parts. First, the human resource management and

practices. Followed by the basic principle of accounting; and third, human resource accounting,

the pros and cons and accounting for human capital. We critically reviewed available articles

about these three concepts and discussed several definitions from different authors. In this chapter,

and also describe the decision-making factors for the four HR practices.

2.1. Human Resources management

The concept of human resource management is not new. Managing people at work started at the

time of the industrial revolution in the late 18th century (Dulebohn et al., 1995). Each organization

is formed with human resources and managers are responsible for managing their employees.

According to Jucious (1971, cited in Mahapatro, 2010, p.3) stated that “HRM is that field of

management which has to do with planning, organizing and controlling the functions of procuring,

developing, maintaining and utilizing a labor force such as that the: objectives for which the

company is established are effectively, objectives of all levels of personnel are served to the highest

possible degree and objectives of society are fully considered and served”. Here the concern is for

integration among all departments and effectively running the organization with the maximum

outputs from the workforce. Whereas Armstrong (1992) offers a different view that HRM is

concerned with acquiring a broader perspective of people management in order to gain additional

value from them and thereby achieve a competitive advantage. This concept focuses on the

employment, employees´ growth and rewarding them to build a better relationship between the

management and the employees.

Gradually organizations focus more on performance and excellence. In order to accomplish this

excellence, it is realized that human resources are the main component. Focusing on learning,

efficiency, collaboration and re-engineering is motivated by how organizations conduct business

and how employees are managed (Mahapatro, 2010, P.4). The paper by Amit & Belcourt (1999)

presents a new perspective “the process” on the importance of HRM to the financial performance

of a company. The authors have highlighted two HR paradigms. First, human capital, which is a

measure of the contribution of human resources to the organization. Second, best practices that

specify and quantify the bundles or patterns of HRM practices consistent with good efficiency or

labor productivity so that businesses increase efficiency by copying the methods of others. The

HRM processes focus on the decision-making patterns and the standards and principles that the

organization has in place (Amit & Belcourt, 1999).

2.1.1. Human Resource Practices There are several human resource practices in human resource management. This study is only

focused on an analysis of four major human resource practices. HR practices are the activities that

are carried out in the execution of HR strategies and programmes. Resourcing, learning and

growth, performance and reward management, employee relations, and administration are among

11

them (Armstrong, 2014, p. 10). According to Delery and Doty (1996), human resource

management practices are a collection of internally aligned policies and activities that are designed

and applied to ensure that a company's human capital contributes to the accomplishment of its

corporate goals. Additionally, according to Minbaeva (2005), HRM practices are a range of

practices used by an organization to handle human resources by facilitating the development of

firm-specific competencies, producing dynamic social interactions, and generating organizational

information in order to maintain competitive advantage. Human resource management activities

are described by Huselid (1995) as employee selection, performance evaluation, incentive pay,

structured grievance processes, knowledge exchange, labor/management engagement, hiring

strength, and more training hours. Delaney and Huselid (1996) classified HRM practices into four

categories: recruiting and selection, training and development, participation, and reward. HR

practices that are implemented effectively in companies are a core source of competitive advantage

and have a positive relationship with company success (Collins, 2007). In general, HR practices

are the strategies used by HR management to direct and manage organizational resources in order

to achieve organizational goals.

2.2. Accounting

Accounting nowadays is of the utmost importance both at a corporate and societal level. It is

understandable that the importance of it at a corporate level stems from its utility. By utility we

mean its basic uses, like tracking down income elements and expenditure elements and extensively

translates these data into useful information with the use of the financial statements. These

translated data can be crucial for investors, stakeholders, managers within a corporation, etc, for

making different types of decisions according to their occupation. For instance, managers can use

the financial statements’ elements to draw up conclusions and make important decisions that have

a direct relationship to the future of an organization. The key financial statements that are generated

from a company’s financial records are:

1. Income statement: The income statement is a part of the financial statements, and its

significance lies under the fact that it recognizes the potential profit or loss of an entity,

showing receipts, expenses as well as incomes, etc. (Rosemary & Chizoba, 2011, p.149).

2. Balance sheet: In the balance sheet the liabilities and assets of a firm are stated and also

the alterations that may occur within a financial period in these assets and liabilities

(Sharmila, 2016, p.2)

3. Cash Flow statement: The cash flow statement is also very important as it shows all the

cash generated and the cash spent at a specific period. In other words, it shows the cash

receipts and cash payments for the crucial uses for a specific financial period (Motlagh,

2013, p.109).

In a general level if accounting is being used in a legal way, then it can offer financial stability and

growth within a country. If the corporations of a country follow the accounting rules and use the

12

aforementioned financial statements to report and keep track of their overall financial situations,

then financial prosperity can be achieved.

2.2.1. The challenges of Traditional Accounting that led to the creation of HRA

Accounting plays an important role in economics, business and production (Tomassini, 1977).

There are four factors of business, such as labour, capital, material and property, the last three of

which are subject to traditional accounting, but the first one, for example human resources, has not

been referred to such accounting (Avazzadeh & Raiashekar, 2011). Over the decade, the role of

human resources has been recognized and organizations have begun to value resources as

economic assets that have led to the rediscovery of human resource accounting (Maher, 1996).

According to Flamholtz (1974), the key objective of human resource accounting (HRA) is to

provide cost-efficient information in order to make strong and efficient management decisions on

the acquisition, learning and separation of human capital in order to achieve cost-effective

organizational goals.

The biggest drawback of traditional accounting is that it acknowledges the human capital of a firm

as expenditure in the income statement that reduces the profit (Stanko, et.al., 2014, p.94) and thus

fail to realize the actual value of each of the employees within an organization. The controversial

fact here is that most of the organizations claim that human assets are their greatest assets. There

have been many debates and efforts to resolve this issue since the 60s, but nothing has been

established so far. The major problem here lies to the fact that, in order to insert an asset in the

financial statements, its value must be translated in a numeric way. People are a unique entity,

and it is understandable that their work efficiency varies from time to time, so it can be very tricky

to express that in a numeric way (Kodwani et al., 2007, p.3). An example of what happens

accounting-wise when paying an employee is the description of the standard payroll entry. It

acknowledges direct labor, salaries and payroll taxes as expenses and thus debits them and cash,

federal withholding taxes, social security taxes, Medicare taxes, federal unemployment taxes, state

withholding taxes, state unemployment taxes and garnishments as payables (Kodwani, et.al.,

2007), which clearly shows that human capital is just an expense for an organization and nothing

more. However, as we advocate in this paper human capital is much more than just an expense and

there is a need to understand and find a way to calculate its intrinsic value of it for a firm. Human

capital and the expenses concerning this dimension should be treated as investments that are going

to return earnings to the firm in the future (Kucharcikova, 2011). Overall, this is the biggest

challenge of traditional accounting when it comes to use it for human resources purposes and

additionally is the main reason that led to the creation of HRA models and approaches.

2.3. Human Resource Accounting

Humans are the essential part of an organization. Accounting can measure the value of human

beings on the basis of their ability and can generate economic importance for the organization.

Several articles have discussed the importance of accounting for HR in organizational

13

performance, however researchers still struggle to suggest that HR assets are essential in

generating value for organizations (Okpako et al., 2014). The importance of human resource

accounting was mostly discussed by the author Eric Flamholtz. According to this author, “human

resources accounting means accounting for people as an organizational resource. It involves

measuring the costs incurred by business firms and other organizations to recruit, select, hire, train

and develop human assets. It also involves measuring the economic value of people to the

organization”. The American Accounting Society Committee (1974) defines human Resource

accounting as follows “Human Resource Accounting is the process of identifying and measuring

data about human resources and communicating this information to interested parties”. In simple

terms, it is an extension of the accounting principles of matching costs and revenues and of

organizing data to communicate relevant information in financial terms. In recent years authors

also define HRA in the similar way. According to Narayan (2010) human resources are the most

valuable aspect of any enterprise because they ensure a symbiotic relationship between financial

and all other physical resources for the accomplishment of corporate priorities and goals.

According to Sharma (2012), the success of any company, whether it be in manufacturing,

operation, or retail, is determined by the efficiency of its human resources. Physical assets are used

to maximize the earning ability of every corporate enterprise, and human capital are also valuable

assets that are used to increase productivity, earning capacity, wealth and benefit, consumer

demand, economic value added, and so on. Overall, human resource accounting (HRA) can be

described as a special accounting method for the organization's people that plays an important role

in measuring their value and ultimately assisting managers in making more informed decisions.

2.3.1. Chronological Stages of HRA

According to Remi Okeke (2016) and his article Human Capital Accounting: A literature Review,

the first effort to translate the value of Human capital into numeric terms was made by Sir William

Petty (1623-1687). It is visible here that people have realized that human capital has a value for

every type of organization separate to the value of just their salaries since many years ago. The

beginning of Human Resource Accounting as a concept belongs to Rensis Linkert, who was the

first person that used the expression Human asset back in the 1950s (Singh & Singh, 2009, p.68).

As the years go by the importance of estimating the value of humans working in an organization

grows bigger. This is visible by the attention that researchers started to give to the realization of

the value of human capital in the years after. According to Flamholtz (1999) the history of HRA

can be divided into 5 different chronological stages:

1st stage (1960-1966): The first stage of HRA belongs to T.W Schultz. According to Bowman

(1980) Schultz can be characterized as "the father of the human investment revolution in economic

thought". Our understanding of this quote is that the research and findings of Schultz were the

starting point of the conception of the actual value of the human capital in businesses. The first

stage had more of an exploratory, in a theoretical level, character. The origin story of HRA is

sourced by the economic theory of human capital, the concern that many psychologists of time

had about the effectiveness of leadership, the new human resource perspective and a concern of

human assets as a component of corporate goodwill (Flamholtz, 1999, p. 1). Overall, the first stage

14

constitutes the ground of the birth of the concept of human resource accounting on a scientific

level.

2nd stage (1966-1971): According to Flamholtz (1999) the second stage of HRA concerns the

defining of suitable models for calculating the human resource cost and value, meaning the

integration of historical and replacement cost and monetary and non-monetary value metrics. At

that time Roger Hermanson, a Ph.D candidate of the Michigan State University, attempted to solve

the measurement problem of human assets by proposing to assess the value of human resources

by integrating them into goodwill when they have not been purchased, and at this period important

projects carried out by a team of researchers (Brummet, Pyle, Linkert and Flamholtz, 1968),

concerning the development of models that could help in measuring the human resource value.

3rd stage (1971-1976): The third stage of the history of human resource accounting can be

characterized as the golden era of HRA. At this period there was an outburst of interest towards

HRA both in an academic level and in a corporate level. The academic research on HRA expanded

from the Western world till Japan and Australia (Flamholtz, 1999, p.2). In this stage Flamholtz

introduced The Flamholtz model and also developed the replacement cost model for measuring

the human resource. The Flamholtz model is attempting to uncover the economic, social and

psychological determinants of a person’s value in an organization (Flamholtz, 1974, p.48). The

replacement cost model as we have mentioned, in the key concepts, includes all the direct and

indirect costs that have to do with the acquisition, separation and learning costs of the employees

(Flamholtz, 1974, p.53) described in 2.3.6. Another important scientific article that belongs to that

period is the “Human Resource Accounting as a management tool “by Thomas McRae. The author

provided great insight on how managers can use Human Resource Accounting to improve the

quality of their decisions and extensively affect the overall performance of an organization. For

instance, an HRA proposal should include the types of costs to be measured and the methods of

measuring them, the method of accumulating costs, the assignment of common costs to classes or

individuals, etc. (McRae, 1974, p.33). All of these addressed issues within HRA, could give the

managers a better and more detailed “picture” about the actual value of their employees and based

on that they could make better decisions for their firms.

4th stage (1976-1980): Based on Flamholtz’s book “Human Resource Accounting” (1999), after

the 3rd stage and all the breakthroughs made in the field of HRA, it is time for a decline in the

interest of the field both in a business and in an academia level. Most of the preliminary research

had already been carried out and in order to proceed further, scientists with an advanced set of

skills and specialized knowledge were needed.

5th stage (1980-): According to Flamholtz (2002), this period can be characterized as a renewed

in the interest of HRA practices. In this period, a lot of big organizations tried to insert HRA

practices for measuring the value of their human capital. The explanation behind this new interest

is that economy was in a transformative phase, as it turned from industrial economies in which the

tangible assets constitute the core of the business, to service-based economy in which the

intellectual capital such as human capital was and are of the utmost importance (Flamholtz, 1999,

p.3). There were numerous attempts on implementing HRA practices within an organization in

different countries around the world.

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2.3.2. Literature review of HRA As we mentioned in the fifth stage, interest in HRA has increased again, and several studies have

been conducted from 1981 to the present. We have included some of the most important articles

that have been reviewed here. Johansson (1999) states that there were 7 different cases that the use

of HRA failed, within Sweden. The reasons that led to that failure were various, some of them

were no local tradition of using HRA, lack of company adjustments for models,lack of time,

ambivalent management support, difficult access to data due to poor information systems, etc

(Johansson, 1999, p.98-99). In the U.S, a project to search the applicability of HRA was carried

out by the Office of Naval Research (Flamholtz, 1999, p. 3). The article by Flamholtz (2005)

emphasizes that the overall value of human capital exceeds its personal value, and business culture

has a substantial effect on human capital, which in turn has an impact on financial efficiency. This

has resulted in a new conceptualization of human capital that is applicable to human resource

accounting. According to the article by Ghosh & Gope (2009) the authors stated that human

resource accounting is needed by providing explanations for improving Human Resource

Accounting, which include overcoming problems associated with the valuation of intangible

assets, focusing on workers as assets, retaining important and skilled staff, and attracting potential

employees.

After this review another author Narayan (2010) claimed that human resources are the most

valuable aspect of any enterprise because they ensure a symbiotic relationship between financial

and all other physical resources for the accomplishment of corporate priorities and goals. Financial

assets are generally accounted for in the books of accounts in compliance with general accounting

rules, but individual assets are not counted. The purpose of this article is to explore Human

Resource Accounting practices, identify issues and challenges, examine these issues and

challenges, and make recommendations based on the findings. According to Mahmoodi et al.,

(2013), the primary capital of a nation, especially in the current period, is expert and excellent

manpower. The aim of this research is to investigate the important effect of human resources on

the progress of the organization, to propose simplistic principles of human resource accounting,

and to explore the barriers to the application of human resource accounting.

The article by Okpako et al., (2014) discovered the connection between human resource

accounting and company's performance. It has been essential for businesses to incorporate fully

functioning human resource accounting factors into their activities. Firms can ensure that relevant

training and retraining packages designed for performance improvement are well embraced by all

employees for better job performance; organizations can avoid undervaluing employees because

it has a negative effect on employee morale, which may affect productivity; and, most importantly,

human resource value should be ascertained and intrusive. And the latest article by Abiola & Adisa

(2020) investigated the impact of Human Resource Accounting (HRA) practices on managerial

decision-making. The research discovered that HRA has a huge effect on organizational

managerial decision-making. As a result, it was recommended that organizations be more

systematic in their use of HRA to strengthen decision-making. In order to improve adequate

decision-making in corporate organizations based on fair financial performance, necessary and

applicable guidelines on the need for identifying human resource costs in organizations' statements

of financial status should also be issued.

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2.3.3. Value-based and cost-based models of HRA

The historical cost model that has been developed by Brummet, Flamholtz and Pyle (1968) that is

being used in human resource accounting in order to calculate the amortization and extensively

the net value of an intangible asset (e.g., Human capital). This cost can be divided into two different

costs, the acquisition one and the learning one. Acquisition has to do with recruitment and selection

costs, the issue here is that the entire costs are being included even those concerning people that

have not been selected (Saremi & Naghshbandi, 2011, p. 223). Learning costs contain expenses

made on training and development. Although this model is simple in its use, it does not realize the

actual value of an employee in an organization (Saremi & Naghsbandi, 2011, p.223). Apart from

the historical cost model according to Bhattacharjee et al., (2017) the models that can be used in

evaluating human capital are the following ones:

Value-Based Models:

1. Lev & Schwartz Model: This model developed from Lev and Schwartz in 1971 and according

to the model value of human assets is estimated for a person at a given age which is the present

value of his remaining future earning of his employment, and it is represented by the formula

above (Pradesh et al., 2013, p. 99). According to Andrade & Sotomayor (2011), the main

disadvantages of this model are: 1) It does not take into account the shifts in the functions of

workers, 2) This model implies that the condition for future work the employee does not change

with the time of his professional life, but will remain the same in this, 3) The approach does

not take into account the possibility of a worker to withdraw from the organization before his

death or retirement. As such, it is unrealistic, 4) Ignores the variable of career movement of

workers within the organization.

Figure 1 : Lev & Schwartz Model

Source: Pradesh A., et.al, 2013, A study on Human resource accounting methods and practices

in India.

Where:

Vr= value of an individual or r years old

I(t)= the individual‟s annual earnings up to retirements age

T= retirement age

r= discount rate specific to the person

t= active year of service

2. Reward valuation model: This model is an improvement of the Lev and Scwartz model and

has been developed by Eric Flamholtz (1971). The improvement that has been made here is

that Flamholtz integrated the probability of an employee changing his/her job position within

a company, but by integrating that it instantly becomes more difficult to determine if this will

happen before the death or retirement of an employee (Bhattacharjee et al., 2017, p.102).

17

3. Hermanson’s Adjusted Discounted Future Wages Model: This model determines the value of

human assets by the present value of the future wages, salaries and compensation payable to

the employees for their rendered services (Bhattacharjee et al., 2017, p. 103). The uniqueness

of this model is the adjustment of the future streams of compensation by efficiency ratio and

this efficiency ratio is the critical value for determining the effectiveness of the human

resources (Bhattacharjee et al., 2017, p. 103).

Efficiency ratio: weighted average return of investment of the firm/ weighted average return of

investment of the industry.

Cost-Based Models:

1. Historical cost model: A method that has been developed by Flamholtz, Brumnet and Pyle

(as cited in Saremi & Naghshbandi, 2011) and is derived from the historical cost method

that is being used in accounting in order to calculate the depreciation and extensively the

net value of a tangible asset. This cost can be divided into two different costs, the

acquisition one and the learning one. Acquisition has to do with recruitment and selection

costs, the issue here is that the entire costs are being included even those concerning people

that have not been selected (Saremi & Naghshbandi, 2011, p. 223). Learning costs contain

expenses made on training and development. Although this model is simplistic in its use,

it does not realize the actual value of an employee in an organization (Saremi &

Naghshbandi, 2011, p. 223). 2. Replacement cost model: According to Sollosy et al. (2016) under the replacement model

an organization capitalizes, records, and treats as assets, employee costs that are expected

to result in a future organizational benefit, including hiring and training costs. According

to Rahaman et al. (2013) the disadvantage of this model is that it can lead to a biased

estimate, because for example an inefficient firm may incur greater cost to replace an

employee.

3. Opportunity cost model: This model is more suitable for businesses with a small number

of employees as it acknowledges them as assets in the balance sheet. According to Saremi

and Naghsbandi (2011) this model denotes that ‘opportunity cost is the value of an asset

when there is an alternative opportunity of using it’.

4. Standard cost model: Unlike the historical cost the standard cost model separates the

employees into homogenous clusters according to their position within the firm, after the

different clusters have been created standard cost of recruiting, hiring, familiarizing,

training and development for each group is calculated (Saremi & Naghsbandi, 2011, p.

100). Moreover, this model fixes the value of the employees based on which cluster they

belong and as a result this method avoids including the differences in skills and efficiency

among its members, which makes it a very simplistic approach (Saremi & Naghsbandi,

2011, p. 101).

The limitation that is common among all these models and methods is the inclusion of the value

of human capital within an organization’s financial statements, as it goes against the accounting

principles. For instance, the Lev & Schwartz model does not suggest how the value of human

resources should be recorded in Books of Accounts (Kodwani et al., 2007, p.7).

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2.3.4. Benefits of HRA Since the primary aim of this study is to explore the similarities and differences between traditional

accounting systems and human resource accounting, we believe understanding the advantages of

implementing HRA in organizations can provide readers with some perspectives. To begin with,

according to Flamholtz et al., (2002), if human resources accounting will show that the

advancement of the human resource management process leads to an increase in revenue,

management can use the human capital implications to boost decision-making. The author

identified the three key objectives of the HRA: 1) providing objective information on the overall

cost and benefit of the organization's human resources; 2) providing a theoretical framework to

guide decisions on the organization's human resources; and 3) guiding the interest of decision-

makers in human resources (Flamholtz et al., 2002, p. 948). Human resource accounting can be

beneficial to the organization and its stakeholders in many ways. According to Oluwatoyin (2014,

p. 71) emphasized the importance of human resource accounting in providing valuable knowledge

to managers, financial consultants. Human resource accounting assists managers in the recruitment

practices and proper utilization of human resources. It assists in the decision-making process for

human resource recruitment, transfers, promotions, and retrenchment. HRA assists in assessing

the cost of providing additional instruction and training to employees in comparison to the value

received by the company. It aids in identifying the causes of high labor turnover at various levels

and introducing preventative measures to reduce it. HRA assists in determining and assessing an

organization's inner power, helping management to effectively guide the company through the

most adverse and undesirable circumstances. It also assists in identifying the root causes of weak

returns on investment, such as improper or underutilized physical assets, human capital, or both.

HRA provides valuable insight to those making long-term investments in the business and

encourages employees to increase their productivity as well as bargaining power. It assists each

employee in evaluating his or her contribution to the betterment of the business in relation to the

organization's investment in him or her (Oluwatoyin, 2014, p. 71).

2.3.5. Challenges of HRA Although many authors identified several benefits of using HRA in different practices, it is also

found that organizations face various challenges to implement HRA. According to Islam and

Sarker (2016), there are no specific guidelines and regulations that concern the cost and value of

human capital and this makes it impossible for firms to implement HRA. It could be possible that

HRA would lead to a kind of manipulation of human assets and subsequently, this could affect the

human asset’s competency at work. There is no proper Human Resource Auditing, in order to

apply for HRA. The author Oluwatoyin, (2014) identified various barriers that render management

hesitant to adopt human resource accounting. According to this author, there is no clear-cut and

precise protocol or guideline for determining the cost and benefit of an organization's human

resources. The technologies that are being implemented have several disadvantages. Since the

existence of human resources is unclear, valuing them under uncertainty in the future is

impractical. The much-needed scientific data to support the theory that human resource accounting

as a management method promotes efficient and more successful human resource management

has yet to be uncovered (Oluwatoyin, 2014). Since human resources, unlike financial properties,

cannot be purchased, preserved, or used, it is difficult for management to treat them as assets in

the traditional sense. There is a persistent fear of trade union resistance that putting a value on

19

workers will lead to them claiming benefits and bonuses depending on those valuations. Despite

their value and need, tax laws do not consider humans as assets. No universally accepted way of

valuing human resources exists (Oluwatoyin, 2014).

2.3.6. Human Capital Theory The aim of human resource accounting (HRA) is to measure the cost and value of human resources,

hence understanding human capital is important. Managers are now experiencing a period wherein

human capital is the key capital of organizations (Mahmoodi et al., 2013). According to Schultz

(1979), human capital involves an increase in investment on education and training of people so

that the ability of the person can be increased by education and training, which can lead to an

effective improvement in the efficiency of employment. The author provided a statement about

human capital that is “take into account the innate and acquired skills” (Schultz, 1981). Those are

important and may invest to expand, will form the human capital.” The most influential and well-

known human capital theory is given by Becker (1962). According to the author, investing on

education, medical care and trainings on the principles of punctuality and honesty are also crucial.

That is how they increase revenue, promote fitness, or contribute to a person's life. Therefore,

economists view spending on education, training, medical treatment and so on as investment in

human capital (Becker, 1962). The author focuses on investing not just on the employee's salary

but also on other key aspects that are eventually beneficial to the existence of an organization. It

can be said that human capital is an investment in human resources to maximize their productivity.

The expenses of this investment are spent for potential use. This is the season the learning

organization chooses to invest in individuals, since people are important human resources with

various values (Burund & Tumolo, 2004).

At present, the global economy is progressing increasingly towards a knowledge-based economy.

Since the service delivered in knowledge-based organizations includes a high degree of

technology, they must be provided by skilled and qualified professionals. According to Flamholtz

(1987) one of the distinctive characteristics of the information-based economy relates to human

capital (including the knowledge, expertise and experience of individuals) that is more important

than physical capital (Flamholtz, 1987). However, research, assessment and control of human

capital can be more complex than other organizational resources, since human resources are the

most scarce and challenging resources in the knowledge-based economy (Pasban & Nojedeh,

2016).

The article by Pasban & Nojedeh (2016), presented an overview of the role of human capital in

organizations. According to their research, human capital can encourage creativity, innovation,

knowledge and skills of the employees. Organizations can add value through motivating and

training their employees. Human capital can play an important role for gaining competitive

advantage in the market. Moreover, when employees are efficient, experienced, and full of

confidence and attitude, it contributes to increased customer satisfaction with the company.

Overall based on this study it can be said that human capital plays an important role in people's

development, enhancing life and income, growing knowledge, skills and productive capacity,

sustainable growth and reducing poverty (Pasban & Nojedeh, 2016).

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Figure 2: Model for Measurement of Human Replacement Costs

Source: Flamholtz, Eric G., ‘Human Resource Accounting: Measuring Positional Replacement

Costs’, Human Resource Management, Spring 1973, p. 11.

To illustrate the value of human capital in an organization Flamholtz (1973), presented a model

(Figure 2) for measurement of human resource replacement cost. In this article, the author

addressed the cost incurred when some experienced employee leaves the organization. He

identified three basic elements of positional replacement cost: acquisition costs, learning costs,

and separation costs. Acquisition cost refers to some direct and indirect costs to the sacrifice that

must be incurred to "acquire" a new position holder like, cost of recruitment, selection, hiring, and

placement as well as certain indirect costs like cost of promotion or transfer (Flamholtz,1973). The

second is the learning cost incurred to train the replacement and bring it to the level of performance

usually required by the person in that particular position. This element also includes direct costs,

such as formal training and orientation, and the indirect costs incurred during the learning process

which include the loss of performance of others in addition to the trainee. The third element of

replacement cost is separation cost. The direct cost is the separation payment which needs to be

settled when an employee leaves the organization. The indirect cost incurred of acquiring a new

position holder because the responsibilities of the vacant position are not being performed. And

also, the cost of searching for a replacement of that vacant position (Flamholtz,1973). This article

presented the need for positional replacement cost measures, which can apply to other human

resource management strategies for better decision-making.

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2.4. Concept of Decision making

According to Vermeulen & Curseu (2008), decision-making is a cognitive process that entails the

choosing of a particular course of action that is expected to result in a specific outcome. Koontz

and Weihrich (2010) describe decision making as the selection of a course of action from among

alternatives. It is a method that consists of the steps of making an assumption, identifying

alternatives, evaluating alternatives in terms of the target achieved, and choosing the best

alternative to accomplish the goal. The authors have noted that decision making is central to

planning, implying that no plan can be carried out without deciding on a course of action. Decision

making in companies are often complicated, the underlying procedure steps are pretty much the

same: a challenge is recognized; solutions are generated; compare the different alternatives

depending on these assessments; and choose one that best fits the evaluation criteria (Simon,

1947). One of the biggest problems in decision-making is the uncertainty, since the actual results

most of the time are not obvious and it is crucial to understand that solely rational decision-making

models also fail to understand the strategic decision-making (Haley and Stumpf, 1989). In the

individual and organizational decision-making process, there are two main approaches to minimize

uncertainty. The first approach is to collect relevant information, look at options and take a

decision based on this information (Vermeulen & Curseu, 2008). Secondly, the use of known

heuristics (cognitive short cuts generated by experience) and a limited percentage of signs while

making a conclusion is a means of minimizing uncertainty (Vermeulen & Curseu, 2008). Pietri &

Megginson (1996) clarified that decision-making is an activity that people, and managers take to

maximize the possibilities and address challenges when they occur during their day-to-day

operations.

HR managers make numerous important decisions that are directly connected to the employees of

an organization and ultimately focus on the general prosperity of the firm. Thus, HR managers

must fully conceive the business model of their firm so that they are able to formulate departmental

policies and practices that are in line with the general strategy of the organization and ultimately

add value for managers, employees, investors and customers (Walger et al, 2016, p.658).

Therefore, the choice of the decision-making process of HR managers is very crucial, as if it does

not fit to the organizational strategy, it may lead to adding zero value to the firm.

On a more specific level, HR managers’ decisions are extremely important as they are directly

connected to an organization's competitiveness (Walger et al., 2015, p.655). This means that these

decisions concern the human capital of an organization and as we have mentioned before, today’s

industry has been transformed from a manufacturer-based one to a service-based one, which

ultimately shows us the importance of HR departments. HR’s evaluation of decisions is very

crucial, which means that specific steps need to be followed to end up making the best decision

possible.

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2.5. Theoretical Framework of the Study

The key functions of Human Resource Management include recruitment, training, program

evaluation, staff motivation, team coordination, safety at work, retention of employees and many

more. Human resource accounting is the practice of identifying the cost of recruiting, training,

payment of salaries and other benefits paid to workers, retention and, in return, of identifying their

contribution to the organization's profitability (Kumar & Awasthi, 2018). In this thesis, we would

like to illustrate major areas of HR practices in which we expect to evaluate the experiences of HR

managers and accounting managers in relation to HRA for the decision-making process. First,

acquisition which includes recruitment, selection, hiring and placement of employees. Second,

learning and development which include training, development, learning and education of

employees. Third, retention and separation which includes employee engagement plans, retention

plans and employee turnover. And forth, performance management which includes strategic

communication, relationship building, employee development and employee evaluation. Our

theoretical framework for this thesis is based on Patterson's HRM model. Because this model

contains four practices in which HRA has a strong influence and thus we as researchers will be

able to obtain a clearer view of its effects.

2.5.1. Patterson’s HRM Model According to Patterson's HRM model (Patterson et al., 1997), HRM practices can improve

company performance by enhancing employee knowledge and capabilities; fostering positive

attitudes and motivation; providing workers with expanded responsibilities so that they can make

best use of their skills and abilities (Thierry, 2018). Since HRA can help to measure employee

value, we want to explore how human capital evaluation can help managers make decisions in

these four main HR practices. As per figure 3, employee’s skills are developed through efficient

training, professional growth opportunities, performance management programs, employee

retention programs and the implementation of effective recruitment processes. In this model, the

four practices are connected but not interlinked and have an impact on each other. This is helpful

in creating a framework for understanding high-performing HRM practices and their effectiveness

in developing organizational performance.

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Figure 3: Patterson’s HRM Model

Recruitment & Selection

This is an essential function of human resources. Recruitment considered as the initial stage of the

selection process. Recruitment is the process of identifying and hiring the individuals that the

organization needs, and selection is the part of the recruitment process dealing with determining

which applicants or candidates to be selected for employment (Armstrong, 2014, p.226). This is a

major responsibility and decision-making challenge for HR managers since organizational

performance and success depend on the recruitment and selection of the right candidate. This is a

costly process as there are several steps and procedures involved. Selection, on the other hand, is

the aspect of the recruiting process that is concerned with determining which applicants or

candidates should be appointed to positions (Armstrong, 2014, p.226).

The main objective of recruiting and hiring is to not only employ someone for the role, but to hire

the right person, which is a complicated process for HR managers. It involves lots of stages,

planning and cost. According to the article by Dhanabhakyam & S (2016), human resource

accounting (HRA) entails calculating the costs incurred by organizations in recruiting, selecting,

and hiring human assets. It provides monetary details about the organization's human resources,

which is thought to be important not only for management in making different decisions, but also

for consultants and employees. It may be beneficial to management in the fields of recruiting,

planning, selection, financial resource allocation, human resource development, human resource

use, the development of a healthy organizational environment, and improved employer-employee

24

relations (Gupta, 1990). According to Flamhotz model (1973), acquisition costs include both the

direct cost of recruiting, procurement, hiring, and placement as well as the indirect cost of internal

promotion or hiring. As a result, human beings are the essential components of any organization.

According to Mooney (2019), the productivity and profitability of an organization are determined

by the quality of its employees. Therefore, several factors must be considered by HR during the

recruiting and screening of an applicant, including education and qualifications, professional

experience, personality, and skill sets (Mooney, 2019). Another critical factor is the budget. The

recruiting and selection process incurs a massive economic expense to the company, which is to

be predicted. To prevent future loses, it is important to invest in the staff recruiting process (Lesiuk,

2020). According to Flamholtz (1973), acquisition cost applies to the expenses that may be paid

in order to "acquire" a new job holder, such as the costs of recruiting, screening, hiring, and

placement, as well as promotion or relocation. That can also be a key factor in decision-making of

recruiting.

Training & Development

The purpose of this practice is to ensure that people in the organization learn and improve the

expertise, skills, and competencies they need to carry out their jobs efficiently and progress their

careers to their benefit and that of the organization. It involves facilitating the development of

knowledge and skills by individuals and teams through experience, learning events and programs

offered by the organisation, instruction and coaching provided by line managers and others, and

individual self-directed learning activities (Armstrong, 2014, p. 284). The human resource

manager conducts a need assessment for the employees of the company to find out their current

expertise and the requirement for skills to improve themselves.

Training and developing the workforce is an effective strategy for an organization as it can reduce

employee turnover, improve operational flexibility, attract high-quality employees, and can

increase employee job satisfaction. According to Flamholz´s cost measurement model (1973),

learning cost includes both the direct cost of formal training, orientation and on the job training

and also indirect cost of trainers’ time. HR managers can use HRA to evaluate the costs of

providing further education and training to employees in regard to the advantages obtained by the

organization. Furthermore, HRA can determine the importance of highly skilled employees who

require less training and development and can be valued at a lower cost (Saremi & Naghshbandi,

2012).

As per Patterson's model, recruiting is connected with learning and development practices to obtain

better performance of the employees. After recruiting a prospective employee, it is necessary for

the managers to determine whether there are any knowledge or skill gaps that need to be introduced

to the employees in order to improve their performance. This can be achieved by learning and

development practices. Recruitment is also connected with the retention plans of HR practices. HR

managers identify employees who are compatible with corporate values and culture, who are

extremely talented and on whom the organization has already invested high training and

development costs. Once identified, proper decisions and strategies may be developed to motivate

these staff to retain with the company.

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The first factor is the knowledge gap identification which is a very important one. It concerns

missing knowledge, which is important for the survival and growth of a company, that needs to be

filled in (Lin et al., 2020, p.3). The next factor is the leadership development, this factor is very

significant as it concerns the future leaders of a company. Leaders inspire people to perform at a

high level to achieve a desired result (Armstrong, 2014, p. 322). Learning cost is important as it

estimates the training and development costs the moment they are incurred. The factor of job level

was chosen, because most HRA focused organizations use it as a tool in training and development

only for higher-level employees. Finally, the factor opportunity for career advancements was

selected, because every company nowadays offers opportunities for promotion for example to their

employees. Ambitious employees will prefer to approach companies in which they could see

themselves working for several years.

Employee Retention & Turnover

Employee turnover is the ratio of employees leaving the organization. It is important to monitor

the turnover of employees and to quantify their expenses in order to predict potential losses for

forecasting reasons and to determine the reasons why people leave the company (Armstrong, 2014,

p.249). The turnover of the important employees can have a bad impact on the business growth

(Armstrong, 2014, p.252) and to hold the potential employees' HR needs to prepare retention plans.

Some basic reasons for employee turnovers are less pay, few opportunities to develop skills, poor

work environment, etc.

According to Vohra & Chaudhary (2014), retaining professional workers is often an asset and a

competitive advantage because it effectively provides the company with economic and inclusive

development. As a result, minimizing employee turnover is a crucial agenda for HRM, and for

this, successful creativity and scientific models must be formulated, even though valuing human

contributions and understanding them is a mode that is possible through HRA. It helps in

identifying the factors of high labor turnover at different levels and in implementing proactive

steps to reduce it (Saremi & Naghshbandi, 2012). Retention connected with performance

management and recruitment. Proper and effective recruitment is important for retaining the best

employees. If the selected employee is not suitable for the position, then it can affect the retention.

Retention connected with performance management and recruitment. Proper and effective

recruitment is important for retaining the best employees. If the selected employee is not suitable

for the position, then it can affect the retention. An analysis by Holbeche (1998, cited in Armstrong,

2014, p. 253) of high-flyers showed that the factors that contributed to the retention and motivation

of high-performing players included the providing new challenges and achievement opportunities

(e.g., assignments), mentors, realistic self-assessment and feedback.

Retention and turnover are connected. According to Armstrong (1992), people that organizations

want to keep are also the ones who want to quit. To retain talented employees, organizations must

take action, but there are limitations to what they can do. It is therefore crucial to encourage higher

levels of commitment from emerging talent and to value them accordingly (Armstrong, 1992).

Several factors may have an effect on the decision-making process for employee retention and

turnover. Such as, development opportunities, performance recognition and rewards, employee

organizational behavior, employee performance and productivity, and retrenchment. According to

Flamholtz (1973), separation cost is another factor that can influence whether an employee is

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retained or quits. It assists in calculating the costs associated with replacing a current employee,

measuring his value, and comparing it to the estimated potential expense of recruiting another

employee.

Performance Management

Some organizations perform better than others due to the performance of their employees. The

term "employee performance" refers to an individual's work achievement after investing in the

necessary effort on the job, which is linked to having meaningful work, an engaged profile, and

supportive coworkers/employers (Hellriegel et al., 1999). According to Anitha (2013), the

performance of an employee or an organization is highly influenced by all organizational

operations, strategies, procedures, knowledge management practices, and employee engagement.

On the other hand, Gungor (2011) pointed out, an employee's performance includes the following

dimensions: quality of output, quantity of output, punctuality and attendance at work, and

cooperativeness. For example, a sales employee could be expected to make a specified number of

calls to possible customers every hour or day, with a certain percentage of such calls resulting in

revenue. On the other hand, the performance of a factory staff may depend on his hourly

productivity, product quality and punctuality. However, the organization has great responsibility

to evaluate and improve the performance of the employees. Performance management is one of

the human resource practices to carry out such evaluation and improvement plans to manage

employee’s performance in an organization. As per the Figure 3 employee performance is related

with the retention decisions. HR managers can identify talents and place them in succession

planning through performance management in order to retain these talents.

Performance management is a way of achieving improved results by providing the means for

people to perform well within the agreed structure of planned objectives, standards, and

competency criteria. It includes having a common understanding of what is to be done and how it

is to be achieved (Armstrong, 2014, p. 334). Performance management is important to human

resource practices for several reasons. It identifies the knowledge gaps of the workforce and

improves them through education, training and development. It develops the workforce in order to

achieve and utilize their full potential, which is beneficial for both themselves and the organization.

Performance management provides the basis for self-development, but it is also important to

ensure that support and guidance are readily available to people who need to develop and improve.

Performance management can play an important role in rewarding employees by providing them

with positive feedback and recognition of their achievements (Armstrong, 2014, p. 336).

According to Bhosale (2015), investment in human capital included all expenses invested in

increasing and improving employees' skills and knowledge and understanding of human resources

through performance management. HRA emphasizes on return on knowledge rather than return

on investment, which is the primary concern of most businesses today. It focuses on evaluating

the skill of all company workers at all levels in order to generate profit from their skills and

experience (Bhosale, 2015).

The performance management is closely connected to the use of KPI. The key performance

indicators are significant because they help in managing the performance of the employees (Bhatti

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et al., 2013). The factor of the yearly performance targets has to do with the HR managers setting

performance goals to their employees, in order to stimulate the increase of their performance.

According to London & Higgot (1997), the next factor we included, the reward and recognition

process contains the following elements: (1) categories for awards; (2) nominations; (3) review of

nominations; (4) recognition of successful nominations; (5) review of successful nominations; (6)

final selection; (7) awards; and (8) annual quality award. The usefulness of the last factor, the job

level, is that HRA focused companies use HR techniques only for higher-level mangers, and thus

the different job levels must be clear.

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3. Research Methodology

Research methodology is the process of systematically solving the research problem. The purpose

of this chapter is to describe how the study has been carried out as well as its philosophical stance.

This chapter summarizes the author's primary choices for the research design and methodology.

The authors reflect on the data collection and data analysis process which is followed by

evaluating its validity and reliability. This chapter concludes with a discussion of ethical

considerations and evaluating the quality criteria of this study.

3.1. Reflection on the Choice of Literature

One of the greatest problems in today’s accounting is the lack of a proper way to estimate the

actual value of human beings working for a company. The answer of the scientific community to

this problem was the creation of HRA. HRA as a concept has been studied extensively over the

last 60 to 70 years. Most of the researchers have focused on developing accepted HRA models,

that could lead to the acknowledgement of the human capital as asset. The authors used articles

and general literature from several sources. For example, JSTOR, EMERALD LIGHT, the website

of Umea’s library and web of science. Most of the authors that have been used in this dissertation

have contributed to the development of HRA and HRM. In the methodology part most of the

articles used were sourced from the research methodology course that both of the authors took at

the beginning of their second year of their master.

3.2. Research Philosophy

Research Paradigm

The research paradigm explains how the researchers conceive the world around them. It can be

viewed as a set of basic beliefs, it can also be said that it represents a worldview that defines for

its holder, the nature of the “world”, the individual’s place in it, and the range of possible

relationships to that world and its parts (Aliyu et al., 2015, p. 2). According to that, there are 3

different research paradigms approaches: the positivist approach, the realist approach and the

interpretivist approach. The authors in this paper consider themselves as interpretivists, because

they believe that knowledge can be generated through social interaction and accordingly this

affects their ontological and epistemological stances, which are analyzed below.

3.2.1. Ontology The word ontology derives from the Greek for existence, which explains the fact that one’s

ontological stance always comes first (Marsh & Furlong, 2002, p.18). The ontological position of

interpretivism is relativism, which means that the reality and how human beings perceived it is

purely subjective (Scotland, 2012, p.11). This translates to that everyone around us has different

perceptions of the world according to many different parameters like for example their

backgrounds or social status, etc. Additionally, ontology refers to assumptions about the nature of

truth. The researcher's ontological perspective thus decides how they see the world of business and

management and, as a result, what to study for the research project (Saunders et al., 2006, p. 133).

According to Aliyu (2015) the world is complicated and dynamic and is built, interpreted and

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understood by people in their interactions with each other and with wider social systems.

Additionally, Marsh & Furlong (2002) advocate that the interpretivist approach is opposed by

nature to the positivist one, as interpretivist researchers believe that the world exists regardless of

our knowledge of it, which in other words means that they are anti-foundationalist. Conclusively,

the authors here believe that the reality overall can only be impartially grasped (Aliyu, 2015, p.5)

and thus to conceive it as well as possible, someone should be open-minded to different opinions

and accept them.

3.2.2. Epistemology Plato’s epistemology was an effort to understand what it was to know and how knowledge is good

for the knower (Stanford encyclopedia of philosophy, 2005). According to Fumerton (2006)

epistemological questions include the concepts of knowledge, evidence, reasons for believing,

justification, probability and more concepts that can be conceived through the understanding of

the mentioned ones. Therefore, it is understandable that epistemology relates to the nature of

knowledge.

When it comes down to interpretivists, knowledge cannot only be obtained from observable

phenomena, but also from people’s opinions, beliefs and understandings (Aliyu, 2015, p.6). There

are two key questions that should be answered in order to conceive the concept of epistemology:

Can an observer identify real or aim relations between social phenomena and if yes, how? (Marsh

& Furlong, 2002, p. 19). By answering these two questions someone can understand their

epistemological position. The aim of interpretivist research is to generate new, deeper

understandings and interpretations of social worlds and contexts. Interpretivist researchers attempt

to account for this ambiguity by gathering what is important to their research participants

(Saunders et al., 2006, p. 133).

All in all, the authors of this dissertation believe that knowledge can be a product of many different

things. It is not only a product of objective observations, but knowledge can also be generated by

combining different subjective opinions on a matter from people with different beliefs for example.

The most important parameter here in order to expand someone’s knowledge is to accept the

diversity in people’s minds.

3.2.3. Axiology Axiology is an almost new principle, and its origins are Greek as it is the product of the words

axios or worth and logos or theory or reason (Hart, 1971, p.29). According to Saunders et. al.

(2006, p.159) axiology refers to the importance of values and ethics in the research process,

including concerns about how we, as researchers, interact with our own values as well as the values

of our research participants. From an interpretivist point of view the meaning of axiology is that

the researchers are being a part of what is being researched and thus cannot be separated and so it

will be subjective (Dudovskiy, 2016). The authors understand that and will try to show and

formulate their research results in the most unbiased way possible. On the one hand, subjectivism

can be very useful in research, as it is a freer ‘environment’ and has the power to offer great insights

that have not yet been recognized. On the other hand, because of lack of objectivism the results

can be misleading or untrue. By respecting both sides of this coin, the authors promise to carefully

analyze and interpret their results, in order to reduce biases to the minimum possible.

30

3.3. Theoretical Methodology

There are two major research strategies that can be used in research, namely qualitative and

quantitative. According to Saunders et al. (2006), the term "quantitative" is often used to refer to

any data collection tool (such as a questionnaire) or data processing process (such as graphs or

statistics) that produces or uses numerical data. On the other hand, the term ‘qualitative' is often

used to refer to any data collection method (such as an interview) or data analysis process (such as

categorizing data) that produces or uses non-numerical data. The research for this study was

conducted using a qualitative method and semi-structured interviews. The choice of pursuing a

qualitative approach stems from the fact that there is limited qualitative research concerning the

HRA.

3.4. Research Approach

According to Saunders et al., (2016), there are three types of research approaches: deductive,

inductive and abductive. Based on the theory development, the research approach can be selected.

A deductive approach starts with theory, generates hypotheses from that theory that relate to the

focus of study, and then tests that hypothesis (Greener, 2008). The logic behind this approach is if

the theories are true then the conclusion would also be true (Saunders et al.,2016). A quantitative

research approach is likely to be associated with a deductive approach to testing theory, often using

numbers or facts, and thus a positivist or natural science model, as well as an objectivist perspective

of the objects examined (Greener, 2008). Using a deductive approach, the analysis builds on

previous theory and progresses from general to specific. As a result, the analysis starts by

recognizing key concepts and classifying them into categories that can later be applied in the new

context using existing theory and prior study.

An inductive approach begins with an examination at the research focus (the organization, a

business problem, an economic question, etc.) and seeks to derive theory from the study through

investigation using different research techniques (Greener, 2008). A qualitative research approach

is likely to be associated with an inductive approach to theory generation, often using an

interpretivist model that allows for the existence of various subjective viewpoints and building

knowledge rather than looking to "find" it in "reality” (Greener, 2008). According to Saunders et

al. (2016), An inductive approach does not depend on identifying an existing theoretical position;

therefore, before developing the research issue, researchers should become familiar with theory in

their selected subject area. However, using an inductive approach does not imply ignoring theory

when developing the research question and goals. Instead, this approach is designed to enable

definitions to arise from data as it is collected in order to identify patterns and relationships that

can be used to develop a theory. The reasoning behind this approach is that known premises are

used to produce untested conclusions in an inductive inference (Saunders et al.,2016). Bryman &

Bell (2007, p. 14) define the two approaches as follows:

• Deductive: theory → observations/findings

• Inductive: observations/findings → theory

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The third research approach is an abductive approach. An abductive approach is used when data

is collected to investigate a phenomenon, define themes, and explain trends in order to create a

new or revise an existing theory, which is then tested through further data collection (Saunders et

al., 2016). From this conclusion, it is determined that a number of possible premises is considered

adequate or almost enough to clarify the conclusion. Unlike inductive and deductive reasoning,

abductive research may explain, improve, or alter the theoretical framework before, during, or

after the research process (Dubois & Gadde, 2002).

In this qualitative study we have used an inductive approach. The goal of inductive research is to

find and recognize meaning in data, as well as to understand the social context and perceptions of

research participants (Saunders et al.,2016). As such, the purpose of this research is to determine

whether and how HRA impacts the decision-making process of HR. In this situation, we were

unaware of the impacts of HRA prior to conducting the study. As a result, after carefully gathering

all of the necessary information from data collection and analysis, we can draw certain conclusions.

3.5. Practical Methodology

3.5.1. Research Design & Strategy According to Saunders et al., (2016), there are six types of research design such as exploratory

studies, descriptive studies, explanatory studies, evaluative studies and combined studies. This

research is an exploratory study which is a useful strategy for asking open questions in order to

explore what is going on and gain insights into a subject of interest. Exploratory research question

is likely to begin with the words 'What' or 'How'. Similarly, questions asked during data collection

to investigate an issue, problem, or phenomenon are likely to begin with ‘What' or ‘How' (Saunders

et al., 2016). In this explanatory study, a semi-structured interview allows the researchers to

evaluate the responses they received from participants and encourages interviewees to explain their

answers more extensively.

We believe that the best way to go forth and collect useful data for our topic is via interviews. The

research interview is a conversation between two or more people that requires the interviewer to

establish a relationship and ask concise and clear questions to which the interviewee is able to

answer and listen attentively (Saunders et al.,2016). The results of the interviews can be used, in

order to understand a situation or a phenomenon on a profound level. People that are working

under specific circumstances or situations, can give great insights and reveal angles about them in

a way that will help us as researchers get a better understanding of HRA. Qualitative type of

research is very useful when it concerns a problem without a clear solution (Paradis et.al., 2016).

Our belief is that the qualitative way will help us a lot in understanding the problem better.

In an effort to give informative results we used qualitative comparison analysis (QCA), so that we

could conclude with the similarities and differences and offer useful results to the scientific

community. We have explained more about the choice of QCA in the 3.6.1 section. In a first stage

we focused our questions on the rate of employee satisfaction, when HRA practices were being

used, if any. We formulated a series of predetermined questions in a deductive way, meaning that

were based on each dimension of Patterson's model and conclusively these questions became more

comprehensive context-wise and concerned the “bigger picture”. To solve the second research

32

question, we created similar questions for the two different sets of groups (which means the

managers that use HRA principles and those that do not), so that we can grasp a clearer view of

the similarities and differences between these two different types. The second set of questions

helped us in identifying which decision-making factors are more relevant for both types of

organizations (traditional accounting focused and HRA focused), which factors are similar, and

which are different and try to find the answers why.

3.5.2. Data Collection Technique There are various methods for organizing and conducting interviews, such as fully structured,

semi-structured, unstructured, or in-depth interviews (Saunders et al.,2016). For the aims of our

research, we think that the best form of interviews would be the semi-structured one. We have

prepared specific questions for the different groups of interviewees that we followed, but also, we

would like to keep a stressless atmosphere when conducting them, so that no disruption happened

during the flow of the interviews, and we can gather as much useful data as possible. When

researchers want to grasp a better understanding of the perception of the participants, as we seek

to do here, the best way is via interviews (Paradis et.al., 2016). Through the interviews we were

able to realize the personal opinions and feelings of the managers, who were working under HRA

practices and how these feelings and opinions differ from employees that work under the

traditional accounting practices.

3.5.3. Interviewee Selection As we mentioned earlier in this qualitative study the data were collected from interviews. Selecting

the participants is one of the most important tasks in a research. According to Creswell (2009), in

qualitative research, interviewees are chosen with purpose, who can best inform the research

question and strengthen understanding of the phenomenon under study. The research question,

theoretical perspectives, and evidence informing the study are used to guide selection decisions

and the participants chosen must be able to provide information about key aspects and viewpoints

relevant to the phenomenon being researched (Sargeant, 2012). Our sampling technique in this

study was non-probability sampling. This means that the sample was not drawn at random, and as

a result, some companies are more likely to be chosen than others (Bryman & Bell, 2007). It is

more important to understand the logical relationship between the sample selection method and

the research's aim and focus. Theoretical generalizations are made rather than statistical

generalizations. As a result, the sample size is ambiguous and determined by the research question

and goals (Saunders et al., 2016). Moreover, in a qualitative research sample size can vary. The

number of participants is determined by the number needed to fully inform all relevant aspects of

the phenomenon being investigated. In other words, the sample size is adequate when additional

interviews or focus groups do not result in the identification of new ideas, a condition known as

data saturation (Creswell, 2009).

The focus of this study is human resource accounting (HRA), which is not a common practice in

every organization. It is necessary to gather as much relevant information as possible from chosen

company managers in order to achieve a better understanding of the influences of human resource

accounting roles in various HR decisions. However, we intend to explore the traditional accounting

system as well. As a result, we must select companies that have a well-established human resource

33

department and where the workforce plays a significant role. Therefore, we considered some labor-

intensive companies from different sectors and looked at their official webpages to understand

their HR practices and financial reports. Since the primary focus of this study is accounting for

human resources, we believe organizational size based on employee number is important for our

study. If we focus on more labor incentive organizations, we would be able to analyze how HR

managers' decisions are affected based on the value or cost of their workers.

As previously stated, the aim to perform this research was not limited to one or two countries. The

authors attempted to communicate with HR managers from a variety of organizations in various

countries. However, due to time constraints and a lack of networking, the authors were unable to

reach their target participants and were required to play the majority of the interviews from their

Bangladeshi network. Since the concept of this study is not restricted by region, the authors

conclude that investigating this subject based on the organization of one country can also bring

desired answers to the research question.

3.5.4. Conducting the Interviews Interviews are the primary source of data in qualitative studies. As previously stated, the interviews

in this research are mainly semi-structured because this approach was considered more appropriate

for the purpose of the interviews. The purpose was to learn more about companies in general,

accounting for human resources in particular, as well as how managers experience the process

when making decisions.

Our study area was unique and broad, and we anticipated that it would take some time to gain

contact with the organizations in order to arrange interviews. The sample of this research are the

top-level HR managers from different organizations who were difficult to access directly on short

notice. We approached and communicated with over 30 companies from the middle of March

onwards. However, we were able to conduct a total of seven interviews. First, we tried to reach

companies via email, explained our overall thesis concept and requested cooperation. Second, we

attempted to contact companies through LinkedIn with professional connections and approached

them about possible collaborations. Finally, we attempted to gain access to companies through our

thesis supervisor and personal connections.

We initially contacted them through email, and after receiving a positive response to cooperate

with our study, we sent them the interview guide. We decided on a time to perform the interview.

All of the interviews were conducted via messenger or WhatsApp. We were unable to reach

someone in person due to the current pandemic. Furthermore, since all the companies are remotely

located, an online interview was the best choice. The empirical data was obtained in the form of

interviews between April 7th and April 25th, 2021, five through WhatsApp call interviews and

two on messenger calls. The information from the interviews is summarized in the table below:

34

Company Date Medium Position of Interviewee Country Duration

Company 1 06/04 WhatsApp Head of HR Philippines 40 min

Company 2

09/04 Messenger Assistant Manager HR Bangladesh 45 min

Company 3 10/4 WhatsApp Manager HR Bangladesh 60 mins

Company 4 10/4 WhatsApp Head of Talent

Acquisition & Employer

Branding

Bangladesh 60 mins

Company 5 15/4 Messenger Manager HR Bangladesh 60 mins

Company 6 20/4 Messenger Head of HR Bangladesh 40 mins

Company 7 25/4 WhatsApp HR Service Delivery Lead

Specialist

Bangladesh 60 mins

Table 1: Interview Summary

Before the beginning of each interview, we obtained permission to record the whole conversation

on audio. Since recording is the most effective way to obtain all relevant information for

transcription and use it for comprehensive data analysis. However, one firm was reluctant to record

the conversation, hence we only took important notes from the interviews and used them during

the data analysis. The interview guide was developed with the research question and theoretical

framework in mind. We divided the interview guide into five themes to make it easier for the

interviewee to understand and to maintain a level of consistency across all interviews. The first

section is about learning about the organization, the participants, and their understanding of the

main concept of this study. The remaining four sections are then separated for the four different

HR practices. In semi-structured interview the interviewer has a list of themes or sometimes

several key questions to cover (Saunders et al., 2016), However, depending on the flow of the

discussion, additional questions may be included, and certain questions may be omitted from the

list (Saunders et al., 2016). Some participants were unwilling to answer some questions because

they considered them confidential, hence we skipped those. With the participants' consent, the

35

recorded interviews were transcribed after the interviews for the data analysis. The interview

guide, which consists of 43 questions in total, is attached in Appendix 4.

3.6. Data Analysis

3.6.1. Comparative Analysis To answer the research question, we have decided to use comparative analysis on the basis of

qualitative study. According to Seny et al., (2016), the qualitative comparative analysis (QCA) is

based on the classical comparative methodology theorized by John Stuart Mill in 1843. In his

seminal work, Ragin (1987) developed and popularized the method. Pickvance (2005) defined, a

comparative analysis is primarily undertaken to explain and achieve a deeper understanding of the

causal processes involved in the formation of an event, feature or relationship, generally through

integrating differences in the explanatory variables or variables. Conventionally, the comparative

study focused "explanation of differences and explanation of similarities" (Pickvance, 2005).

This thesis analyzed both (Traditional and HRA) perspectives. As far as our research question is

concerned, we intend to identify similarities and differences in the decision-making process of two

categories of organization´s HR practices. Second, we analyzed which category influences the

decision- making process by adding more value. In this thesis we focused on qualitative methods

of data collection like semi conducted interviews. We incorporated the information that we'll

receive through the interviews to make a comparative analysis to figure out the similarities and

differences. The use of QCA in management research highlights that the complexity of

management phenomena requires parsimonious causal factors that can be revealed through

research. As a result, QCA will increase understanding of management issues while maintaining

their holistic nature (Seny et al., 2016).

There are three variants of qualitative comparative analysis (QCA): crisp set, multi-value and

fuzzy QCA set. In our research crisp and fuzzy sets can be used to analyze the concepts of this

study. Crisp is concentrated on dichotomous, meaning yes or no rather than more or less. For

example, an argument can be true or false in conventional dual logic, and nothing between them

(Zimmermann, 2001. p.1). the outcome of a statement by Crisp set based on binary scores either

`0´ or `1´. On the other hand, A fuzzy set is a mix of elements with a variation of composition. In

a number of ways, real scenarios are often uncertain or vague. Fuzziness is visible in many aspects

of everyday life and in all areas where human judgement, evaluation and decisions are relevant

(Zimmermann, 2001.p.3). Fuzzy set QCA could be rated anything from 0 to 1. The main difference

between crisp and fuzzy is in the processing and interpretation of the data (Rohlfing, 2019).

3.6.2. Alternative Methods According to Saunders et al., (2016), there are a lot of different types of analysis within the

qualitative research that can be used. In this chapter the authors will justify their choice of

comparative analysis against other important methods. First of all, the authors chose the qualitative

analysis not only because they are interpretivists but also because there was little qualitative

research in the field of HRA, as most of the previous studies followed the quantitative research.

36

To further analyze this, it is understandable that most of the past research was based on quantitative

analysis, as the researchers were trying to find a way to estimate the actual value of human capital

and at the same time to integrate them within the financial statements of a company, as assets.

The first alternative method that the authors could use is the template analysis. In this method the

researcher only codes a proportion of data before creating a starter list of codes and themes, which

is known as a coding template (King, 2012, as cited in, Saunders, et.al, 2016, p.587). Template

analysis was our second choice as it works really well when the aim is to compare the perspectives

of different groups of staff within a specific context (King, 2005, p.257). Crisp qualitative

comparative analysis (QCA) suits this dissertation better as it is a suitable method to pursue when

focusing on producing similarities and differences between two concepts or phenomena.

A second alternative method is this of the grounded theory. Grounded theory answer questions

explicitly and seeks explanations and predictions on a general level, without following the

traditional research process (Charmaz, 2008, p.155). The Ground theory method concerns the

generation of a theory in order to explain a phenomenon. On the contrary the authors here try to

explore a concept and its impact based on already established theories. Thus, the best choice for

this paper is the QCA.

Another method of analysis is discourse analysis. According to the Oxford dictionary, discourse

analysis is defined as: "Linguistics, a method of analyzing the structure of texts or utterances longer

than one sentence, taking into account both their linguistic content and their sociolinguistic

context; analysis performed using this method." In this paper we do not try to explore, for instance,

how the managerial communication could be affected by the use of HRA within a company, but

the main area of interest here is the exploration of HRA and what kind of influence it has in the

decision-making process of HR managers.

Another well-known and old method of analysis is content analysis. According to Saunders et.al.

(2016, p. 608) content analysis is an analytical technique that aims to separate the qualitative data

into categories, so that they could be quantified. This method would fit better in quantitative or

hybrid research (quantitative-qualitative). As we mentioned, the amount of quantitative past

research in the field of HRA is vast, whereas the pursuit of qualitative research, in order to explore

the opinions of experienced managers about HRA, is little. However, if the findings of this paper

draw attention, it would be interesting to see them getting analyzed in a future research paper with

the help of content analysis.

Conclusively, the authors believe that because there is little qualitative research within HRA, the

best method of analysis would be the crisp qualitative comparative analysis, as it has the potential

to be a great tool of analysis for the authors. Apart from that, QCA is the perfect fit because we

want to examine HRA in comparison to traditional accounting and draw conclusions about them

based on their similarities and differences.

3.7. Quality Criteria In this chapter the authors will explain and cover all four quality criteria for qualitative study.

These four criteria are validity, reliability, generalizability and internal validity (Saunders, et. al,

2016). These have been taken into consideration while writing this dissertation. The authors

37

understand the importance of the quality criteria, because if they want their research to be accepted

by the scientific community and not only, they have to follow and respect them. Saunders et.al

(2016, p.202) advocates that there are two different cases concerning the criteria of validity and

reliability and interpretivists. Interpretivists will either accept and try to adapt their research to

them or refuse to follow them because they are contradictory to the interpretivists’ principles.

Having that in mind, the four aforementioned criteria when they concern interpretivist approaches

become: dependability (parallel criterion to reliability), credibility (the parallel criterion to internal

validity), transferability (parallel criterion to generalizability) and authenticity criteria (Guba and

Lincoln, 1989, as cited in, Saunders, 2016, p.206).

3.7.1 Dependability The parallel criterion to reliability, dependability, according to Saunders et.al (2016, p.206) has to

do with the fact that in interpretivist research, the research focus is likely to be modified as the

research progresses and so dependability means to record all of the changes that may occur in order

to produce dependable results that can be understood and evaluated properly. In the semi-

structured interviews that the authors will use the focus might change according to the answers

that they will get. Having realized, they will try to record every discussion and extensively track

all the shifts that may happen, so that they can produce as much dependable results as possible.

This will lead to the easier conception and use of them in future research or studies. By respecting

dependability and following its “rules”, it becomes easier to offer to the scientific community. The

authors of this dissertation will try to include all of the records when they reach the transcription

phase so that they can extend the knowledge barriers of HRA for the readers.

3.7.2 Credibility According to Saunders et.al (2016, p.206), the parallel criterion to internal validity, credibility

emphasizes on matching the representations of the research participants’ socially constructed

realities to their actual intentions, and in order to ensure this match there are some techniques that

can be followed:

• Lengthy research involvement to build trust and rapport and to collect sufficient data.

• Use of reflection using a different person to discuss ideas and test out findings etc.

• Developing a thorough analysis that accounts for negative cases by refining the

analysis in order to produce the best possible explanation of the phenomenon being

studied.

• Checking data, analysis, and interpretations with participants.

• Making sure that the researchers’ preconceived expectations about what the research

will reveal are not privileged over the social constructions of the participant by

regularly recording these and challenging them during analysis of the data.

The authors here will use the power of reflection, by interviewing different people from different

companies, so that they can check if they give similar answers. There will be a lot of different

aspects being revealed as the interviews go on, but it is reasonable that at some point the opinions

being given will start looking alike. By using the reflections of the participants, the researchers

will be able to uncover their subjective conception of the concept of HRA and extensively they

38

will manage to gather useful insights and perspectives that will help future research to go forth and

finally manage to solve the huge problem of how to estimate and include the actual value of human

assets for an organization.

The credibility here will also be enhanced because the interviewees come from both of the authors’

working past. This means that there will be a good and relaxing atmosphere during the interviews,

that will generate positive feelings for the participants with the ultimate aim of creating a

trustworthy and friendly environment. When people feel the good atmosphere, they tend to trust

and reveal more useful insights. Finally, the authors have created questions that are based on all

the data and analysis that they have done so far on HRA and attempt to include them in the form

of questions, in order to check if they can be verified. If it turns out to be verified, then the value

of this paper will increase credibility-wise.

3.7.3. Transferability The next criterion that Saunders advocates of its importance in the qualitative studies is the parallel

to generalizability, transferability. Saunders et.al (2016, p.206) advocate that transferability

concerns the importance of the level of description of the research question, design, context,

findings, and interpretations, that will help the readers judge if it is possible to transfer the results

in their main area of interest or not. The authors here have already thoroughly analyzed their

research question and everything around it like how they came up with them, what kind of results

they intend to find, etc. Furthermore, the research design and context have been developed in a

way, so that the readers can understand why the researchers have chosen a particular design or

what the research context is. For example, by understanding why the authors chose to do

qualitative research, the readers will be able to accept or deny its significance and choose

accordingly upon transferring it to their area of interest. Finally, by being descriptive on the

findings and the interpretations of them, the researchers offer their readers a chance to deepen the

understanding of the subject and thus lead them to judge better if it could be transferable or not.

3.7.4 Authenticity criteria These criteria have been explicitly constructed for the interpretivist type of research and thereby

they are not conceived as parallel criteria, furthermore they can be divided into ‘fairness’,

‘ontological’, ‘educative’, ‘catalytic’ and ‘tactical’ authenticity criteria, whose aim is to promote

fairness by representing all views in the research, raise awareness, generate learning and bring out

change (Saunders, 2016, p.206). The authors have tried to cover as many views as possible

concerning the concept of HRA. The estimation of the actual value of human assets remains an

unsolvable issue and by choosing this subject and trying to examine it further the authors expect

to raise awareness within the scientific community. The authenticity criterion that the authors have

been based on the most is fairness. Fairness means that all viewpoints are represented even-

handedly (Johnson, et.al, 2016). Throughout this dissertation the authors have tried to be fair

towards the interviewees and treat them in an equal and fair way.

3.8. Ethical Consideration

In business and management research human participants are always present. Ethical concerns are

strongest when human participants are involved in research, regardless of whether the study is

39

conducted person-to-person (Saunders et al.,2016). According to Bryman and Bell (2007) four

major areas were identified of ethical principles that researchers should be aware of in order to

make proper decisions about the implications of certain choices. Since the findings of this thesis

are based on answering the research question through semi-structured interviews with participants,

we aimed to make sure that the following ethical issues were emphasized from the beginning of

this study.

First, “harm to participants”. At This Point harm can mean many things, including physical harm,

harm to participants' growth or self-esteem, stress, and harm to career prospects or future jobs and

inducing topics to conduct heinous acts. The researchers must be aware of this during data

collection and interviews, and if it happens, they must take appropriate steps to ensure that

respondents are not directly or negatively affected as a result of their participation in the research

project (Bryman & Bell, 2007). Keep that in mind in this thesis we made sure that no participants

were harmed or disrespected by our any steps. Confidentiality of participants, organizations or

places must be insured as a part of harm-to-participants principle. Second, “lack of informed

consent” principle ensures that the participants of a research are well informed about the research

process. For example, before starting the interview participants will be informed about the

observation technique or about the equipment to be used and consent will be obtained (Bryman &

Bell, 2007). To follow that before conducting interviews we emailed our thesis aim and process of

data collection to the participants and agreed upon their consent. Third, “Invasion of privacy”,

which refers that the aims of any study do not offer researchers a special right to violate a

respondent's privacy or to disregard normal respect for an individual ’s self - esteem. Participants'

anonymity and confidentiality should be respected during the study process. Personal information

about research participants should be kept private (Bryman & Bell, 2007). Conducting a qualitative

analysis often involves collecting in depth knowledge regarding participants and organizations.

However, in our report, we carefully maintained secrecy and confidentiality. As a result, the

individuals were referred to as professionals, and the organizations were identified by number to

protect their integrity. Fourth, “Deception” which occurs when researchers misrepresent their

research as something other than what it is, thereby misleading the participants (Bryman & Bell,

2007). Honesty was maintained throughout the process. We emailed the participants prior to the

interview to inform them about the research's background and aim. And the participants had the

choice to revoke their comment at any time.

Another four major research ethics criteria addressed by the Australian Council for International

Development (2017) were followed in this research. First, “Respect for Human Beings,” which

implies that all participants in the research participated based on their own choices, and their rights

and cultures are respected. Second “Beneficence” refers to the fact that everyone involved in the

research, including the researcher, should be benefited from it. Another important aspect is the

research must not harm any participants, prevent harm from occurring to others and manage

conditions that will cause harm. Third, “Research merit and integrity” which means the researcher

should have proper knowledge, the research must be well designed and carefully planned. The

process and outcome must be clear to all involved. And fourth “Justice” which refers to the

research is fair and inclusive. The participants should not be chosen based on discrimination or

biases.

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4. Empirical Findings This chapter presents the study's findings as well as a discussion of them in light of the theoretical

framework presented in the previous chapter. In addition to the theoretical framework, the

discussion focused on data obtained from the interviews. For the Crisp QCA method of data

analysis at first, we discussed which factor we determined value 1 and which factor 0. After that

we have identified different decision-making factors for four HR practices based on Patterson’s

HRM model and described the seven interviews.

4.1. Contextual Information

During the interview, we asked questions based on the decision-making factors (described in the

theoretical framework section) and presented the QCA tables based on the results. The structure

of this findings is based on traditional accounting and human resource accounting concepts and

how they are practiced in these seven companies, as well as the HR manager's decision-making

perspectives. To observe the two different experiences at first, we separated seven companies into

two groups. One group (company 1,2,3 &7) who follow traditional accounting and the other group

(Company 4,5,6) who follow HRA principles. Since the factors of the decision-making process for

four HR practices are different, we have presented all the factors under each HR practice by tables

and indicated them by Crisp QCA value. Factors with the value of 1 considered relevant for the

decision-making process in those organizations, while the value 0 is considered irrelevant.

By separating the seven companies into two different groups the authors will be able to understand

and present the similarities and the differences in a more thorough way. The selection of the

countries was random, as the problem that is being examined here has a more direct connection

with the HR job on an overall level. The industries that were selected for this dissertation were

mostly service-based companies or manufacturing ones.

We have chosen the below seven companies based on our accessibility to the organization. Many

companies were reluctant to discuss their HR decision-making factors with external parties.

Accounting information is the core of decision-making criteria for HR, however accounting for

human resources is still unique for many of them. Some companies follow HRA principles, or they

follow similar principles/techniques that they have developed. Since the topic of this study

involves confidential company information, all respondents decide to remain anonymous. In this

paper we will present the industries they operate, country, organization size and mention the

companies as company X (1,2,3 etc).

41

Company HRA or

Traditional

Accounting

Industry Organizational Size Country

Company 1 Traditional

Accounting

Telecommunication World-wide 90000+

employees. The number

of employees for this

branch is confidential.

Philippines

Company 2

Traditional

Accounting

Logistic company 2000+ Employees Bangladesh

Company 3 Traditional

Accounting

Footwear

manufacturer and

retailer

3500+ Employees Bangladesh

Company 4 HRA Food and Beverages

manufacturers

35,000 employees

worldwide, 200+ in

Bangladesh

Bangladesh

Company 5 HRA E-Commerce services 5500+ Employees Bangladesh

Company 6 HRA Ride sharing & E-

commerce services

500+ Employees Bangladesh

Company 7 Traditional

Accounting

Telecommunication 1000+ Employees Bangladesh

Table 2: List of the participants

Company 1: C1

Our first interview partner is a telecommunications company based in the Philippines. This is a

multinational company operating throughout the world with a large workforce. The interview was

conducted with the head of human resource department.

42

Company 2: C2

The second interview partner is a logistic company based in Bangladesh that provides services in

freight forwarding, custom clearance and warehousing. The company operates in the South Asia

region and around 10 countries. The estimated number of employees working in Bangladesh is

around 2000. The interview was conducted with the assistant manager of the Human resource

department.

Company 3: C3

The third interview partner is a footwear manufacturing and retail company based on Bangladesh.

This is a large local company with about 3500 workers. The interview was conducted with the

manager of the human resource department.

Company 4:C4

The fourth interview partner is a food and beverage manufacturing company based in Bangladesh.

This is a global company that operates around 35 countries. The estimated number of workers

worldwide is 35,000, with 200 employees working in Bangladesh. The interview was conducted

with the manager of the human resource department.

Company 5: C5

The fifth interview partner is an e-commerce or online shopping company in Bangladesh. This is

part of one global e-commerce company which operates in five Asian countries. In Bangladesh,

the total number of workers is estimated to be 5500. The interview was conducted with the Head

of Talent Acquisition & Employer Branding.

Company 6:C6

Our sixth interview partner is a ride sharing, food delivery, courier and e-commerce services

company based in Bangladesh. This company operates three cities in Bangladesh and also

expanded its business in another country. The total number of employees of this company is around

300-500. The interview was conducted with the Head of human resource department.

Company 7: C7

The seventh interview partner is a digital communication company based in Bangladesh. This is a

global company that operates in Asia, Africa and Europe. The estimated number of workforces

worldwide is 66,000, with 1000+ employees working in Bangladesh. The interview was conducted

with the HR Service Delivery Lead Specialist of the human resource department.

4.2. HR Practices

4.2.1. Recruitment and Selection Measuring an employee's economic value by HRA and estimating the financial budget through

traditional accounting can play an important role for HR managers during the recruiting and

selection process. Traditional accounting involves only calculating the total cost of the recruitment

and employee related expenses. Whereas HRA acknowledges the cost related to recruitment and

selection as investments so that the value of the employees can be expressed in a numerical way.

The decision-making process for recruiting and selecting employees in different organizations can

43

vary depending on a number of factors. However, based on the seven interviews we conducted,

we observed that every organization follows the basic rational decision-making process. At first,

departments identify the gap or identify why they require new employees, present the requirement

to the HR department, HR weigh the requirements, generate alternatives for recruiting the

candidates, evaluate alternatives by different methods and finally decide the right candidate for

that position.

Factors C1 C 2 C 3 C 4 C 5 C 6 C7

Budget/Fund 1 1 1 1 1 1 1

Education, Knowledge & Expertise 1 1 1 1 1 1 1

Treat employees as Capital 0 0 0 1 1 1 0

Employee Salary & Benefits 0 0 1 0 1 1 0

Attitudes & Behaviors 1 1 1 1 1 1 1

Acquisition cost 0 0 0 1 1 1 0

Summary 3 3 4 5 6 6 3

Table 3: Decision Making Factors of Recruitment and Selection

C1: The first one is a service-oriented organization that mainly operates business by selling its

services to other companies. According to the head of the human resource department of C1, the

decision to hire new employees is mostly influenced by the company's sales volume and

profitability. Which refers to traditional accounting information, such as yearly budgeting. If their

sales volume increases, there is a strong possibility they could hire more employees. And in order

to make the decision, they interact with their finance partner to know how much funding they have

for recruiting. Beginning of a year the HR receives a budget from the finance team and based on

that they need to foresee their future requirements and make decisions. According to C1, recruiting

the right attitude, behavior and clean background is very important. “We want to hire someone

with the right attitude and a clean record. That ensures the person who will be employed has no

history of violating local regulations. We ensure this by conducting thorough background

verification”. C1 practices a certain job grading system to distinguish its employees in different

44

stages based on their job levels and experiences. For hiring a right candidate HR also looks for

relevant educational degrees and skill sets based on different job grades. C1 views human

resources as a cost rather than a capital asset, so before hiring an employee, HR must monetize all

costs related to the hiring, the employee compensations. Salary and benefits are not used to

determine an employee's value in the HR recruiting process. They adhere to the local laws and

regulations. According to C1, having proper business knowledge is more important than human

resource accounting for better HR decision making.

C2: According to the interview with the HR manager of the second company C2, they use

traditional accounting information for their decision-making process. Although they treat their

employees as assets in the financial statement, they consider their employees as costs. From the

accounting department they get the financial information and budget to plan for the future

recruitment. For the recruitment and selection process the basic factor is job specification for C2.

“Each individual role has a different nature. The job specification allows us to define positions

based on the job nature, a candidate's required educational background, skill set, internal and

external communication skills, and attitudes”. The job specification can vary based on different

levels of employees. For the entry level positions educational qualification is important and for the

senior level positions skills and experiences are more important factors for hiring decisions. To

measure the actual cost of an employee C2 calculates cost to the company (C2C), which includes

the hiring cost, employment cost (salary, incentives,), training or insurance cost etc. The HR

manager claimed that knowing all the costs can help them to prepare their HR budget. However,

using traditional accounting practices, C2 can calculate the previous, current expense of

employment and estimate the future budget, which does not help to measure the employees' actual

value. According to C2, throughout an employee's job, HR conducts succession planning to

advance his or her career; compensation has little impact on measuring an employee's value. They

do not concentrate recruiting decisions on a candidate's previous and expected salary. Candidate’s

attitude is another basic factor during hiring decisions. “Positive attitude can change the work

environment”. According to C2, although traditional accounting information is used to measure

acquisition costs and assist in decision-making of HR, the manager argues that HRA would have

a greater effect on evaluating the real worth of employees, allowing them to make better decisions.

C3: The third company C3 practices traditional accounting information for their decision-making

process. They view employees as cost or expenditure. “We measure the cost of the employees,

prepare our budget and based on that take the decisions for the whole year”. According to C3,

hiring an employee with the right attitude and behavior is one of the main factors. “We deliberately

seek a good attitude. The whole structure, as well as our employee performance appraisal system,

consists of leadership, attitude, and behavioral competencies”. Recruitment decisions are also

made by candidates’ educational background and by knowing their knowledge and experiences.

However, these criteria vary by different levels of job stages. “We measure the value for both

(education and skills). However, skills are only considered where the role is critical or technical.

For example, the requirement for worker level minimum literacy is secondary school certificate

and technical skills”. Knowing the employees expected salary and calculating the cost incurred in

future for hiring someone also play an important role during the decision making of HR. According

to the HR manager of C3, “For each new role, there is a budget that must be maintained to attain

the target. As the cost is added to each product, increasing its production cost”. While C3

considers their workers to be an expense rather than a capital asset in their financial statements,

45

the HR manager believes that HRA or evaluating employees based on their actual value can be

extremely beneficial in determining the right candidates. “In our company, we are currently

working on HRA, with a goal of implementing it in 2022. We fully believe that it is the right course

of action, and our employees must know their value. Furthermore, our company should be aware

of the values that its employees bring to the business”.

C4: According to the fourth conducted interview, the company C4 practices HRA in their HR

decision making process for recruitment and selection practices. The manager of HR confirmed

that they use the historical approach of HRA to measure the value of some employees but not for

all. “All employees are not treated as assets nor as expenditure. We only invest in skilled workers,

and they are referred to as an asset for us, but in general, for documentation purposes, we consider

all, including employees, as an asset. In our operation, 20% of workers are counted as an asset,

as we are investing in them”. C4 considers expertise and prior experience to be more important

than an applicant's educational record when recruiting and selecting the right candidate. According

to the HR manager “In the previous five years, we focused a lot on the candidate's educational

record, but now we concentrate on the candidate's previous work experiences and what kind of

challenges he has experienced”. The test also varies based on different job levels. For the upper-

level position, they conduct psychological, leadership and managing skill tests. However, for the

technical job positions they focus on job related skills, here managerial or leadership skills are not

required. Based on the requirement of the specific job position the recruitment process planned.

Right attitude and behavior are the basic requirements for all levels of hiring. “We do not

encourage a lot of freshers. We want a ready staff; we encourage experienced people so that we

do not need to teach a lot of things. In the recruiting process, we want to determine whether or not

the applicant is trained. Since the right attitude cannot be taught, we make sure that the candidate

we hire retains this quality”. Another consideration of recruiting an employee for C4 is the budget.

Every year, HR is given a specific budget for recruiting new hires, and they must recruit and pay

salaries from that fund. HR can conveniently make decisions by estimating the total cost of the

process, salary, and benefits payment. The recruitment process contains four stages “First, we

conduct an online interview, then we pick ten employees and invite them to our office for some

group discussion and presentation, after that we sit with them face to face for some general

discussion, and finally, the HR and department head determine the candidate”. Although C4

makes some decisions based on funding and yearly budgets however, the HR manager of C4

claimed that HRA is beneficial during the recruiting and selection process. Since they can identify

the cost and measure the value of the employee using a historical cost approach.

C5: According to the fifth conducted interview, the company C5 performs HRA in their

organization, but not under the same name. They follow similar principles/techniques that they

have established. C5 uses these principles to measure the cost of hiring, developing employees and

also to evaluate their employees' value based on their knowledge and skills. C5 follows HRA

principles such as the historical cost model and the replacement cost model for taking recruiting

and selection decisions. Historical costs covered all costs incurred during the recruitment and

selection process, as well as operational costs such as staff compensation and benefits and

performance bonuses. Replacement cost covers the costs incurred by replacing the employee, such

as the former employee's provident fund and gratuities, the job circular cost for the current hire,

the interview process, and all costs incurred during the transition period. C5 considers all of these

costs, which facilitates their decision-making process. For C5 annual budget or funding is another

46

factor of recruitment. Before starting every year, they need to determine their fund and based on

that they can make decisions about how many people they can hire. C5 treated employees as assets

not as expenditure. However, it varies with the departments. According to the Manager of HR,

“Which departments can bring profits to the organization, for example, sales, such employees are

treated as assets, and HR, legal & corporate affairs, IT, finance, all of these four department

employees are treated as costs”. To measure the worth of the employees C5 uses five values:

customer commitment, teamwork., embrace change, integrity and ownership. The recruitment

process is different for three job levels. For the intern candidates educational background and job

required skill sets are important. For the fresher candidates they look mainly on the candidates’

long-term vision, educational plan, basic knowledge of the job requirements and openness to adopt

new challenges. For the senior level requirements C5 looks for previous experience and the

candidates’ behavioral factors based on the five values of C5. “For example, in his existing job,

what was his commitment, what were the values he has added in that organization, does he or she

have integrity problems or not”. The HR does reference verification and tries to find out their

previous achievements. Based on that they can decide. There are four stages of this process, mettl

test (aptitude and behavioral test, cognitive test), initial interview, interview with the head of the

department and interview with the managing director. Employee salary is another factor of this

process. According to the manager of C5, “What the candidates expect and what we offer must be

in line with our requirements. We calculate his monthly gross salary, festival incentives, and other

benefits such as transportation benefits, medical facilities, canteen benefits, cell phone ceiling,

provident fund, and gratuity. So, all the costs are measured apple to apple and compared. At this

time, HRA plays a vital role in the recruiting process, as well as during the negotiating stage to

recruit experienced and fresh candidates”. The authors found throughout this interview that, in

addition to traditional accounting information, evaluating the worth of employees and considering

employees as assets is an important element in determining hiring decisions for C5.

C6: According to the sixth conducted interview with the company's HR manager, C6 performs

HRA in their HR activities. However, they claim that measuring employee value is complicated

for all employees, but they use it in some specific departments, such as sales and acquisition. The

process of recruitment and selection practices can vary based on different positions for C6. In

general, for entry to the senior level of employees C6 looks for the candidate functionally fit or

not and their communication skills. Right attitude, behavioral aspect, and cultural fit are also very

important. For the fresh candidates they mostly focus on the educational background of the

candidate. For the senior level roles, they look for skills, knowledge, and previous experiences.

The decisions are also influenced by the budget, but they mostly do not compromise the quality of

employees. “We do have a budget. But if we found someone who is better, and his expected salary

is much more than that. We exceed our budget. So, the decision is the combination of quality and

budget”. During the recruiting and selection process, C6 follows the basic HRA principles of

historical cost and replacement cost and also the traditional accounting information. “We calculate

the cost of the whole process, such as recruiting someone or replacing someone, and depending

on the cost and value, we decide whether to hire someone new or retain the employee”. Although

C6 practices both accounting principles (traditional and HRA), according to the manager, HRA

can improve the decision-making process. “if we know the numeric value of the employee, we can

definitely make better decisions”.

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C7: According to an interview with the HR manager of company 7, HRA principles are not used

to evaluate the value of human resources in this organization. They use traditional accounting to

calculate the total cost of employees, which includes salaries, benefits, and other incentives.

“Employees are treated as an asset of the company; but then again it is not reflected in the

statement as an asset whereas in the Profit & Loss it is booked as a cost to the company. We use

the cost to company (C2C) method to evaluate an individual's worth”. For recruitment and

selection practices one important factor for C7 is their yearly budget. “The budget is prepared on

an annual basis depending on the total business achievements and everything. We seek the actual

costs as well as the future projected costs of a new employee. However, whether we want to

increase or expand the company or hire a new department or division, we will focus our decision

on the quarterly business case analysis. As a result, the budget reflects the business case analysis

and C2C method”. For C7, the basic requirement for selecting a candidate is to first ensure that

the role clarification is clear and meets the individual's requirements. The role clarification is an

extensive job evaluation form that indicates the traits and qualifications that an individual must

possess in order to be considered for that specific role. Employee’s attitude and personality is a

very important qualification for C7 to decide during hiring. The cost of evaluating an employee's

value, such as past and projected salaries, does not play a major role in hiring decisions. “The

decisions depend on the candidate's skills set, personal traits, previous experience and

qualifications including past training”. The HR department uses a game called knack, which

provides the candidate's basic attributes based on how the game was played, which they then take

into consideration when matching with the RC for the particular position. “The outcome of this

game gives us a better understanding of the candidate's personality, such as whether he is a soft-

spoken person or what characteristics he possesses. Educational qualifications come after the three

most important factors, which are the candidate's skill set, personality traits, and previous

experiences.

4.2.2. Training and Development The training and development sector of the HR tasks is one of the most important ones. The

decisions concerning the training and development of employees have a direct connection with the

value of a company in general. HR managers have to make decisions like selecting the most

suitable employee to offer him/her a chance to develop his/her skills through a development

program. The right choice here can ensure future profits through the exploitation of skills of the

selected employee. Another example could be the choice that an HR manager has to make

concerning the need for training of an employee. Here the manager should choose an employee

that his/her level of skills is below the average level among employees in the same department, so

that the chosen employee could have a second chance to improve his/her skillset and offer more

to the organization. After interviewing all of the firms the authors concluded with a list of factors

that can be very important for this HR area. All of these factors below were mentioned by the

interviewees of the different companies.

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Factors C1 C2 C3 C4 C5 C6 C7

Knowledge gaps identification 1 1 0 1 1 1 1

Job Level 1 1 1 1 1 1 0

Learning Cost 1 1 0 1 1 1 0

Leadership Development 1 1 1 1 1 1 1

Opportunity for Career Advancement 1 1 1 1 1 1 1

Use of HRA 0 0 0 1 1 1 0

Summary 5 5 3 6 6 6 3

Table 4: Decision Making Factors of Training and Development

By separating the seven companies into two different groups the authors will be able to understand

and present the similarities and the differences in a more thorough way. The selection of the

countries was random, as the problem that is being examined here has a more direct connection

with the HR job on an overall level. The industries that were selected for this dissertation were

mostly service-based companies or manufacturing ones.

C1: The first company that the authors examined does not acknowledge its human capital as assets,

rather as costs in their financial statements. This means that they do not follow one of the practices

of HRA. The HR manager explained that they try to estimate the value of their employees through

performance evaluation. From an accounting point of view, the manager said that they use out of

book entries only for internal reasons, meaning that these entries can be used only by company

managers as a tool so that they can understand the value of their employees and make their

decisions accordingly. The HR manager continued by explaining on a more profound level the

way his company estimated the value of their employees. They have separated their employees

into different job stages according to the level of knowledge, experience, language skills and

behavioral skills. After having separated the employees in each department according to the

aforementioned way, HR managers start to evaluate their performance either yearly or quarterly.

The different job stages offer has been created, so that the evaluation performance can be more

precise. Furthermore, this company cares a lot about the quality of their employees in high level

positions and this can be understood by the many different development programs that they offer.

For example, they offer leadership programs that they aim to develop the leadership skill sets of

ambitious employees. Additionally, they encourage the promotion of their employees, by offering

development programs. “We see our employees as the CEOs of their careers.”. From this

expression it is understandable that quality is important for high level employees. On the other

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hand, when it comes to lower-level employees, the opportunities, and programs that they offer are

limited. These types of employees are treated purely as a cost and there are almost no development

programs for them. These were the most important findings from the first interview that concern

the training and development managerial task.

C2: The second company is a service-based company and thus when it comes to training and

development, they focus on developing the communication skills of their employees and generally

their soft skills. As an HR manager, he tries to identify the knowledge gaps that his employees

may have and offers them training based on these gaps. At the beginning of each year the HR

manager gets a specific budget, and he has to delegate it accordingly to his employees for training

and development purposes. Every year they offer some standard training programs in excel word

and powerpoint and whoever thinks that needs training in these areas can join. When it comes to

HRA, this company uses the historical and replacement cost as a tool for training and development

purposes. In a general sense the manager advocated that the accounting information helps him

delegate the budget accordingly for every task that he is responsible for. The company does a

performance assessment for every employee based on his/ her competencies, in order to determine

who is eligible for promotion or who needs training. “I am responsible for giving my employees

the chance to develop themselves within our company or for detecting their knowledge gaps and

offering them the right programs to cover these gaps.” Finally, the manager advocated that the

company covers expenses for further education of its employees. For instance, if a talented

employee wants to develop herself/himself by pursuing a master's degree the company can cover

the expenses. This provision concerns only employees that are performing better than the average.

C3: The third company under examination here follows the traditional accounting approach as an

impact to the decision-making process of the HR managers. To begin with they use KPI indexes

in order to measure the performance of their employees. Then the HR manager uses the data that

he takes from these indexes and makes decisions concerning the development and training of the

employees. The KPI indexes include indicators like quality, cost, financial, flexibility, delivery

reliability, employees’ satisfaction, customer satisfaction, environment/community, and learning

and growth (Bhatti, I., et.al, 2013). The use of this performance management tool has improved

the quality of decision-making of the HR manager for matters concerning the training and

development task. As a footwear manufacturer and retailer this company has numerous retail and

manufacturing employees. The manager advocated that apart from the KPI indexes, the company

measures the productivity for the retail employees and efficiency for the manufacturing ones. “By

knowing the productivity and efficiency performance of my employees I can make decisions about

who is eligible to get promoted or join a development program and who needs more training”. To

continue, the HR manager said that they provide many opportunities for the management people,

but not that many for the lower-level employees. They have separated the management positions

into 3 different categories. These are the leadership team, the second line managers and the

management people. They use the aforementioned performance evaluation ways only for this type

of employee. The company offers many opportunities for internal development for these

employees. They have leadership development training programs, skills training programs and

behavioral programs. They also have specific skill development programs, like functional

development programs, communication skills development and negotiation skills training. The HR

manager is responsible for selecting the most suitable person to offer an opportunity like that. He

bases his choice on either productivity or efficiency ratios and on the KPI system. When the

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productivity or efficiency of a high-level employee starts reducing, then the HR manager should

have monitored the situation and offered a training program to this person. “I monitor the

performance of my employees on a monthly basis so that I am ready to make the right decisions

for development and training purposes”. Frequent performance check is the key for his decision-

making process for this task. Finally, the lower-level employees are treated as just costs for this

company and they have no further way to measure the performance of them. All in all, the manager

concluded by saying that they are not quality-oriented companies when it comes to its employees,

as most of them belong to the lower-hierarchy levels.

C4: The fourth company that is under examination in this paper is a food and pharmaceutical

company. In this company they give a lot of attention to the newly recruited employees as they

offer many different onboarding training programs. The areas that they aim at training when it

comes to new employees are communication, IT and leadership skills. “Here in this company, we

want to invest in new recruits, that’s why we offer so many training programs.” The main target

of the HR department is the increase of the quality of the employees that decide to join their

company. As an HR manager, he has to base his decisions concerning matters of training and

development on the knowledge gaps that the employees may have. For example, the HR manager

has to communicate with line managers in order to stay constantly informed about the needs of

their employees’ knowledge-wise. By doing that, the HR manager is able to decide which

employees must pursue a training program in order to improve their working performance and

which employees are eligible for following a development program with the purpose of getting

promoted in the future. The company sets specific objectives for its employees every year, after

setting the objectives the HR manager examines the level of accomplishment of these objectives

for each department, in order to make decisions about training and development purposes. This

means that if employees have managed to accomplish every goal of their beginning-of-the-year

objectives, they can automatically apply for a development program, so that they can pursue a

promotion. This company uses the historical cost approach for decisions concerning the training

and development HR managerial task. “By knowing the actual value of our employees based on

the historical cost approach the quality of my decision-making process has been improved.” He

continued by explaining more about the use of the historical cost approach. “This is a very helpful

technique for HR managers, as it acknowledges the human capital of the company as assets and

helps understanding the actual cost incurred for training reasons. By using this approach as a

tool, I can make more precise decisions when I have to select who is eligible for getting promoted

for example.” The HR manager told the authors that an employee must be working in this company

for at least 2 years in order to be promoted, and of course she/he must have accomplished most of

the objectives that have been set. The philosophy behind that is that employees must first

understand the business, and everything needed according to their department, to reach a level of

being able to seek a promotion. He continued by saying that his company has 3 different types of

training based on the geographical position of the company, meaning that as it is a big firm it has

branches both in the same country and in others too. Consequently, the programs that are being

offered are internal (within the same company), external (within the same country but different

branch) and foreign (branch in another country). Lastly, another policy that the HR manager

mentioned in this section is that if the company has invested more than 3000 USD on an employee

then this employee must retain his/her position for at least two years, before he/she is able to resign.

This is a type of internal agreement that ensures a kind of future return when it comes to employee

investments.

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C5: The fifth company follows HRA practices for training and development purposes, in the form

of separation and historical cost approaches. First of all, new recruits must participate in a seven-

day mandatory training period. After this training phase is over, another training phase continues,

in which the new recruits have to be trained by line managers depending on the nature of their

position. “We try to provide our new recruits all the tools needed, so that they can have a strong

start. By this way we ensure that everyone starts with the required knowledge and with the same

chances for a fruitful development within our company”. They also offer online courses for

training purposes. As we mentioned when it comes to evaluating the employees the company uses

the historical cost and the separation cost approach in combination with KPI indexes. “In the past

I have worked in a company that didn’t use HRA at all, and in comparison, to my present position,

I can tell you that HRA has helped me improve the quality of my decision-making process.” The

KPI indexes play a major role for decisions concerning the development of employees like who is

eligible for promotion and who is not. The people responsible for monitoring the progress of the

employees in the first place, are the line managers. The line managers will express their opinions

to the HR managers and then the last ones have to decide about matters of training and

development among their employees. Line managers’ opinions and justifications are of the utmost

importance because they constitute the pillar of one employee’s development or training.

Furthermore, this company has something unique in comparison to all the others in this

dissertation, as they offer the chance of promoting or moving from one department to another,

which extensively influences the whole core of the business. “By doing that we aim at encouraging

our employees to offer their fresh ideas for different departments''. He added that the importance

of HRA in this HR managerial task lies under the fact that it helps a lot in the budget planning

task. Meaning that they can divide the budget they have better among their employees for training

and development reasons. They offer both live and online courses for training purposes. Of course,

after the pandemic started, they stopped offering live courses.

C6: Decisions concerning the training and development task are taken according to the different

levels, functions of the employees, their current roles, and future roles. Meaning that as an HR

manager she needs to consider all these factors, before deciding which program is the most suitable

for a particular employee. Secondly, decisions about training are made based on the knowledge

gaps that employees may have. “If we select a specific person for a specific position, we try to

identify his/her knowledge gaps and offer training programs to adjust these gaps and increase

their performance”. HRA here plays a major role as it works as a tool for HR managers so that

they can improve the quality of their decision-making process. “By knowing the value of higher-

level employees in numbers, I am able to make the best possible decisions, concerning their future

in our firm”. They first try to identify his/her weaknesses and after that they develop this employee

within the firm. The people who are in charge of making decisions concerning the training and

development of the employees are the line managers and the HR managers. First the line managers

select the employees they believe they have potential based on their performance. After that the

HR managers interview these employees and select the best ones. In order to train and develop

their skills, the employees have the chance to select a training or development program, apart from

the classic approach, in which the line or HR managers choose the programs for their employees.

“We believe in quality and to increase quality you have to profoundly care about your employees”.

There is a wide variety of programs offered by the company. Some of them are business

communication, excel, business ethics programs, etc. For management employees they offer

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specific skills training like negotiation skills or leadership skills training programs, additionally to

the earlier mentioned programs. When the authors asked if the company considers the cost of all

these programs, she answered that the cost for generic training programs is insignificant, as most

of the programs are offered online. On the other hand, for specific skills training programs that are

offered to the management employees the costs are taken under serious consideration, as these

programs tend to be expensive. More specifically when it comes to skill-based training HR

managers have to review the costs and pick the best possible solution according to the budget they

have been given. The HR manager also told the authors that their company tries to calculate the

future profits that a promising employee may bring to the company, with the aim to estimate the

amount of leadership skill training he/she needs in order to reach his/her potential. Overall lower-

level employees have the opportunity to be promoted within the company as there are training and

development programs for every layer and department of the company.

C7: For development purposes company 7 has individual development plans. This plan focuses

on three different categories. The first, concerns the functional competency of the employees. “The

functional competency includes all the competencies that are required for a certain role, that an

employee needs to develop or train, so that he/she can get promoted”. The second category that is

part of the individual development plan is the provision of courses that aim to the development of

specific skills, for example information, assessment, leadership or negotiation skills. “The second

category is very significant for employees that see a future in our company”. The third and last

category of the plan has to do with the behavior of the employees within the firm. The company

offers behavioral courses in order to formulate a good working environment. “One of the most

important factors for a successful company is the good relationships among its employees.” For

training reasons, HR managers use KPI to see which employees’ performance has dropped or

decreased significantly and upon that they decide who has to join a training program. These

training programs can be even 3 months long, according to the importance of the knowledge gap.

“Usually, the programs last 1 or 2 weeks, but for some cases they can reach a 3-month period”.

To continue, as a company they use a linear scale to calculate the costs of the training programs

and if the investment will be fruitful for the company in the future. The HR manager told the

authors that he focuses on 9 specific competencies for training and development matters. These

competencies are customer focus, digital business acumen, driving results, experimentation,

strategic thinking, collaborative working, leading and developing teams, integrity and ethics.

“These 9 competencies are then benchmarked into classroom education on the job training and

functional development relationship”. There are 3 different ways of providing training or

development chances. The first one is classroom training, the second one is on the job training and

the last one is via online courses. The company has integrated these 9 competencies, in the form

of different classes, within the individual development plan. They follow a 70 20 10 module, which

means that overall training consists of 70% on the job training, 20% behavioral training and 10%

of classroom training. “When the individual development plan starts to run, every employee has

the potential to choose which competency they want to focus on and accordingly select a training

program.” This company does not use HRA for training and development tasks. When the HR

manager asked about his opinion of HRA and what impact it may have in training and

development, he advocated that: “If we can map out our competencies and manage to translate

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the qualitative data into numbers, then we could increase the quality of our decision-making

process”. Finally, the company does not have a way to calculate the future benefits that a specific

employee may bring to them, because of their business culture. “We aim to present, we don’t look

at the future that much, this is our culture as a company”.

4.2.3. Retention and Turnover Many companies now recognize that their employees are their most valuable commodity. Knowing

the costs and expenditures of human resources, as well as calculating their economic worth based

on their attitudes, skills, expertise, personality, morale, and organizational culture, can facilitate

HR managers in retaining their most valuable staff and reducing workforce turnover for the

company. Evaluating the value can be possible by monetary (cost based) and non-monetary (value

based) approaches. In this practice traditional accounting information can provide them the

forecast of future cost of retention and turnover. On the other hand, if the HR manager can evaluate

the employees’ attitude, it can be helpful to predict the employee's satisfaction level and retention

tendencies. The decisions and practices of retention and turnover can vary in different

organizations. Some companies use monetary approaches, while others use non-monetary

approaches, and some use a combination of both.

Factors C1 C2 C3 C4 C5 C6 C7

Growth Opportunity N/A 1 1 1 1 1 1

Employee performance & productivity N/A 0 1 0 1 1 1

Separation cost N/A 0 0 1 1 1 0

Employee attitude & behavior N/A 1 1 1 1 1 1

Reward and Recognition N/A 1 0 1 1 1 1

Summary N/A 3 3 4 5 5 4

Table 5: Decision Making Factors of Retention and Turnover

C1: The authors of this paper did not gather data on retention and turnover practices from the first

company interviewed. Since the HR manager considered that it is a confidential and sensitive area

to share their information with external parties. The authors appreciated his/her decision and chose

to proceed forward.

C2: According to the interview with the assistant HR manager of C2, the most important factors

of retention and turnover practices for their company are KPI for yearly retention target, succession

planning for employee growth, better working environment, employee attitude and behaviors and

employee recognition programs. This company practices a yearly target which is maximum 3%

for their turnover ratio. To retain employees HR practices different motivational approaches. C2

offers a good work environment for their workers, competitive benefits, and employee growth

opportunities. From the beginning of hiring new joiners HR does succession planning which

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includes employee engagement programs and career development plans. Therefore, C2 tries to

ensure their employees are satisfied with their career development and willing to stay with C2 for

the long term. In this practice from the accounting part, they gathered the yearly budget,

development planning cost forecast, the cost calculation of monetary rewards and employee

benefits and incentives. Although from this kind of cost C2 cannot measure the actual value of

their employees’ skills and expertise but they appreciate the best employees with some monetary

recognition rewards. For the retention decisions C2 does not measure the separation cost of

employees. However, according to the HR manager he claimed that measuring the actual value by

cost and employee expertise and calculating the separation cost will be more effective to take

retention and turnover decisions. C2 practices exit interviews to investigate the reason behind why

an employee wants to leave. This kind of interview is helpful for HR to identify the root causes of

employee turnover intentions and try to resolve those issues.

C3: According to the interview with the third company, they practice traditional accounting.

During the retention or turnover of employees C3 mainly focuses on two key factors, one is

disciplinary actions of their employees and other factor is rationalization. “Rationalization implies

that in order to keep someone, efficiency and productivity are important. When an employee is not

effective enough, the employer will have further training. However, if he or she is just unable to

produce results within a reasonable time frame, C3 will release the employee. Furthermore, if an

employer does not require a position for an extended period, the employee needs to be released.

All terminations are carried out in accordance with local labor laws”. The HR manager practices

rewards and recognition programs for their employees. As per him it can be helpful in order to

retain a productive workforce. Through appreciation and work satisfaction, this will increase the

employee's value. HR measures the value and benefits that the employee can bring by his

productivity and makes retention decisions based on that evaluation. However, in C3 with the

traditional accounting practices HR does not spend monetary appreciation for their employees.

They quantify the monetary rewards as a cost. Although C3 does not adhere to HRA standards,

the HR manager believes that HRA is extremely beneficial to a company's retention and turnover.

“HRA can improve employee satisfaction and brand awareness by creating value for employees.

C4: According to the interview with the fourth company, they follow both traditional and HRA

principles in their organization. They do not use a full HRA to evaluate their staff during retention

and turnover practices. However, they follow other methods. For the decision-making process of

retention and turnover the HR practices exit interviews with the employees. “Exit interviews are

performed to identify the reasons behind employees' resignations. Depending on the exit interview,

we can potentially reduce our turnover rate. We discover from the exit interviews that certain

employees are resigning due to the pay structure, or someone is resigning due to the superior's

inappropriate behavior. Through the exit interview, we identify the root causes of employee

turnover intentions and try to resolve those issues”. While the turnover rate cannot be completely

eliminated, for C4 exit interviews play an important role in reducing it. C4 invests in their

employees' career development by providing them with costly training and projects. As a result,

as a retention program, when they send employees abroad on long-term projects, the employer

also makes an agreement for the employee to remain with the firm for a certain period of time.

Because after investing a huge amount the separation cost would be high. HR uses accounting

calculations to calculate the cost of investment and the benefits they will get from employees in

the future and to make retention decisions. Retrenchment is another factor of employee turnover.

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“Which means that an organization has a large number of workers but a small number of tasks”.

At that point, the organization would let go of certain workers. C4 complies with local labor laws

when it comes to terminations of some sort. For retaining an employee, the attitude and behavioral

principles are more important than employees’ skills and knowledge. And the principles are the

same for all levels of employees for example, fresh employees to highly skilled employees. C4

practices monetary and non-monetary appreciation for the employee's career development. “We

try to provide a long future and a long hope to each employee from the beginning of the recruitment

process. For example, we demonstrate and train the employees in which (superior) positions they

would obtain if they work with this organization for the next two to four years”. Although C4 does

not use HRA principles to determine employee value in this activity, they assess their staff and

make retention and turnover decisions using traditional accounting and their own methods. Since

they already implement HRA principles to other HR practices, the HR manager acknowledged that

applying HRA principles to this method would be more helpful.

C5: According to the fifth interviewed company C5 practices HRA for the retention and turnover

practices. According to the HR manager, HRA plays a major role in employee engagement and

employee branding, which come under the retention program and create employee value. “Values

are created through internal, external employee branding, and employee engagement programs.

HRA assists in determining benefits measurement during the cost analysis. For example, if we

spend money on these employee activities, what will the company gain in return”. C5 tries to create

employee value by monetary and non-monetary recognitions. “We believe that an employee's

salary is not the only performance indicator that motivates him or her to stay with the company.

Other principles relate to these kinds of matters, such as whether his or her career is developing

or not, and whether or not he or she is rewarded for some sort of extraordinary performance.

Similarly, his or her salary is increased or not depending on his or her performance or

accomplishments”. Reward and recognition Another factor of retention and turnover is the

employee performance and employee attitudes. “Our performance measurement consists of 70%

performance, and 30% value”. Based on this, whenever any employee performs below the

average, HR may make decisions about whether to retain or release the employee from the

organization. Retrenchment is another factor of employee turnover for C5. If the business is not

profitable or in a loss position, they cannot retain all employees. In this case HRA helps to

determine and prepare for the future. HRA allows HR to measure the employee's separation cost

and the budget for the year, depending on that the decisions are made. “All costs are provided to

the HR head; he calculates and evaluates the costs based on business requirements and makes

decisions”. If the company invested more in its 20% workers and developed them as assets for the

company, HR will aim to keep those employees after assessing the budget, costs, and profitability.

C6: According to the sixth conducted interview the HR manager practices HRA in their decision-

making processes of retention and turnover. For retention they have some basic factors. “Ensuring

employees good compensation, providing them a good work environment and growth

opportunity”. HR implements these techniques in their continuity policy, but anytime an employee

requests to leave, HR conducts an exit interview to identify reasons for the employee's leaving and

work to fix it. “For example, if any employee wants better compensation, HR evaluates his

performance. If the employee really deserves a raise in salary based on his performance, HR

responds accordingly. If an employee wants to progress or is willing to take on new roles, HR

transfers him or her to other divisions and gives them the opportunity to explore themselves.

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Knowing an employee's separation cost facilitates the HR manager when deciding whether to

retain or release an employee. According to the manager of C6, “If an employee resigns and we

know that replacing him would be even more costly, we make every effort to retain him. But if we

know that if an employee resigns, we can replace him at a much lower cost. We don't make a

concerted effort to retain him”. The HR manager agrees that reward and recognition are also

essential factors in valuing their employees' efforts. “Reward and recognition can help him feel

valued. We make every effort to appreciate, recognize, and reward our employees based on their

achievements and performance”. Although C6 uses both non-monetary and monetary rewards, the

cost of monetary awards is irrelevant when it comes to appreciating their human resources. When

it comes to making decisions on staff turnover, employee performance and productivity are

important factors. Employee attitude, behavior, and cultural etiquette are also critical for C6. Any

sort of termination is always carried out in accordance with local labor law.

C7: According to the seventh conducted interview with the HR manager, they do not use HRA in

their retention and turnover decision-making processes. However, the information they obtain

from the accounting department facilitates them in making decisions in this HR practice. The basic

retention factors for C7 are openness of company objectives to every employee, treating everyone

in a respectful manner, trust between employees and senior management, clarity of pay structure

and projection of career path. Employee attitude and behavior are important for retaining them

which is applicable for both ways. The superior employees should treat their subordinates in a

respectful manner and vice versa. Projection of career path implies growth opportunities for the

employees. “For example, the employee knows after two or three years if he/she works in this role

where he/she is heading to”. Performance and productivity of the employee also helps the HR to

decide whether they want to keep the employee for long term or not. If the employee can prove

themselves efficient C7 invest more on them and develop him for long term survival for the

organization. “After six months, we project his future career path and direct him to develop himself

based on his performance evaluation, his attitudes toward everyone, and his presentation and

communication skills”. C7 does not calculate the separation cost to evaluate an employee’s value

when he/she leaves the organization. “The exact number/cost is not taken into consideration in

this decision, but we do offer employee role swapping, overseas assignments, or other projects to

explore themselves further. However, when making exit management decisions, we do not consider

how much it would cost to retain or how much numerical value we need to maintain”. For the

decision-making process of retention and turnover the HR practices exit interviews with the

employees. “Before the employee's final settlement, we conduct an exit interview with our HR

business partners and the employee. We ask some questions to find out the gaps, such as why is he

quitting, what are the main reasons for his decisions, how can we improve, and what changes he

would like to recommend for us to improve in the future”. However, the exit interview is not

conducted to maintain this specific employee; rather, the information is collected and analyzed for

future purposes. C7 practices some monetary and non-monetary reward and recognition programs

to value their employees. “They refer to it as a game changer event, that they conduct on a

quarterly basis for the whole organization. Based on the performance and action points (KPI) the

employees are being nominated by their peers and colleagues. Whoever gets the most nominations

are declared the winner of the game changer program. He/she gets both non-monetary and

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monetary recognition”. Although C7 practices this kind of reward and recognition mainly to

appreciate and value the hard work of their employees. The HR manager believes that the cost of

the monetary reward is also considered before planning for future motivation plans.

4.2.4. Performance Management

Factors C1 C2 C3 C4 C5 C6 C7

Key Performance Indicator (KPI) N/A 1 1 0 1 1 1

Yearly Performance Target N/A 1 1 1 0 0 1

Job Level N/A 1 1 0 0 1 0

Reward & Recognition N/A 1 1 1 1 1 1

Employee productivity & Efficiency N.A 0 0 0 1 0 0

Use of HRA 0 1 1 0 0 1 0

Summary N/A 5 5 2 3 4 3

Table 6: Decision Making Factors of Performance Management

C1: The HR manager of company no.1 gave us limited answers for the performance management

of his company. “As the employee retention and turnover, performance management tasks are

confidential”. Thus, the authors managed to gather a limited amount of information. For example,

he said that they set specific targets for the employees at the beginning of the fiscal year, and they

check they check the progress in the middle of the year. The performance management of this

company is mostly handled by the line managers. They are responsible for evaluating the

employees. Then the results are forwarded to the HR manager, in order to make crucial decisions

for the firm. Overall, HR managers create the working framework, and the line managers are the

executioners.

C2: The manager of HR of this company explained to the authors that overall, they use

management by objectives. This means that at the beginning of each year the company sets specific

targets to its employees, so that at the end of the year the HR manager can evaluate the performance

of his employees according to the level of accomplishment of the targets. “The company sets

different targets for each specific department and based on them I evaluate the employees.” With

the use of KPI indexes as a tool the HR manager can evaluate the level of achievement of the pre-

set targets more accurately. “The use of KPI indexes makes my job easier as it offers a clearer

picture of the performance of my employees.” He continued by saying that he uses the historical

and replacement cost in the performance management as a tool, but overall, this company

acknowledges its human capital as expenses.

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C3: This company practices human capital management instead of HRA. This means that for the

evaluation of their employees they use a balanced scorecard. The use of the balanced scorecard

enables organizations to achieve an integrated and aligned balanced focus among its 4 perspectives

(financial, customers, internal business processes, and innovation, learning and growth), which

collectively underpin the achievement of the organization’s vision (Chavan, 2007, p. 394). 70% of

the evaluation is based on the level of accomplishment of the goals and 30% is based on the

leadership skills of the employees, meaning that employees with a plethora of leadership skills get

a better valuation than employees with less. Among other competencies of performance

evaluation, the firm includes learning and development competencies, financial and 17 different

competencies for leadership skills. “I don’t want to go into further details about the competencies

as they are confidential.” Apart from the balanced scorecard, the company uses KPI as an

evaluation tool. These two tools are being used only for management employees and higher-level

employees in general. When it comes to lower-tier employees HR monitors their performance on

a daily basis, based on productivity or efficiency.

C4: The HR manager of this company evaluates his employees on a yearly basis. This is the

traditional way of executing this task as an HR manager. The manager explained that there is no

use of HRA for this task. “As a company we want our employees to feel involved in every possible

way, and that’s why we have given them the opportunity to evaluate themselves”. The evaluation

process starts with the employees evaluating themselves, then they give the evaluations they made

to the HR, who then takes their input under consideration and makes crucial decisions.

“Subordinates also have the power to evaluate their superiors”. The engagement of the employees

in tasks that do not belong in their area of expertise, can make them feel like valuable assets of the

organization and extensively create a good working environment. Finally, the last question

concerned the opinion of the HR manager about the use of HRA. “We use HRA for recruitment

and selection and training and development purposes not for performance management. I believe

that it would be good if we insert HRA for performance management tasks, as it could help me

improve the decisions that I make.”

C5: As an incentive method to increase the performance of the employees, the company gives

bonuses to whoever is the employee of the month or the quarter. That is one way of evaluating

their employees. There is no use of HRA on this task. A second way that we use to evaluate our

employees is the KPI system. “We use KPI indexes in order to evaluate the commitment to

customer service, integrity and perseverance and these indexes are checked by line managers”.

The line managers are responsible for checking the different indexes at first place and then they

pass their valuations to the HR managers, so that they can proceed with their decision-making

process. The overall performance of an employee for this firm is derived from 70% productivity

and 30% of value. “We have integrated employee engagement and employee branding in our firm

to boost performance.” As there is no HRA, the costs concerning employee branding and

engagement are handled as just expenses.

C6: The HR manager of this company started by saying that in this company, she evaluates the

performance of her employees on a yearly basis. First of all, the employees start by evaluating

themselves. They have to answer a paper form which includes open- ended questions and multiple-

choice questions. “Some of the questions that are included in this form are: what were your

achievements throughout the year? What do you believe you could have done better?”. After this

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evaluation part is finished, the employees are getting evaluated by line managers. The line

managers use the same questions in order to evaluate their employees. The last level of evaluation

comes from the HR manager. “I take into consideration both the employees’ self-evaluation and

the line managers’ evaluation to draw critical conclusions”. The decisions she must make are

connected to the aforementioned HR tasks. For example, she has to decide who is eligible to grant

a bonus and who is not according to their performance or who has knowledge gaps and thus he/she

is in a need for training. The manager advocated that her company uses the historical and

replacement cost as a tool in order to calculate the costs needed in the performance management.

When it comes to the sales team, they use KPI to evaluate their performance, but it is strictly for

the sales team only. She continued by explaining that because this company is a startup, the

workload is unpredictable and thus it is very difficult to set specific goals at the beginning of a

fiscal year, as they will probably shift during the year.

C7: The HR manager of this company started by saying that the employee performance evaluation

is being done in two ways. First of all, the KPI indexes are being used to offer a clearer view of

the employees’ performance and secondly the values and competencies of the employees are taken

into account. The line managers are responsible for the KPI indexes and the measurement of the

values and competencies of the employees. The HR manager impacts only the latter category in

this company. “By using useful elements about my employees from the line managers, I am able

to formulate the nine-box matrix, which is used to identify high performance employees.” To

continue, the manager said that his decision-making process for performance management

purposes can be categorized into 3 layers. The first thing is to calculate the KPI for the employees,

then the employees give feedback to the company. “The opinions of our employees matter a lot

and we as a company try to hear what everyone has to say”. After that the employees sit together

with the line manager and HR manager, in order to discuss what he/ she is in need of. Overall, the

performance management is based on the level of the goals that has been achieved by a particular

employee. Employees are able to get a bonus, if they have achieved the targets that have been

given to them in the beginning of the fiscal year. Finally, the manager continued by telling the

authors that they do not use HRA for performance management matters.

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5. Analysis and Discussion

In this chapter the authors will attempt to analyze the findings that came up from the interviews.

The analysis will be carried out based on the research question and literature review of this thesis.

The authors will begin this study by analyzing the similarities and differences in the HR practices

of the two types of organizations (traditional accounting and HRA). Following that, the authors

would analyze the selected four HR practices using the Patterson model and discuss all of the

decision-making factors from the seven HR manager interviews. The analysis will be carried out

based on the decision-making factors between traditional accounting & HRA focused

organizations. Lastly, in a summary the authors will present the influence of traditional accounting

information and human resource accounting (HRA) on HR managerial decision-making

processes.

5.1. Analysis

First of all, we will start by providing a general image of how the interviews were conducted.

Overall, the interviews were conducted in a free speech environment, meaning that we let the

discussion drive us to crucial questions and answers. We began by creating a specific

questionnaire, which we sent to each of the interviewees via email before the meeting day. Then

we met them via messenger video call and started the fruitful conversations. We started by asking

them the questions we have created, but as aforementioned we implemented a free speech

environment, from which we managed even more interesting information. The interviews lasted

between 40 to 60 mins. All of the interviewees have HR management positions within different

companies. With respect to confidentiality, we did not share the names of the companies or the

names of the interviewees. Most of the managers were keen on sharing crucial elements for the 4

HR tasks we chose to examine. They told us that our subject is very interesting as it concerns a

nascent concept within the business world. Furthermore, they told us that they are looking forward

to receiving our thesis after it is done. This intense concern shows us that human resource

accounting is a very significant chapter for corporations and will play a major role in the future.

As we discussed in chapter 2, according to Pattreson's model HR practices can increase business

success by selecting right employees, growing employee knowledge and skills, promoting positive

behaviors and motivation, and providing employees career opportunities so they can make the

most use of their expertise and abilities (Thierry, 2018). The interview guide was prepared based

on the decision-making factors of each HR practices according to the Pattreson's HRM model. In

each interview, we first inquired about the participants' general knowledge of human resource

accounting or traditional accounting information, as well as how they practice it. This allows us to

categorize the companies into two groups. During our interview with the HR managers of seven

traditional accounting and HRA-focused companies, we asked them about several factors of their

decision-making process to determine which they use and consider important in their

organizations. C1, C2, C3, and C7 are the organizations that use traditional accounting information

in the HR decision-making process. C4, C5, and C6 are the three organizations that use HRA. We

used qualitative comparative analysis to compare the differences and similarities between both

types of organizations' decision-making factors. The analysis is carried out based on the decision-

making factors between these two groups of companies HR practices. We assigned a score of 0 to

those companies who believe the factor is irrelevant and a score of 1 to those who believe it is

important.

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5.1.1. General differences and similarities between traditional accounting &

HRA focused organizations

Following the interviews, we considered mentioning some general differences and similarities

between companies that handle human resources as an expenditure and those that handle it as an

asset. First of all, all of the companies examined here regardless of how they treat their human

capital, they try to insert ways or already have ways of calculating their value for the company,

and for us this is the biggest similarity. As we proceed to the future more and more companies

start realizing the importance of knowing the value of their employees or at least an estimation of

it. The essence of it lies under the fact that by knowing the value of human capital, managers can

make far more better decisions concerning their employees in comparison to the past. Another

similarity between these two different approaches is that when it comes to lower-hierarchy

employees, their value is hardly ever calculated. This should be taken into serious consideration

in the future by companies all over the world as lower-level employees form the basis of a

corporation. A third general similarity is that both types of companies use the KPI indexes as a

tool in order to evaluate their employees and make crucial decisions concerning both the training

and development task and the retention and turnover task. According to Marr (2012) the KPI

indexes (key performance indicators) work as a navigation system for managers, as it helps them

realize if their business is on the right track or if it has started to deviate its course.

Finally, after the interviews we managed to detect some general differences between the two

different approaches of treating the human capital. First of all, the precision and the quality of

decisions that are taken with the help of HRA (historical cost, replacement cost, separation cost,

etc.) is more superior to the same decisions that are taken under the traditional way. When the

employees are treated as assets, it means that the company has managed to convert their qualities

into numbers, which extensively increase the quality and the precision of the managerial decision-

making process. This is understandable, as numbers can offer a far clearer picture of the

performance of the employees and thus lead to improvements in the decision-making process.

Another general difference is that, when HRA is being used there can be a lot of implications for

the accounting department as it is very difficult for HRA tools to be integrated in a company’s

financial statements, as they are not supported by the international accounting principles. On the

other hand, this is not the case when human capital is treated as an expense, because this is the

way that is supported by the international accounting principles.

5.1.2. HR Practices

Recruitment and Selection

According to Timar & Balas (2007), The aim of the recruitment and selection process is to employ

sufficient qualified workers to support the organization achieve its goals. Therefore, making the

right decision is very important. Decision making is the cognitive process that leads to the selection

of a course of action from a collection of alternatives. In terms of human resource selection, the

result of a decision-making process is the most suitable candidate. As a result, decision making is

a logical method that can be rational or irrational (Timar & Balas, 2007). According to the

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interviews, HR managers use a rational decision-making process, and many factors can impact the

decision-making process for employing an employee. Although the factors can differ depending

on the company and policy. However, we have identified six factors that we believe are the most

followed by the organizations and appropriate for our chosen concept.

The first decision making factor for recruitment and selection is the budget or financial capacity

of the departments. Since recruiting a new hire incurs significant costs, HR managers need to be

aware of the budget in order to prepare for their recruitment practices according to the business

needs. The second important factor is educational background, knowledge and expertise of the

candidate. However, it can vary based on company to company and their requirements. Some

companies aim at hiring employees that have a lot of experience in a certain field, whereas others

prefer to hire employees that have a certain degree of education (meaning bachelor or master's

degrees). The third factor of taking decisions regarding recruitment and selection is treatment of

the human resources. In this thesis, we concentrated on the importance that human capital might

offer to companies. As a result, we wanted to know which companies consider employees as

capital and which do not. The fourth decision making factor we considered is the cost of employee

salary and benefits. Knowing a candidate’s previous salary and expected salary might provide an

important outlook of his/her value in the job market. The fifth factor of selecting a candidate among

a bunch of people is often based on his/her attitude and behavior. During the screening session

with the applicants, HR attempts to classify their work history, which will help in determining

their ability to adapt to the organizational culture. The final factor is measuring a candidate's

individual worth, which can also assist HR managers during the recruiting and selection process.

For example, the amount of money generated by an employee, the profit he or she may bring, and

the ratio of compensation paid to total revenue generated. All the costs and the candidate's skills

and expertise will give a clear image of the candidate's value.

C1: According to the first part of the interview question asked and information collected, it was

identified that the HR manager of the first company C1 uses traditional accounting information to

influence their decision-making process for recruiting and selection. After that we moved to the

next part of the questions related to the recruitment and selection process of C1. We attempted to

identify what the specific requirements or factors are for recruiting a new employee for C1 by

addressing the first and second interview questions. Based on the findings, it has been found that

the HR manager considers some factors which assist them to evaluate before taking decisions. For

C1, one major factor are the financial reports and sales volume, which include cost forecasting and

budgeting. This financial information is very important for the HR manager which enables him to

determine if they need more employees or not, how many employees will be needed and what will

be their compensation and benefits. As a result, budgeting is crucial for C1's decision-making

process. The second factor is the educational qualification, knowledge and expertise. Since the

company's performance is dependent on its employees, this aspect is important in hiring decisions.

If the HR manager selects an unqualified candidate, the organization will lose in the long run. One

of the crucial parts of our literature review is human capital. The third query revealed that C1 views

their workers as an expense rather than a financial asset or capital because they calculate all of

their employees' costs, do financial analyses, and plan budgets. Therefore, we can claim the third

factor has no impact on the HR manager's decision-making. The fourth factor is to know the

previous salary, benefits of the candidate and what his/her compensation expectation from the new

company. However, the manager of C1 does not consider this factor as important. The fifth factor

is the candidate's attitude and behavior. It is important for C1 because employees are the company's

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representative. Employees' positive attitudes can help to create a company's brand value, while

negative behavior can damage it. The last factor acquisition cost is not an important factor for C1.

Since, according to the manager the basic financial details from the accounting and finance

departments, as well as the candidate's experience, are sufficient in this process. C2 has a

cumulative value of 3 out of 6 for crisp QCA.

C2: The second company, C2, falls into the first group as well, as it uses traditional accounting

information rather than HRA. Their decision-making factors for recruitment and selection

practices are budget, the eligibility of the candidate such as education and skills and positive

attitudes. According to the HR manager, the first decision-making factor of the yearly budget is

important. Because before starting the hunt for the right applicant, the recruiter must first consider

the role's criteria, the number of positions they will fill, the profile form of the candidate they wish

to pursue, and the steps needed to complete the method. Finally, the organization must assess the

total cost of the screening and recruiting process to decide whether or not to continue (Lesiuk,

2020). The second factor candidate´s education, knowledge and expertise are also relevant for

hiring decisions of C2. Since the manager believes that a company's productivity and performance

are closely linked to the quality of its workers. It is possible to argue that if the employees are

qualified and skilled, the company will be more competitive. The third element for C2 is distinct.

According to the HR manager, workers are seen as assets, but in financial representation,

employees must be presented as a cost to the company (C2C). We can argue the third factor is not

considered for decision-making. The fourth factor to know the previous salary, benefits of the

candidate and what his/her compensation expectation from the new company also does not play

any role in recruiting decisions. The fifth factor is employee attitude and behavior are relevant for

C2. Since, hiring candidates with positive outlooks will also improve the chances of having a

positive workforce (McQuerrey, 2019). C2 has a cumulative value of 3 out of 6 for crisp QCA.

While C2 does not use accounting for human resources, they do seek assistance from the

accounting department in calculating acquisition costs, which allows them to make informed

decisions. Because they can predict the budget. Nonetheless, C2 only adheres to the basic decision-

making factors for recruitment and selection. A proper evaluation of human resources is missing

in their process.

C3: According to the findings of the third interview with the HR manager of C3, it also falls under

the first category because they follow traditional financial information rather than HRA. Their

basic decision-making factors for recruitment and selection practices are financial data for

budgeting, candidate's eligibility, attitudes & behaviors and candidate´s previous salary, benefits

and expected salary. The first factor budget is essential for C3's decision-making process because

accounting information assists the HR manager in preparing and making financial plans for

employees' whole year of employment. Before hiring workers, consider the following costs

incurred: employee salary, overtime pay, medical benefits, health insurance, retirement funding,

training cost, retention cost, and so on. Therefore, budgeting plays a significant role for C3. The

second factor candidate’s qualification and skills are another factor of consideration for C3.

Because without the proper education and skill an employee cannot fulfil his responsibility.

However, we have observed that this factor can vary based on the job requirement. The third factor,

considering workforce as an asset, is not a key factor in C3's hiring decision. Since it is not feasible

for C3 to identify human resources as capital in the financial statement rather employees are

presented as expenditure. It has been observed that the HR manager evaluates the value of its

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workers by understanding the candidate's previous and expected salary. This is the fourth factor to

consider when making C3 hiring decisions. As this information allows the manager to balance the

budget for future expenditures, it also allows him to observe how much the candidate understands

his/her worth. When it comes to recruiting potential employees, the fifth factor "candidate's

attitude and behavior" seems to be very relevant for C3's HR manager to consider. This ensures

that C3's corporate culture, policies, and etiquettes are maintained and ensured by the right hiring

decision. The last factor, acquisition cost, has no impact on hiring decisions. Since the HR manager

only calculates the estimated expense that would be incurred after the hiring, he or she may not

prepare for the cost of the recruiting and selection process, as well as the potential benefits that the

employee will bring. C3 has a cumulative value of 4 out of 6 for crisp QCA.

C4: According to the first part of the interview question asked and information collected, it was

found that the HR manager of the C4 practices human resource accounting which influences during

the decision-making regarding recruitment and selection practices. The first factor budgeting is

important because with the replacement cost approach the HR can calculate the cost of human

resources and plan for the hiring. According to Flamholtz (1975), the replacement-cost methods

include calculating the costs of replacing a company's current human resources. The second factor

to consider is the candidate's qualifications. Because C4 finds human resources are the key

attributes in an organization's performance, and their intelligence as an intangible asset is the

primary source of that success. According to the HR manager, as part of their HRA procedure,

they treat all of their workers as assets, and employees who bring profit to the company are

classified as capital in their financial statements. C4 finds the third factor is very important for

hiring decisions. The term "human capital" is regarded as a key component in improving an

organization's assets because it provides a sustainable competitive edge and improves employee

productivity (Pasban & Nojedeh, 2016). As a result, during the recruiting and screening process,

the HR manager pays special attention to those participants that have the potential to be C4's future

assets. The fourth factor does not have any impact on the hiring decisions for the HR managers.

Although C4 uses a historical cost approach during the recruitment and selection process. The

historical-cost approach involves capitalizing all costs involved with recruiting, selecting, hiring,

training, placing, and improving an employee (a human asset) and then deducting these costs over

the anticipated productive life of the uncertain asset to cover any added cost that is expected to

maximize the asset's potential benefits (Obara, 2013). The fifth decision-making factor candidate´s

attitude and behavior are considered as important to the HR manager of C4. Because as like other

interviewed HR managers it is common that C4 also believes that positively impacts the

workplace. If he/she hires someone with a good personality it will bring productivity and success

for the organization. Positivity can be spread in an environment where everybody feels like they're

on the same page, the effort is collaborative, and everyone's thoughts are respected and accepted

(McQuerrey, 2019). The last factor acquisition cost is relevant as per the HR manager. Since C4

follows HRA they calculate the replacement cost model along with the acquisition cost. The

replacement-cost approaches include calculating the costs of removing a company's current human

resources. These costs include the costs associated with recruiting, selecting, retaining, educating,

placing, and improving new hires before they achieve the same level of competence as current

workers (Obara, 2013). C4 has a cumulative value of 5 out of 6 for crisp QCA. Which means that

C4 is a value-oriented company during hiring employees.

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C5: The HR manager of C5 acknowledged that all of the decision-making factors we identified

for recruitment and selection processes are important to them. Such as budget, employee’s

qualification, human resources as capital, employee’s salary and benefits, attitudes & behaviors

and acquisition cost. Since HRA is used to evaluate the value of human resources, the HR manager

found all of the factors to be helpful in this process. The first factor is budget, which is critical

because financial data allows the HR manager to estimate the number of employees in the future

depending on the funds available. C5 uses both historical cost and replacement cost approaches.

Using the historical cost approach, it is possible to quantify all potential costs as well as the benefit

of return from workers. The second factor is relevant for C5 since work quality is determined by

the employee's credentials. This factor identifies how open the applicant is to grow, what his

potentials are, and how his attributes can fulfill the required position. With this aspect, HR reflects

on his/her ability rather than just his/her basic educational background. C5 treats the workforce as

capital. This factor is notable because HR managers search for talents, experience, and abilities as

intangible assets in the candidate's qualities during recruiting and selection. The fourth factor is

the applicant's previous and expected salary, which is calculated using the historical cost method

and influences selection decisions. Since the manager can calculate all possible costs for salary

and benefits and assess the candidate's worth. It is related to the sixth factor, acquisition cost. The

manager of C5 considers all expenses accrued during the hiring process and compares them to the

benefit the organization will achieve in the future. Finally, as with all other firms, the candidate's

attitude and behavior seem to be very vital factors. Every company is concerned with the work

environment and culture. Positive attitudes ensure that the environment and culture remain

maintained and respected. C5 has a cumulative value of 6 out of 6 for crisp QCA. Which means

that C4 is a value-oriented company during hiring employees.

C6: Company 6 adheres to HRA values, and according to the HR manager, it plays a major role

in their recruiting and selection decision-making process. The HR manager argues that measuring

the actual value of its human resources is important because it identifies a person's ability, which

can create a competitive advantage for the company. C6, like the previous organization, believes

that all six factors are important to consider while conducting hiring decisions. Historical and

replacement cost models are used to measure various costs and budget preparation. However,

employee quality is more important to them. As a result, while C6 relies on their financial data, if

necessary, they can increase their funding to hire better employees. Since C6 considers employees

as capital during the recruiting process the HR manager prioritizes tangible and intangible values

that a person can bring to the company. Employee´s educational qualification, skills, experience

all are measured, valued, and treated as capital for the organization. The HR manager believes

that knowing a candidate's previous and anticipated pay and benefits, as well as the acquisition

cost, are crucial factors. Since they use the replacement cost method, they calculate all expenses

involved with replacing the applicant, such as how much they expect to pay on wages and benefits

for the prospective recruit, and whether the candidate is worth the money depending on his or her

credentials. Both direct and indirect costs C6 measure the acquisition cost of recruiting, which

assists the HR manager in making final decisions. Finally, employee attitudes and behaviors are

important for the same reasons as we found with the other firms. Every company believes

employee attitudes have a direct connection with organizational productivity. During the screening

process, the HR manager aims to select the most positive and optimistic applicants who can quickly

adapt to the new culture, mix with their peers, and contribute to the company's productivity. As

C6 checked that all decision-making factors are relevant to their decision-making, the total score

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for crisp QCA is 6 out of 6. Which means that C4 is a value-oriented company during hiring

employees.

C7: Our final company, C7, falls into the first group as well, as it uses traditional accounting

information rather than HRA. Their decision-making factors for recruitment and selection

practices are budget, the eligibility of the candidate such as education and skills and positive

attitudes. Budget is relevant when they plan recruiting forecasts based on their annual budget. If

they have a poor profit margin and are unable to expand the market further, they opt not to add

further workforce. HR budgets can be simple but effective with the support of business case

analysis and cost to company analysis. The second element that was discovered to be important

for C7 is the employees' qualifications and skills. Bookish knowledge is insufficient to qualify as

a potential employee. Since the HR manager seeks to ensure that they are selecting the right

candidate with the right attributes through the role clarification. The HR manager acknowledges

that human resources are the asset for the company but in the financial statement employees are

presented as expenditure. During the recruiting and selection process, employees' overall values

are not taken into account when making decisions. As a result, the third factor is irrelevant. The

fourth aspect is considered irrelevant by most traditional accounting focused companies. Because

C7 is mainly concerned with quality-oriented employees who are competitive and productive. It

was interesting to know the HR managers' viewpoint on this factor, which is that judging an

applicant based on his or her salary does not accurately reflect his or her competencies. C7's

recruitment and hiring choices are heavily influenced by the fifth factor. Since C7 pays close

attention to employees' personality traits, the HR manager should be certain that he or she chooses

employees who are the right fit for the job role and can uphold the work environment. Finally, the

cost of acquisition has no impact on C7's recruiting decisions. They depend on an annual budget,

which determines the cost calculation. C2 has a cumulative value of 3 out of 6 for crisp QCA.

Recruitment &

Selection

Traditional Accounting

Information focused

organizations

HRA focused organizations

• Budget/Fund

• Education, Knowledge &

Expertise

• Attitudes & Behaviors

• Budget/Fund • Education, Knowledge &

Expertise • Treat employees as Capital • Employee Salary & Benefits • Attitudes & Behaviors • Acquisition cost

Figure 4: The most influential factors of Recruitment & Selection decision-making process

67

Training and Development

Employee training refers to the systematic way in which organizations attempt to provide training

programs to new and existing employees so that they can increase their quality (Muhammad &

Fard, 2013, P 91). Employee development concerns the activities that can lead to the acquisition

of new knowledge and skills that will eventually increase the capabilities of employees

(Muhammad & Fard, 2013, P 91). The authors have categorized all the important factors that the

HR managers mentioned during the interviews and will attempt to explain each one of them. All

of the managers follow the rational decision-making process, when they need to make decisions

concerning training and development tasks. The authors have distinguished 6 important factors

here.

The first significant factor for this HR task is the knowledge gap identification. Apart from the

manager of the third company all the other managers mentioned that in order to decide which

employee is in need of a training program they first identify his/her knowledge gaps and

accordingly offer a training program. To our understanding knowledge gap identification functions

as a compass for the managers, as it helps them understand which employees’ skills should be

improved. The second factor that plays a major role here is the job level of employees. Most of the

managers advocated that their companies offer different training and development programs for

their employees, that are based on their job positions and hierarchy level within the company. It is

understandable that the different job levels here work as a filter for managers, so that it will help

them categorize and adjust the training and development programs. The third factor that is

important in this HR task is the learning cost. The learning cost refers to the calculation of the cost

of all the training and development programs. It is a very useful tool for HR managers, and it helps

them to more accurately delegate the budget they have in their hands. The next factor that is

important for training and development is leadership development. This factor concerns mostly

the higher-level employees or managers. Leadership development focuses on developing the

leadership skills of promising and ambitious employees, so that they can be the future leaders and

drive their companies to success. The 5th factor that the authors have distinguished from the

interviews is the provision of opportunities for career advancement. All the HR managers that were

interviewed advocated that the most important thing for their employees is to feel and be able to

advance themselves within their companies. A company that offers opportunities for internal

career advancements via development programs are more appealing than companies that do not

offer such opportunities. The last factor that the authors inserted is the level of the use of HRA

tools. The HR managers that use HRA in their companies told the authors that overall, the historical

and replacement costs have helped improve the quality of their work. The authors have mentioned

many times in this dissertation that the significance of the use of HRA lies under the fact that it

can turn qualitative factors into numbers and thus offer a clearer image of the employees’

performance to the managers. The paper will continue in the same pattern as in the recruitment

and selection, meaning that the authors will examine each one of the 7 companies separately, in

order to see which of the aforementioned factors are important for each of them.

C1: To begin with, the manager of the first company advocated that his company keeps out of the

book entries, in which they estimate the value of their employees based on their

performance. Then the HR manager uses this information to make decisions of who is in need of

improving or who has reached the level of getting promoted in the near future. The employee

performance evaluation is a part of the performance management, but it is very important for

68

decisions about training and development. It influences the decisions of HR managers as by

evaluating employee performance, managers can understand their strengths and weaknesses and

thus offer them a suitable program adjusted on their needs. Another significant factor that the HR

manager mentioned is the knowledge gap identification. According to Andriotis (2019) training or

skills gap concerns the deficiencies in performance, which stem from the lack of skills or

knowledge. The company should manage to cover these gaps as fast as possible so that it can return

on the right track. To be ready to identify these as an HR manager someone can choose to pursue

one of the following approaches: 1) use KPIs as a tool to understand the level of contribution of

his/her employees, 2) assessment of employees via quizzes and test that are based on real working

scenarios, 3) a third approach is to frequently give feedback to the employees, which can be very

useful for them, as it can help them realize what they should improve, 4) another approach would

be to constantly observe the lower level employees, this could help understand how the employees

spend their times, for example if they are focused and productive or not, 5) the last approach would

be by setting performance benchmarks, meaning to benchmark the top performers of a company

so that the others understand the standards needed to be reached (Andriotis, 2019). Furthermore,

there are different job levels within a firm that play a major role for decisions concerning the

training and development of the employees. When the boundaries among the different job levels

within a firm are clear, then the HR manager can assign accordingly the programs that are suitable

for each employee. The next factor that is taken under consideration from this company is the

learning cost. The manager told the authors that the learning cost is being calculated based on the

training needs of his employees. After that and according to the available budget the manager

continues by dividing the amount of cash needed to the selected programs. The 5th factor concerns

only the higher-level employees. Leadership development is crucial for the future of a company.

The HR manager advocated that the future of a company is directly connected to the choice of the

right leaders. Therefore, the leadership development is very important as it has the potential to

identify new leaders from within the company and extensively lead to a potential future value

creation. Finally, the last important factor that the manager of the first company mentioned is the

opportunity for career advancements within his firm. The training and development programs offer

the chance for an internal promotion as they aim at bringing out the best selves of the employees.

. The total score that the first company gathered was 5. This means that this company, despite the

fact that it does not use HRA, cares a lot about the quality of their employees. To our belief, this

is an alternative way, when a company does not want to follow HRA principles. By keeping out

of the book accounting entries a manager can have a clear view about the quality of the employees

and by this way the company can avoid confusion concerning the international accounting

principles (when state the human capital as assets in the financial statements).

C2: This company uses the historical cost approach and replacement cost approach as tools for

improving the quality of the decision-making process for training and development. The type of

historical cost that is being used here is the learning cost. The calculation of the learning cost can

be a very useful tool as it estimates the cost incurred at the time of training and development

provision to employees and managers. Thus, the estimation of the human capital value becomes

easier. The second factor that is relevant to this company is the knowledge gap identification. The

manager of this company assesses his employees on a monthly basis via quizzes. Additionally, he

gives them frequent feedback so that he can monitor their performance effectively and identify

their knowledge and skill gaps on time. The next factor that is relevant for this company is the job

levels. There is a separation of the training programs provided between high-level employees and

69

low-level employees. High-level employees can choose among different skill or knowledge-based

training programs, communication skill, negotiation skills, etc. Whereas for lower-level

employees, there are only online training programs available. The essence of the different job

levels is that they can help the HR managers delegate the available training programs accordingly.

The next factor that is relevant and important for this company is leadership development.

Leadership development opportunities are very appealing to ambitious employees and can lead to

the generation of leaders from within a company. The last factor that is relevant is the opportunity

for career advancements. Career advancement opportunities can be offered in many forms. This

company offers to their good performers the opportunity to pursue a degree within business

administration. They cover the expenses on such occasions. All these factors show that this

company cares a lot about the quality of its employees. Company 2 gathered 5 points. The use of

HRA in the form of learning cost here increases the quality of the decision-making process for

training and development purposes. Companies that gather between 5 to 6 out of 6 points are

considered as high- performance companies.

C3: The first factor that is relevant for the decision-making process of the manager of this company

is the different job levels. This company has retail and manufacturing employees mostly and the

clear image for an HR manager is of the utmost importance. For instance, this company measures

the efficiency for manufacturing employees and efficiency for retail employees. Accordingly, the

manager makes decisions for training and development based on productivity or efficiency. These

two parameters are calculated with the help of KPI indexes and employees with high rates of

productivity or efficiency have the chance to train their skills and promote within the firm. The job

levels also help the manager understand the different positions of the high-level management

teams. Thε further separation of the high-level management teams into 3 subcategories can also

show the importance and the influence that the job level has as a factor for training and

development tasks. The next factor that has been considered and plays a major role for this

company is the opportunities for career advancements within the firm. The opportunities concern

mostly the high-level management teams (leadership team, second line managers and management

employees). The devotion to these high-level teams is so high because they have the potential to

lead the lower-level employees (retail and manufacturing employees) into being as productive and

efficient as possible and extensively increase the sales and add value to the company. With the use

of leadership, behavioral and skills training programs the management people can reach the peak

of their performance. The next factor that comes in line with the opportunities for career

advancement is leadership development. This company focuses on this factor as the manager told

us that they need people from within to lead the company in the future. Overall, as this company

has most of its employees in lower-level positions, and thus is not quality oriented. The manager

said that they care more about the quantity of lower-level employees. Finally, this company does

not follow HRA principles as a tool. The score that it gathered is 3 out of 6 points in the QCA.

This shows that the investment in the increase of the quality of the employees through training and

development programs is not prioritized. The thing that is the most important here is the quantity

of lower-level employees.

C4: The first factor that is very important for the 4th company is the knowledge gap identification.

The identification of the knowledge gaps is most of the times a very significant factor for decisions

concerning the train and development. The manager of this company is an experienced manager

and thus has the knowledge to identify the gaps on time. Via frequent employee assessment the

70

knowledge or skill gaps are being identified by this manager. The next factor that is relevant to

this company is the learning cost. As this is a company that follows the HRA concept on an overall

level, they use the historical cost in the form of the learning cost. As we have aforementioned with

the use of the historical cost approach the managers can obtain a better “picture” of their

employees’ actual value. By knowing the whole costs of training and development when they are

incurred, the HR manager can estimate the value of his employees and improve the quality of his

decisions in the training and development sector. The next relevant factor is the leadership

development of the employees. This company examines the performance of its employees by

setting yearly goals. The higher-level employees that manage to accomplish their annual goals,

they can join development skill training programs, and become the next leaders. This is a great

incentive for higher level employees, as if they are ambitious, they will work harder to reach the

point to become the next leaders. The next factor that has been considered to be important for this

company is the opportunities for career advancements. A different strategy that this company

follows in comparison to the others that are being examined is the provision of opportunities

outside to other branches of this company, either in Bangladesh or even in another country. This

can be proven to be a very effective plan for the development and training of the employees. When

an employee joins a training program in another country, it could help him/her understand the

different processes and strategies that foreign people follow and adopt them. The result of this is

that the employee would have managed to expand both his/her knowledge and skills. The HRA

concept concerns evaluation for only the high-level management teams. When it comes to lower-

level employees the manager did not give us any information about the training and development

strategies they follow. Overall, this team gathered 6 out of 6 points in the QCA. This means that

this is a value-oriented company when it comes to its employees. They attempt to integrate ways

with which they can measure the value of their human capital and extensively improve the quality

of their decision-making process.

C5: The factors that are relevant to this company are all the factors that the authors have considered

(knowledge gap identification, job levels, use of learning cost, leadership development, career

advancement opportunities and the overall use of HRA). The manager of this company uses KPI

indexes in order to evaluate the performance of his employees and decide who has knowledge and

skill gaps that need to be covered. The next factor that is relevant here is the different job levels.

The importance of different job levels is visible by the fact that every decision concerning the

training and development has to first be approved by the line managers and then proceed to the

HR manager. This means that the different opinions of the employees of high-level positions are

taken under consideration when it comes to crucial decisions.The next factor is the provision of

programs for leadership development. As we have aforementioned before, this factor shows that a

company aims at retaining its employees in the long run and thus offers them the opportunity to

acquire leading positions. Extensively this shows that a company aims to create future value from

within based on trustworthy people and not just hire outsiders without any company experience.

Furthermore, the use of the historical cost approach (through the use of the calculation of the

learning cost) and separations cost, shows once again the focus on the increase of the value of the

already existing employees. The relevance of the factor of advancements in career opportunities

can be realized by the unique provision of interdimensional job opportunities. This is the only

company that offers the chance to its employees to change positions within different departments.

The score that this company gathered in the QCA is 6 out of 6, which shows the trust they have

put in their employees for bringing future growth and value to the company.

71

C6: All the factors that the authors have identified are relevant to this company. To begin with the

clear job levels are very important as according to them the HR manager makes his/her decisions

about the delegation of the training and development programs. The next factor that is important

for this company is the knowledge gap identification. In the form of assessments, a HR manager

identifies the knowledge gaps of his/her employees. The on-time identification of an employee’s

knowledge gaps can lead the HR manager to adopt proactive behavior in the future against these

kinds of problems. Another important factor here is the use of the historical cost approach. The

HR manager advocated that the company uses the HRA estimates of the learning cost when it

comes to delegate training or development programs, which as we have mentioned can lead to an

increase in the quality of the decision-making process. The next factor is leadership development.

Another example of a company that is willing to invest in its internal employees, and thus aims at

the value creation from within. The last factor is the opportunity for career advancements. In

comparison to the rest of the companies, this company is the only one that offers the chance to

lower-level employees to climb the hierarchical “ladder”. HR department targets towards the high-

quality employees that have managed to rise from within. Finally, the score that this company

gathered is 6 out of 6 in the QCA. This is a quality-oriented company when it comes to its

employees.

C7: The factors that are relevant to this company are the knowledge gap identifications, job level,

leadership development and opportunities for career advancements. To begin with the HR manager

advocated that he uses KPI indexes in order to evaluate his employees and extensively identify

their knowledge gaps. We have aforementioned in this paper that KPI indexes are a powerful

managerial tool as they contain ratios like efficiency and productivity or quality of the work, which

can help the manager delegate the appropriate program to his employees. The focus on the

knowledge gaps by this company can be realized by the fact that they can offer training or

development programs up to 3 months according to the significance of the knowledge gap. The

next factor that is important is the leadership development of higher-level employees. This

company aims to increase the employee’s quality from within, with the provision of many different

training and development programs. This is an indicator of a quality-oriented company that cares

about the internal development of their employees. The last factor that is important here is the

opportunities for career advancements. This factor always comes in line with the leadership

development one. If a company aims at having valuable employees, then these two factors must

be included. The opportunities for career advancements are provided through the numerous

training and development programs that this company offers. The HR manager focuses on

increasing the value of his employees by giving them the appropriate skills and knowledge to

become better. Overall, this company gathered 3 out of 6 points in the QCA. This shows that this

company does not use HRA principles, but still tries to increase the quality of their employees with

the provision of many different programs.

72

Training &

Development

Traditional Accounting Information

focused organizations

HRA focused organizations

• Knowledge gap identification • Job level

• Leadership development

• Opportunity for career

advancements.

• Knowledge gap

identification • Job level

• Leadership development

• Opportunity for career

advancements.

• Learning cost

Figure 5: The most influential factors of Training & Development decision-making process

Retention & Turnover

In this analysis, we identified and used five factors to compare the two categories of company's

retention and turnover decision-making process. The first factor is an employee's growth

opportunity. Employees continue to grow professionally and explore new opportunities. Once they

come across these possibilities are outside of their current organization, they intend to leave.

However, if the employers can ensure that their growth is achievable in the present organization,

they will be able to retain the employee. The second factor is employee performance and

productivity. If employee productivity is not sufficient, the employer can take development

measures or make a decision to terminate the employee. The third factor is the separation cost.

Some direct and indirect costs are associated with turnover. Measuring these costs and comparing

them to the cost of retaining the employee assists the HR manager in making the right decision.

Organizational attitudes and behaviors are the fourth factor. Both directions of behavior are

important in this case, which implies how subordinates interact with their supervisors and how

managers interact with their subordinates. Positive work environments foster career satisfaction

and improve retention intentions. The fifth factor is to encourage and reward employees for their

efforts. It can be cost-based or value-based, but this aspect can make the employee feel valued and

appreciated.

C1: As we already mentioned in the findings the first company was reluctant to share information

about their retention and turnover practices. As a result, we are unable to analyze this part for C1.

C2: The second company C2 follows the traditional accounting information during their decision-

making process rather than HRA. According to the HR manager, the first factor, growth

opportunity, is important for retaining skilled and knowledgeable workers. Employees do not want

to be stuck in the same place for an extended period of time. They want to switch if they find a

new and challenging opportunity. However, if the company has succession plans for the workforce

and guides them on their job development direction, the employee will be retained. The second

factor is employee performance and productivity does not have an impact during the retention or

73

turnover decisions. Because C2´s turnover mainly depends on their yearly KPI or retention target.

As C2 is not focused on evaluating employee value, they instead take financial reports or yearly

budget data and make decisions based on that. The fourth factor, employee attitude & behavior are

relevant for turnover decisions. Since a healthy working environment is dependent on positive

attitudes and good relationships among coworkers. If a worker's negative behaviors are really

violating the organization's standards and culture, turnover decisions will be made. C2 believes

that reward and recognition have a significant impact on employee retention. Since for these

approaches employees feel appreciated and motivated, as a result, which leads to increased

productivity. C2 has a cumulative value of 3 out of 5 for crisp QCA. Which indicated C2 is focused

more on quantity, measuring employees’ value is not relevant.

C3: According to the findings, only two of the five factors considered by C3 are important and are

used in their decision-making process of retention and turnover activities. The first factor, growth

opportunity, is irrelevant for C3 because they do not practice anything to assist workers in their

career development, but they do support employees in developing their job skills by training and

development. The third factor separation cost is not calculated during retaining or replacing an

employee. Because C3 receives all financial details as a yearly budget and makes decisions based

on it. Calculating an employee's worth based on their experience, expertise, and the expense of the

separation process has no impact on their process. The HR manager believes that the fifth factor

reward and recognition are important for retention. They do practice and recognize their best

employees. However, they do not practice monetary rewards. Since the HR manager believes that

every amount is spent for an employee all are cost. The second and fourth factors are important

for C3. Employee productivity and performance, as they mentioned as rationalization, are very

critical when the HR manager decides whether the employee needs to be further trained to retain

him or should be terminated depending on the performance level. And the next factor which C3

finds important is employee attitudes and behavior which they refer to as disciplinary actions.

Because as per C3 work culture is maintained by the conducts of its employees. And it is important

to take fair and consistent decisions for all levels of workers who violate the corporate rules and

policies. C2 gets a cumulative value of 2 out of 5 for crisp QCA. Which indicates C3 pays very

less attention to the measurement of employees’ value. Their main concern is to maintain

organizational culture and success by ensuring productivity.

C4: Company 4 places a greater emphasis on workers' opportunities for advancement. As a result,

the first element is important for them. Since, according to the HR manager, if they make sure that

the employees will progress in their careers in their current company, they will stay with the

organization. Employees are evaluated by C4 based on their performance and prospects. That is,

if C4 identifies that an individual has the potential to bring more benefit to the company in the

future, they will invest in them to help them expand. The third factor separation cost is calculated

by C4. Since the replacement cost method calculates all of the costs that will be incurred during

the replacement of an employee or if a competent employee leave. This calculation helps the HR

manager in determining whether the employee should be retained, replaced, or kept vacant. The

fourth factor is employee attitude and behavior are most important for C4. Since employees'

actions are connected to the company's disciplines and policies. Negative attitudes, misbehavior,

and unethical performance can devastate an entire work environment. As a result, C4 takes their

retention and turnover decisions based on their disciplinary policies which is the same for all levels

of workers. The last factor reward and recognition are also very important for C4. Since it is

74

important to recognize and appreciate an employee after assessing his or her efforts. While

monetary incentives come at an expense, according to the HR manager, rewarding a best employee

is a type of investment. This will add more value by valuing the employee and retaining him/her

in the long run. C4 gets a cumulative value of 4 out of 5 for crisp QCA. Although it is noted in the

findings that C4 followed traditional and HRA both principles. However, if we observe carefully,

it can be said that most of the factors they follow are related to evaluating humans as capital and

HR managers make their decisions based on this concept.

C5: According to the HR manager, the primary focus of retention and turnover is employee

performance and value. All five factors of decision making are important for them to consider. The

first factor, growth opportunity, is important for employee retention because it will provide more

opportunities for workers within the same company. Employees can learn and grow as a result of

which they are valued by the employer. The second factor is employee performance and

productivity are important for C5. Since their performance measurement consists of 70%

performance, if staff are underperforming, the HR manager considers whether to provide them

with further training in order to retain or discharge them. The third factor separation cost also plays

an important role in retention and turnover practices. Since C5 calculates all the costs related to

replacing a skilled employee, his separation pays such as provident funds, gratuity and other

incentives, the cost of the vacant position during the search for a new one, company's financial

situation and budget. As a result, it helps the HR manager to make the best decision whether to

retain the employee or release him. The fourth factor is employee attitude and behavior are

important for this decision making. Because for C5 employee’s performance measurement consists

of 30% value. Which means C5 pays more attention to how their workforce behaves, maintaining

company ethics and culture. During retaining or turnover these qualities impact the decision. C5

believes that the fifth element, reward and recognition, have an impact on employee retention.

Since they believe that recognizing the value of their employees will return value to the

organization. As a result, monetary or non-monetary rewards appear to be an investment in

motivating employees for higher productivity and long-term retention. Since C5 agrees that all

five factors are significant, get a total score of 5 out of 5 for crisp QCA. This means that they treat

workers as an asset, and that acknowledging employees' actual value is more important than

focusing solely on organizational success for employee retention or turnover.

C6: All the five factors are important to consider during retention and turnover decision making

for C6. The first factor is employee growth opportunity, and in order to retain the best and brightest

employees, the company should take initiatives to develop and lead them to the next level. It is not

always necessary to create growth opportunities for organizational gains, but it does add value to

the employee himself. Employee performance and productivity are important factors in retention

and turnover decisions. Because C6 evaluates employee performance and makes decisions based

on that, they identify who the best performers are and who are not. C6 implements retention

programs for their top performers. Separation cost also plays a major role in this practice. Since

the replacement cost model allows the HR manager to calculate all of the costs associated with an

employee's exit and compare them to the cost of retention. The fourth factor is employee attitude

and behavior are considered during retaining someone. Because organizational culture depends on

its employees. C6 ensures their working environment by retaining the best people. The last factor

also seems relevant for C6. Since reward and recognition are techniques for valuing its workers,

the HR manager believes that the expense of the reward is irrelevant when honoring their

75

employees. Rather, expressing value and appreciation for their efforts is more effective in retaining

the best employees. Since C6 agrees that all five factors are significant, get a total score of 5 out

of 5 for crisp QCA. This indicates that they treat employees as an asset, and that recognizing

employees' actual value is more important than focusing solely on organizational success for

employee retention or turnover.

C7: Most of the factors considered important for C7 during retention and turnover decisions. The

first factor, growth opportunity, motivates workers to be satisfied with their employment. Since

not only are workers trained and guided by mentors, but they also explore new challenges to prove

their value. The second factor is employee performance and productivity are important. As like

the previously analyzed companies, C7 makes decisions on who they want to keep and who they

don't based on their performance level. The third factor separation cost is not relevant for C7. Since

they do not calculate and consider the costs associated with replacing an employee or releasing the

employee. Their decisions are mostly influenced by other considerations and the annual budget.

The fourth factor is employee attitude and behavior play a very important role. Since C7 strictly

enacts organizational disciplines. It is important to remember that the HR manager mentioned that

all negative actions or activities will be handled consistently. All workers are treated with the same

degree of respect. As a result, C7 makes their decisions for retention or turnover based on these

factors. The last factor reward and recognition perform a very major role in retention for C7. Since

they believe that retaining workers is dependent not only on fair wages and a pleasant working

environment, but also on honoring the best employee and his or her efforts. C4 gets a cumulative

value of 4 out of 5 for crisp QCA. While their retention and turnover policies are not fully

employee value based, it can be said that they treat their workers as an asset not through financial

data but through their organizational culture.

Retention &

Turnover

Traditional Accounting Information

focused organizations

HRA focused organizations

• Growth Opportunities • Employee attitude & behavior • Reward and Recognition

• Growth Opportunity

• Employee performance &

productivity

• Separation cost

• Employee attitude &

behavior

• Reward and Recognition

Figure 6: The most influential factors of Retention & Turnover decision-making process

Performance management

In this subchapter the authors have included all the factors that are relevant to the different ways

an HR department prefers to evaluate the performance of their employees. We have identified 6

relevant factors according to the interviews. These are: KPI indexes, yearly performance targets,

job level, reward and recognition, employee productivity and efficiency and the use of HRA

76

(measuring the human value via HRA principles). We will analyze the importance and relevance

of each factor as we analyze the performance management of each company.

C1: The management of the first company did not want to share information about the ways he

evaluates his employees, as he supported that they are confidential. With respect to confidentiality

the authors agreed to not make any questions for this HR managerial task.

C2: This company calculates KPI indexes for its employees in order to grasp a better picture of

their performance. The different parameters that KPI indexes include have the power to improve

the decision-making process of HR managers when they evaluate their employees. The HR

manager started by explaining that in this HR dimension, he evaluates his employees via the level

of accomplishment of the targets he sets for them every year. If an employee for example has

managed to accomplish his objective, he/she has the opportunity to pursue a training program, in

order to improve his/her competencies and ascend within this company. The different job levels

constitute a relevant factor for this company as the performance management matters only for

higher-level employees. When it comes to lower-level employees the HR manager did not give

any information to the authors. The last important factor here is the reward and the recognition of

the employees. The HR manager advocated that his company offers monetary motives to its

employees in the form of bonuses. Top performers have the chance to increase their income

according to the estimation of their performance. Despite the fact that this company does not follow

HRA, the manager told the authors that he uses the replacement and historical cost approaches, in

order to increase the quality of his decision making. All in all, this company gathered 5 out of 6

points in the QCA. That means that they are concerned about the quality of the evaluations of

employees’ performance. By improving the precision of the decisions concerning performance

management can lead to better handling of a company’s employees.

C3: The HR department of this company uses human capital management and a specifically

balanced scorecard to evaluate its employees. The balanced scorecard helps HR managers estimate

their employees more accurately as it includes different dimensions (financial, customers, internal

business processes, and innovation, learning and growth). The manager monitors the balanced

scorecard and according to the level of accomplishment of its goals, evaluates his employees

accordingly. This is one more company that uses the KPI indexes as a tool for performance

management. The KPI indexes can help the company evaluate its employees more accurately. 70

% of the evaluation depends on the level of accomplishment of the objectives that has been set at

the beginning of each fiscal year. Thus, it is understandable that the yearly performance targets are

of the utmost importance for the performance management of this company. The job levels are

relevant for this company as they can define the performance evaluation strategies that the HR

may choose. Higher-level employees get evaluated more thoroughly and profoundly than lower-

level employees. The next relevant factor is the rewards and recognition that an employee may

get. This company focuses a lot on developing the leadership skills of its employees, so top

performers have the chance to be acknowledged and get promoted within the firm. Conclusively,

this company gathered 5 out of 6 points in the QCA. This shows that despite the fact that HRA is

not used, this company cares about the quality of its employees and attempts to evaluate them as

fair as possible with the use of human capital management.

C4: The first factor that is relevant and was mentioned by the HR manager is the performance

evaluation on a year basis. This means that the HR department examines the level of

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accomplishment of the goals that have been set and accordingly evaluates his employees.

Furthermore, top performers have the chance to get bonuses. Bonuses can work as an incentive for

employees, in order to become more productive in their jobs. There was no other support for the

other factors that the authors included in performance management. The score for this company in

the QCA is 2 out of 6 points. This means that the performance management for this company

works in line with the traditional way of acknowledging the human capital as just a cost and thus

there is not a big focus towards the quality of the performance management.

C5: The first relevant factor for the 5th company is the use of KPI. The manager advocated that

KPI indexes help him evaluate his employees more precisely as they divide each special skill,

knowledge and competencies of the employees. The HR department here evaluates its employees

monthly or quarterly. Frequent evaluations offer a more wholesome view of an employee’s

strengths and weaknesses. Another factor that is important here is the rewards and recognitions

that an employee has. There are mostly monetary rewards (in the form of bonuses) that top

performers can earn. As we have aforementioned bonuses work as incentives for the employees.

Moreover, the evaluation of the employees is based a lot on productivity, as it constitutes 70% of

the evaluation. This means that to make a crucial decision the HR manager must focus on analyzing

the productivity of his employees for a relevant period. This company gathered 3 out of 6 points

in the QCA. There are aspects that show that this company focuses on the quality of its

performance management and others that do not. For example, frequent evaluations can be a sign

that the quality of the performance management is important. On the other hand, the lack of the

use of HRA can lead to the opposite conclusion.

C6: Company no.6 uses HRA in the form of historical cost and replacement cost approaches. By

knowing the actual worth of an existing employee, the HR manager has the potential to use this

cost as a benchmark and based on that makes decisions concerning their performance evaluation.

The next factor that is important for this company is the use of KPI indexes. For evaluation

purposes. According to the manager, KPI is a powerful tool for evaluating employees precisely.

KPIs include many different metrics concerning both the performance of the employees and the

satisfaction of the customers. By using metrics that stem from these two categories a manager can

make crucial decisions for performance management purposes. The next relevant factor for this

company is the importance of the different job levels. For example, KPI indexes are used strictly

for the sales team. For the rest of the teams (management team or leadership team) the performance

evaluation is being done with the use of the historical and replacement costs. Finally, the HR

manager explained that the top performers have the chance to get bonuses when achieving their

specific goals. Overall, this company gathered 4 out of 6 points. The quality of the performance

management is important.

C7: The first relevant factor for this company is the use of KPI as a tool to determine crucial

matters concerning the performance management. The advantages of the KPI have been mentioned

a lot. To proceed, the next relevant factor for this company’s performance management is the

setting of objectives at the beginning of every fiscal year. The rate of accomplishment of objectives

constitutes a great tool for HR managers when it comes to evaluate their employees. The third and

final relevant factor is the provision of bonuses to well-performed employees, as a reward and

recognition system. Finally, this company gathered 3 out of 6 points in the QCA, which once again

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shows that the task of performance management under traditional accounting is not shifted towards

quality.

Performance

Management

Traditional Accounting

Information focused

organizations

HRA focused organizations

• Reward & Recognition

• Key Performance

Indicator (KPI)

• Yearly performance

targets

• Reward & recognition

• Key Performance Indicator (KPI)

• Yearly performance targets

• Job level

Figure 7: The most influential factors of Performance management decision-making process

5.2. Discussion

In the discussion part, we will connect and support our findings to the literature review. We will

also present the final form of our framework which is inspired by the Patterson's HRM model

(1997). It is important to state that we chose the Patterson model as it includes 4 HR areas

(recruitment and selection, training and development, retention and turnover and performance

management), in which the presence and utility of HRA can be strong. At this point the research

question that we set at the beginning of this dissertation can be answered. Both the findings and

analysis parts can be very useful, as they point out the similarities and differences between the

decision-making factors used by the HR managers of Traditional accounting and Human Resource

Accounting focused organizations. We will discuss them more thoroughly in this subchapter.

5.2.1. Recruitment & Selection As per the Patterson's HRM model (1997), we knew that recruitment and selection process is the

one of the main decision-making activities that HR managers need to take which is connected to

company performance. After analyzing the two categories of organizations (Traditional accounting

and HRA focused) in this study, we discovered some similarities and differences in their recruiting

and selection decision-making factors. Out of the six chosen factors we have observed that three

factors are similar among all of them such as, budget, employee qualifications, skills & experiences

and attitudes & behaviors. The HRA focused companies considered most of the decision-making

factors. The HR managers of these companies believe that employees are the company's main

capital, and during the hiring process measuring the replacement cost and proper valuation of an

individual´s merit can produce the best quality of employees, which eventually can lead to the

company's success. Though it may present some operational issues, replacement cost is a much

better measure of the value of human assets (Saremi & Naghshbandi, 2012).

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The key differences between these two categories are that HRA firms can evaluate the worth of

their workers based on their cost, credentials, and expertise. This value helps them in evaluating

the potential benefits they will receive which allows them to make more accurate decisions when

it comes to recruiting the right number of employees and the right person. Human capital is the

value of the knowledge and talent embodied in the individuals that represent the organization. It

reflects intelligence, skill, expertise, temperament, analytical agility, and imagination (Santos-

Rodrigues et al. 2010). On the other hand, we have found that the traditional accounting focused

companies received a score between 3 and 4 because they do not weigh all of the relevant factors.

Organizational profit, productivity and maintaining culture are basic concerns for them. The HR

managers take help from the financial information to predict and prepare budgets. Budgeting is

intended to improve the optimal use of cash flow, increase profits, and make reasonable investment

decisions resulting in increased return on investments (Klychova et al.,2014).

5.2.2. Training and Development First of all, companies 1 and 2 are traditional accounting focused ones, but they use the historical

cost approach as a tool for improving their decision making. For convenience, we will refer to

these companies as partial users of HRA. Companies 3 and 7 are traditional accounting focused

companies and companies 4,5 and 6 are HRA focused companies. The partial HRA and HRA

focused companies have gathered a score between 5 and 6 out of 6, which reveals how similar they

are. Companies with this kind of score are quality oriented when it comes to training and

development. For example, they search for new ways to motivate employees to learn. Overall,

people will learn more effectively if they are motivated to learn (Armstrong, 2014, p.299). The HR

managers of these companies made us understand that all these efforts towards quality stem from

the fact that these companies want to build internal trust between them and their employees.

The comparison between purely HRA focused companies and traditional accounting focused

companies have both similar and different factors. The similar factors were the leadership

development and opportunity for career advancements. Nowadays more and more companies

focus on creating leaders from within and building a strong internal structure. Another reason why

these two factors are important, is that companies want to approach talented and ambitious

employees. These types of employees will always look for new challenges in their careers and

through these opportunities, they can become what they have dreamt of. Companies seek to

become competitive in every way, and by having ambitious and talented employees on board they

can achieve that. On the other hand, one key difference between these two types of organizations

is the use of the learning cost as a tool. It is reasonable that HRA focused companies use the

learning cost as it stems from the historical cost. Companies that follow traditional accounting

have the potential to estimate it and use it as a tool and express it by out-of-the book entries.

According to Flamholtz (2004) HRA focused companies treat the training and development costs

of their employees as investments and not as expenses. These companies realize that their

employees will bring earnings in the future and thus calculating their value can be important. Two

more factors that differ are the knowledge gap identification and the job level. HRA focused

companies or partial HRA focused companies include both these factors in their decision-making

process for training and development. The traditional accounting companies do not use one at least

one of them. Non-existence of knowledge gap identification shows either that an HR department

is not willing to spend more money on training and development or that they do not have the

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resources to support something like that. The non-existence of job levels, as a factor, can indicate

a lack of variety in training and development programs.

5.2.3. Retention & Turnover In relation to Patterson's HRM model, employee retention is one of the most important indicators

of an organization's performance. If companies are losing key employees, they can expect that

other people in their departments are searching as well (Saremi & Naghshbandi, 2012). As a result,

effective decisions must need to be taken by HR managers. After analyzing the two categories of

organizations (traditional accounting and HRA), we discovered some similarities and differences

in their retention and turnover decision-making practices. The basic similarities between these two

categories are ensuring employee growth opportunities, employee attitude and behavior and

reward & recognition programs. Which means that all of the firms are concerned in professionally

developing their workers and advancing their skills; each firm is sincere about their work

environment and culture; and recognizes the value of honoring employees' efforts. The other two

factors seem to be less important for traditional accounting focused organizations. It has been noted

that traditional accounting-focused companies are mainly concerned with retaining their best

workers in order to ensure the organization's success.

Whereas the HRA-focused companies take into account the majority of the five factors during

their decision-making processes. The key difference is that HRA supports solving problems

associated with the valuation of intangible assets, concentrating on workers as assets, retaining

important and skilled staff, and retaining potential employees (Ghosh & Gope, 2009). In this

process the HRA system open the way for increased human resource productivity because the fact

that a monetary value is attached to human resources and that human talents, devotion, and skill

are considered valuable assets and allotted a place in the financial statements of the organization,

would boost employee morale, loyalty, and initiative, creating in their minds a sense of belonging

(Saremi & Naghshbandi, 2012).

5.2.4. Performance management To begin with, company no.1 will be excluded from the discussion of the performance

management, as the HR manager told us that matters concerning this HR area are confidential. To

continue, we have aforementioned that companies 4,5 and 6 follow HRA overall as a principle,

which means they acknowledge their human capital as assets in their financial statements.

However, in this HR task only one of the HRA focused companies follows HRA and this is the

company no.6. To show the differences and similarities between HRA and traditional accounting

focused organizations we will consider companies 2,3 and 6 as HRA focused for the management

performance task.

The first similarity that is observable in figure 7 is that almost all the companies use KPI indexes

for performance management purposes. KPI indexes are of the utmost importance for every

company regardless of if they follow HRA, as it can contain many crucial data about employees.

In order to be successful organizations must choose the most strategically relevant indicators to

their current situation (Bhatti, 2014) A second factor that is mostly common is the setting of

annual targets. Companies 5 and 6 do not set annual performance targets for their employees. For

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the remaining companies, it is understandable that goal setting is very vital. Setting of targets is a

way of motivating the employees to become more competitive. The next factor that is common

among all the companies is the reward and recognition, which comes in line with the previous

factor, the target setting. Companies these days usually set specific targets and if an employee

accomplishes them then they offer monetary or non-monetary rewards as a token of

acknowledgement. Another thing that is very important is that when an employee performs at a

top level and manages to win a reward, he/she is also recognized in a company’s meeting (London

& Higgot, 1997). Furthermore, these companies either offer bonuses or promotions depending on

the target that was accomplished. It is very encouraging that all the companies offer rewards and

recognitions to their employees. The factor that is different between HRA focused organizations

and traditional accounting focused organizations is the different job levels. The job levels seem to

be extremely significant for HRA focused organizations. This can be explained by the fact that the

use of either the historical or replacement costs approaches are used for evaluating the higher-level

managers. For the other companies, the evaluation programs are pretty much the same among the

different jobs.

5.3. Summary of the Discussion

The four HR practices of Patterson's model are connected to each other. With the below figure, we

can see that the HR practices for both types (traditional accounting and HRA) of organizations are

also connected. However, there are some similarities and differences between their decision-

making factors.

Figure 8: Comparison between traditional accounting and HRA organizations decision-making

Recruitment & Selection: Three factors are similar in traditional accounting and HRA-focused

organizations during recruitment & selection decision-making process. They both agreed that they

follow budget, candidate´s education, knowledge & experiences, and attitudes & behaviors during

recruiting & selection decision-making process. However, HRA-focused organizations consider

82

other two important factors such as treating employees as capital, employee salary and benefits,

and acquisition cost. The main difference between the two types of organizations is that HRA-

focused organizations make decisions based on measuring the total cost and value of their

resources, including other factors, which allows them to make more accurate decisions for invest

in recruiting and utilizing quality-oriented people.

Training & Development: Both traditional accounting and HRA organizations agree that these

four factors, such as knowledge gap identification, job level, leadership development, and

opportunities for career development, are important during training and development practices.

However, HRA-focused organizations consider all six factors to be important, including the cost

of learning and the use of accounting for human resources. The main difference in the two types

of organizations is that HRA-focused organizations calculate the cost of learning by HRA, which

determines the actual benefit the organization will receive after developing their workforce. As a

result, HR managers can make more informed decisions about investing in training and

development practices, as well as plan for more quality-oriented employees.

Retention & Turnover: The similarities between traditional and human resource accounting

focused organizations for retention and turnover practices are that they all consider the three basic

decision-making factors, which are growth opportunities, employee attitude and behavior, and

reward and recognition programs. However, the HRA focuses organizations additionally consider

employee performance & productivity and separation cost as other important factors. The main

difference between these two types of organizations is through the separation cost the HRA

focused organizations can calculate and forecast all cost have already spend and need to spend for

replacement an employee, as well as the value the have received from the employee´s skills and

productivity. As a result, HR managers can make more informed retention and turnover decisions.

Performance Management: The similarities between traditional and HRA focused organizations

for performance management practices are that they all consider the three basic decision-making

factors, which are reward & recognition, key performance indicators and yearly growth targets.

However, the HRA focused organizations additionally consider employee job level as another

factor which is the main difference between these two types of organizations. Since the HRA

focused organizations use cost models for evaluating the higher-level managers and make their

performance management decisions accordingly.

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6. Conclusion In this chapter, we will conclude our study and answer our research question in the general

conclusion. Following that, we will present our knowledge contribution in relation to previous

studies. This is followed by our social and practical contributions, which we analyzed in light of

the earlier findings. The final section of this chapter discusses the limitations and provides

recommendations for future research.

6.1. General Conclusion

The essence and aim of this dissertation is to contribute to the field of human resource accounting.

As we have mentioned before the use of HRA as a concept is at a nascent level at the moment.

Nowadays there are some companies that have started to use HRA. In this thesis, we have found

the differences and similarities between the decision-making factors of HRA focused and

traditional accounting focused companies. We interviewed seven HR managers from different

companies with the purpose of answering our research question.

• What are the similarities and differences between the decision-making processes of HR

managers of Traditional accounting and Human Resource Accounting focused

organizations?

Our findings led us to answer our research question. We used the Patterson´s model as a

preliminary framework because it includes HR practices, in which HRA can play a very important

role. The framework we developed to compare the decision-making factors of the two types of

organizations for each of Patterson's dimensions (recruitment and selection, training and

development, retention and turnover and performance management) using the crisp qualitative

analysis. We ended up identifying several similarities and differences for each dimension of the

Patterson’s model (recruitment and selection, training and development, retention and turnover

and performance management which serves the thesis´s first aim. The summary can be found in

figure 8. With our findings and analyses, we found that evaluating human resource value through

HRA eventually helps HR managers make more conscious decisions, which satisfies our second

purpose for writing this thesis. The choice of literature review supported our findings and

framework. Finally, we believe that we contributed by setting the grounds for future researchers

to go further.

6.2. Knowledge Contribution

The research that has been done so far in the field of HRA is mostly quantitative. Quantitative

research led the researchers to create and integrate more and more models to calculate the value of

the human capital. As we mentioned before every model or approach has its own advantages and

disadvantages, but all of them are good for specific occasions. For example, the use of the

acquisition cost is more suitable in the recruitment and selection dimension, whereas the

calculation of the learning cost is more suitable in the training and development dimension. Apart

from identifying the similarities and differences between these two types of organizations, we also

wanted to capture the different perspectives of HR managers. Another important contribution of

this dissertation is that it is the first comparative study between HRA focused organizations and

traditional accounting focused organizations.

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The use of the Patterson´s model helped us in dividing the HR managerial tasks, analyzing and

comparing each one of its dimensions separately. The final framework contains all the four

dimensions and the factors that are important for each one of them, depending on if it is a

traditional accounting focused company or HRA focused company. In the future researchers might

be interested in enriching our framework with more crucial elements or factors that we may have

not included in ours.

The Patterson´s model matched perfectly with the subject of our thesis as it includes all the

dimensions that HRA can be used. In recruitment and selection there is the use of the acquisition

cost, which is a form of historical cost. In training and development, learning cost (also a form of

historical cost) can be used in order to improve the quality of the decisions. In the retention and

turnover, the use of replacement or historical or separation cost could be of the utmost importance.

Lastly, in the performance management a lot of the mentioned approaches could be used. By

analyzing and comparing these four areas among HRA focused and traditional accounting focused

organizations, we were able to understand and point out the factors that are similar or different.

6.3. Social and Practical Contributions

We believe that this study has some major social and practical contributions. All of the

organizations that took part in this study are eager to see the results. When we began this thesis,

our aims were to learn about and comprehend HR managers' experiences on how they practice and

execute traditional accounting and human resource accounting in their daily decision-making

activities. And the results provide a general picture of how these concepts influence managers'

decisions, as well as which approach is more effective than the other and why. It was discovered

in the findings and comparative analysis that HRA provides an organization with a strong vision

for the future. As a result, HR managers in HRA-focused organizations can plan with better

accuracy. Other organizations will gain insight on how and why HRA can be applied based on the

implications and experiences presented by our thesis participants.

It has been proved by our empirical findings that the research has a significant effect on

organizational managers. Four of the seven participants do not follow HRA concepts, but the HR

managers appeared inspired and agreed that using HRA for measuring the value of workers would

help them make more accurate decisions than traditional accounting. According to the HR

managers employees are their main resources and there are different aspects involved in

determining an employee's worth, such as education, skills, experiences, training, and productivity.

If these values can be measured using HRA principles as a management tool, decisions in all four

HR activities can be made more effectively. HR managers will understand how the use of HRA

tools will guide them in future investments for recruiting, promoting, replacing, or developing their

employees, as well as improve employee loyalty to a sense of belonging to the organizations and

increase organizational performance.

In our thesis, we have clearly outlined that the quality of people is the main source of organizational

success. People feel empowered and fulfilled when they are respected based on their real merit

and efforts, which encourages them to work hard for a productive and successful organization. HR

managers would be able to identify the decision-making factors that have the greatest influence

85

using our conceptual framework. They will evaluate workers and compare the factors for practice

in their organizations. This will improve human capital valuation, ensure a higher level of utility

to stakeholders, uniformity in disclosures, and allow for accurate comparisons of human capital

values (Monday, 2017).

These practical implications also can generate social contributions. Monday (2017) stated that

‘People who feel good about themselves produce good results’ and ‘People who produce good

results feel good about themselves’. We have noted that measuring the worth of the workforce,

treating them as assets, and evaluating their actual performance creates job satisfaction and

encourages effective resource allocation in the economy. This provides a phycological benefit to

the workers. When people are satisfied with their workplace, it indicates that they are happy. This

allows them to be more productive with less work hours and maintain a healthy work-life balance.

This also results in better physical health for the workers and lower overall healthcare costs. We

believe that by conducting this research, we will be able to enlighten the society about the

importance of properly valuing human capital rather than only tangible assets.

Since the majority of our participants are from Bangladesh. It has been observed that HRA

practices are not widely familiar in this region, and organizations primarily use traditional

accounting systems to calculate HR-related costs. However, we believe that because organizations

are heading toward a value-based and knowledge-based economy, the limitations will be resolved

in the near future and HRA will be more acceptable for many organizations in Bangladesh. During

this transition, our study will provide some insights not only for Bangladesh, but also for HR and

accounting professionals in other countries in order to provide strong financial performance and

efficient management decisions.

6.4. Limitations and Suggestions for Future Research

During this study we have experienced some limitations which we must acknowledge. The first

limitation is that this study's sample is primarily based on Bangladesh and Philippine. We had

difficulty getting access to companies in other countries. It would be preferable if we could perform

further interviews with HR managers from other countries in order to make this study more

applicable and explore the various perspectives. However, we were able to obtain the necessary

number of interviews from two distinct categories, by which this study's aim "similarities and

differences'' were drawn.

Although we gathered information from these two countries, as previously mentioned, the primary

focus or aim of our research is to investigate the overall HRA and traditional accounting practices,

rather than any specific regions. As a result, we could recommend further research based on

geographical locations to examine the differences and similarities between traditional accounting

and HRA for HRM, with the goal of uncovering probable explanations related to cultural and

institutional differences.

Our second limitation is that, because to the confidentiality of organizations' HR operations

processes, we were unable to know about the organization's practices (whether it employs HRA or

traditional accounting systems) prior to conducting the interview. Our aim was to gather and

86

compare board insights from both experiences. We believe that if we could identify it ahead of

time, our interview guide would be more structured. However, as previously mentioned, gaining

access to HR managers, and gathering information about the organization's HR practices was

difficult, but we were able to do so.

Our third limitation is the scarcity of prior research studies on the topic. Since our topic is about

investigating HR managers' decision-making processes based on traditional accounting and HRA.

We discovered a range of HRA literature, but the majority of it was unrelated to the decision-

making process and had little to do with the relationship between accounting and human resource

management. Furthermore, there is a lack of research on qualitative research in this area, with most

previous studies focusing on quantitative methods. We believe that more qualitative works could

give us some more directions.

The fourth limitation is methods/instruments/techniques used to collect the data. Due to the

ongoing pandemic, most businesses are now operating remotely, and we had difficulty having

access to them. The interviews were conducted over the phone and online, despite the fact that we

believe that face-to-face interviews will be more appropriate for data collection of this study. Since

the researcher can be more likely to interact with the interviewee during an answer in face-to-face

interviews, such as by helping an interviewee in finding an appropriate word or summarizing the

answer to demonstrate understanding (Saunders et al., 2006, p. 423).

The last limitation for this study is limited access to certain data due to confidentiality concerns.

HR and accounting departments of organizations handle a lot of confidential and sensitive

information. Because this study focuses on some major parts of HR practices, few organizations

were reluctant to share details about specific HR-related practices.

Since there are few qualitative studies on HRA, we believe our study would help to fill some gaps

and assist potential researchers. However, more qualitative studies in this field are required in the

future. During our study, we discovered that many companies agree that an HRA approach can be

more useful for assessing employee value and improving organizational performance. However,

due to a number of constraints, the HRA tool is not feasible to apply for every company. In our

opinion, more research is needed to overcome the limitations underlying this method and to

examine if organizations are receiving the expected benefits from HRA.

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Appendix 1: Initial Inquiry by E-mail

Topic: Thesis interview request letter

Mail:

Dear Sir/Madam,

We send this email with the purpose of possible collaboration. Our names are Nivedita Sarker

and George Koilakos. We are students of Umeå University Sweden, currently writing our thesis

on a master’s level. Our dissertation topic concerns “A Comparison Analysis between

Traditional Accounting Information and Human Resources Accounting (HRA) Practices on HR

Managerial Decision-Making Process”.

To do so we would like to conduct some interviews with the HR and accounting managers to

gather some information. We would be delighted if you would be a part of our thesis, helping us

to expand these fantastic ideas even further. If you have positive feedback, we will send you some

questions that we would like to discuss with you. Following that, we can decide on a time that

works well for you. A non-disclosure clause will protect your privacy and the confidentiality of

the information you provide (if required). The recommendation letter from our thesis supervisor is

attached here.

We are looking forward to hearing from you. Thanks in Advance.

Best Regards,

Nivedita & George

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Appendix 2: Follow up E-Mail.

Dear Sir/Madam,

Thank you for agreeing to take part in our research project. As mentioned earlier, the interviews

will be conducted as part of our Master's thesis, which we are currently writing at Umeå School of

Business and Economics in Sweden. Your first-hand experiences are important because they help

us to understand if and how human resource accounting (HRA) is a potential method for managers

to use in their decision-making process for HR activities. At present, the global economy is rapidly

transitioning to a knowledge-based economy. Emphasizing the role of human capital in the

economy and necessitating the development of principles and techniques of human resource

accounting that have been recognized as human resource accounting (HRA).

After being acquainted with the interview questions, you will be invited to participate in an

interview in which you share your insights and experiences about HRA practices and decision-

making processes. The interview will take place via Zoom or phone, depending on your preference,

and should not last longer than one hour. We intend to audio record the interview for transcription

purposes. The audio recordings will be securely stored and removed until the information from the

interview has been transcribed.

Attached with this email, you can find our interview guide that will be used to conduct the

interview. In accordance with the interview and your given feedback, we might ask some

additional questions to dig deeper into the topic. This interview will be conducted anonymously, all

information and responses will be kept confidential. We will not mention your company name and

position in our thesis.

We are looking forward to hearing from you. Please let us know your preferable time for

conducting the interview. Feel free to contact us if you have any other queries or clarifications.

Kind Regards,

Nivedita Sarker & George Koilakos

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Appendix 3: Recommendation Letter

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Appendix 4: Interview Guide

General Information:

1. Organization name:

2. Organization’s size (based on employee number):

3. Name of the interviewee:

4. Position:

5. Roles:

6. How long you are working in this position:

7. Your educational background and previous work experiences:

Human Resource Accounting (HRA) practices and Traditional Accounting:

1. What is your knowledge of Human Resource Accounting?

2. Do your employees get treated as an expenditure or as assets? How have you integrated

human capital in your financial statements?

3. Does your company use HRA principles as a measurement tool to estimate the value of

your employees? If not, what kind of tool do you use as a company to estimate that?

4. If you practice HRA then which of the well-known HRA practices do you use? (For

example, Historical cost model, replacement cost model, the Flamholtz stochastic model,

Lev and Schwartz model, etc.)

5. How does the accounting information you receive, influence the decisions you make as a

manager?

6. Do you believe that your decision-making process as a manager becomes more efficient

when you use HRA principles or some other techniques in order to know the value of

your employees?

HR Decision-Making process:

We have selected the below four HR practices to investigate the influences of traditional

accounting or HRA for HR decision making.

Recruitment and Selection:

1. What are the basic requirements for hiring an employee as a HR manager?

2. Can you explain (stages) your decision-making process of recruitment and selection?

3. Which factors are most relevant during recruitment & selection decision-making?

4. Do you believe calculating the value of an employee or knowing the yearly budget helps

you during the recruitment and selection process?

5. How do you take the decisions based on the cost of employees (previous salary, expected

salary, skills, knowledge, and expertise)?

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6. How do you take decisions based on employee attitudes and behaviors during hiring

process?

7. Do you treat your human resources as capital or expenditure?

8. How do you calculate acquisition cost during this process?

9. Do you think traditional accounting information or HRA is helpful to see whether the

employees are effectively utilized or not in the organization?

Training & Development:

1. What are the basic training and development requirements for your employees?

2. Can you explain (stages) your decision-making process of Training and Development?

3. Which factors are most important?

4. How do you perform knowledge gap identification to determine which employee needs

training and development?

5. Does the training & development programs varies based on different job levels?

6. How do you measure the costs (learning cost) of providing further education and training

to employees according to the future benefits that they may bring to the company?

7. How do you provide leadership development opportunity for your employees?

8. How do you provide career development opportunity for your employees?

9. When it comes to decisions concerning employee training and development, does

accounting information or HRA influence the different stages of your decision-making

process?

Retention and Turnover:

1. What are the basic retention and turnover practices in your organization?

2. Can you explain (stages) your decision-making process of Retention and Turnover?

3. Which factors are most important during this practice?

4. Do you believe providing growth opportunity can retain more valuable employees?

5. How do you make retention and turnover decisions based on employee performance and

productivity?

6. How do you calculate employee separation cost during retaining employees?

7. How do you take retention or turnover decisions based on employee attitudes and

behaviors influence retention and turnover decisions?

8. What are the roles of rewards and recognition program for employee retention?

9. Do you believe that accounting information or HRA could help you improve your

decision-making process concerning which employees are going to lay off or not?

Performance Management:

1. How do you evaluate the employee performance in the organization?

2. What are your current performance management practices?

3. Can you explain (stages) your decision-making process of performance management

practice?

4. Which factors are important for this practice?

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5. How do you measure employee performance by using key performance indicator (KPI)

system?

6. How do you evaluate yearly performance targets for your employees?

7. Does the performance management system vary based on different job levels?

8. How reward and recognition programs are important to increase the employee

performance?

9. How do employee productivity and efficiency impact your performance management

plans?

10. Do you believe that accounting information or HRA practices could help improve the

quality of decisions made concerning employee performance?

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