“Employees Are Our Most Valuable Asset” (Or Are They?)

You hear it all the time from CEO’s: “Our people are our most valuable assets”. But you see some CEO’s acting as if employees aren’t assets at all. Can you imagine a company downsizing or laying off any other assets – just putting it out on the street in hopes that it will walk away? When CEO’s say they have to cut expenses, what they usually mean is that they are about to let people go.

How to reconcile these two views? From a common-sense perspective, employees are assets. Their knowledge and their work bring value to a company. When one company acquires another, the value of employees is recognised as part of the goodwill.

Otherwise, though, the value of employees doesn’t show up on the balance sheet. There are two reasons:

·       Outside of an acquisition, nobody has any idea how to value employees. What is the value of your knowledge? There isn’t an accountant in the world who wants to tackle that one. And the Financial Accounting Standards Board isn’t about to take it on by amending GAAP.

·       Anyway, companies don’t own employees. So, they can’t be considered assets in accounting terms.

Employees do create expense: payroll, in one form or another, is often one of the biggest items on the income statement. But what those CEO’s are saying has more to do with a company’s culture and attitudes than it does with accounting. Some organisations really do seem to regard employees as assets: they train them, they invest in them, they take good care of them. Others focus on the expense angle, paying people as little as they can and squeezing as much work out of them as possible. Is the former strategy worth it? Many people (including me) believe that treating people right generally leads to higher morale, higher quality, and ultimately higher customer satisfaction. Other things being equal, it boosts the bottom line over the long term and thus increase a business’s value. Of course, many other factors also influence whether a company succeeds or fails. So, there’s rarely a one-to-one correlation between a company’s culture and attitudes (on the one hand) and its financial performance (on the other).