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Summary
Summary
In this one-of-a-kind book, Steven Director covers everything mid-to-senior-level HR professionals need to know in order to formulate, model and evaluate their HR initiatives from a financial perspective.
Author Notes
Steven Director is a professor in the Rutgers University School of Management and Labor Relations. He has held a number of leadership positions at Rutgers, including serving as Associate Dean, as Chair of the Human Resource Management Department, and as Director of the PhD program in Industrial Relations and Human Resources. Prior to joining Rutgers he was an Employment Policy Fellow at the Brookings Institution and on the faculty of Michigan State University. He received his Ph.D. and MBA degrees from the Northwestern University Kellogg School of Management.Dr. Director teaches courses in Labor Economics, Statistics, and Finance. His most frequent and preferred teaching assignment is a course in Financial Analysis for Human Resource Managers. In addition to his on-campus teaching, Dr. Director has taught Finance for HR to senior executives in the U.S., Europe, and Asia. Recognized for his ability to effectively communicate financial concepts to non-financial audiences, Dr. Director has also developed and delivered customized finance training for scientists, engineers, and physicians. His publications have appeared in numerous journals and edited volumes.His research interests include the financial aspects of HR, compensation and benefits policy, and the interaction between national and corporate employment policy. In January, 2003 he developed and partnered with the Society of Human Resource Management to produce the monthly Leading Indicator of National Employment (LINE) Report. Dr. Director continues to serve as economic advisor to this project and SHRM has now published over 100 consecutive monthly LINE reports. This data series is followed closely by financial analysts and business economists.
Reviews 1
Choice Review
With this understandable volume, Director (Rutgers Univ.) helps human resource professionals enhance their skills in business finance and economics. This is important because in surveys, human resource leaders rate their staffs as weak on such skills. Basic arithmetic and spreadsheets are emphasized, whereas algebra and complex equations are avoided. The first half of the book covers classic financial topics, e.g., income statements, balance sheets, cash flows, financial statements, cost of capital, capital budgets, and return on investments. With the basics covered, the author then helps the reader navigate the financial implications of human resource initiatives such as compensation plans, pension programs, turnover reduction programs, training programs, performance-based pay, and the overall human resources budget. An appendix features financial measures currently popular, such as return on assets. Spreadsheet formulas occasionally appear, but the book reads more like an essay with occasional graphs and charts than a financial textbook. See also Bashker Biswas's Compensation and Benefit Design: Applying Finance and Accounting Principles to Global Human Resource Management Systems (CH, Jul'13, 50-6278). A broader and more detailed work on financial metrics is Business Ratios and Formulas by Steven Bragg (CH, Nov'12, 50-1557). Summing Up: Recommended. Upper-division undergraduate students through professionals. G. E. Kaupins Boise State University
Table of Contents
| Chapter 1 Business Strategy, Financial Strategy, and HR Strategy | p. 1 |
| Is HR Weakest in the Most Critical Areas? | p. 2 |
| You Don't Need to Be a Quant to Make Good Business Decisions | p. 4 |
| Which HR Decisions Are Important? | p. 5 |
| What This Book Attempts to Do | p. 6 |
| Chapter 2 The Income Statement: Do We Care About More Than the Bottom Line? | p. 9 |
| Income Statements | p. 10 |
| Profit Can Be Measured at Various Levels | p. 17 |
| Seeing the Big Picture | p. 20 |
| The Bottom Line | p. 22 |
| Chapter 3 The Balance Sheet: If Your People Are Your Most Important Asset, Where Do They Show Up on the Balance Sheet? | p. 23 |
| Assets on the Balance Sheet | p. 24 |
| Liabilities on the Balance Sheet | p. 30 |
| Which Numbers on a Balance Sheet Can You Believe? | p. 34 |
| Use Caution When Using Published Financial Ratios | p. 37 |
| Chapter 4 Cash Flows: Timing Is Everything | p. 43 |
| Cash Flow Information from the Income Statement | p. 45 |
| Cash Flow Information from the Balance Sheet | p. 45 |
| Chapter 5 Financial Statements, as a Window into Business Strategy | p. 49 |
| Common Size Financial Statements | p. 50 |
| Connecting the Dots | p. 52 |
| Return on Equity | p. 53 |
| Differential Impact of Financial Leverage | p. 54 |
| The Big Picture | p. 55 |
| The link Between HR Strategy and Business Strategy | p. 56 |
| Chapter 6 Stocks, Bonds, and the Weighted Average Cost of Capital | p. 59 |
| Why Is the Cost of Capital Important to HR Managers? | p. 59 |
| Where Does the Money Come From? | p. 60 |
| Is Your Company of Above Average or Below Average Risk? | p. 63 |
| Capital Costs in 2012 | p. 65 |
| Chapter 7 Capital Budgeting and Discounted Cash Flow Analysis | p. 71 |
| Calculating Present Values | p. 71 |
| Do the Future Benefits Justify the Upfront Costs? | p. 75 |
| Using DCF on the Job | p. 77 |
| HR Applications | p. 77 |
| Money Has Time Value Because of Interest Rates, Not Because of Inflation | p. 86 |
| Chapter 8 Financial Analysis of Human Resource Initiatives | p. 97 |
| Decisions Involving Cash Flow That Occur at Different Points in Time | p. 98 |
| Allocating Budgets When There Are a Larger Number of Alternatives | p. 104 |
| Calculating NPV of Specific HR Initiatives | p. 107 |
| Determining Program Impacts Using Pre-Post Changes | p. 111 |
| Determining Program Impacts Using Comparison Groups | p. 111 |
| What Is Your Firm's HR Budget? | p. 122 |
| Is Your HR Budget Allocation Optimal? | p. 124 |
| Maximizing the ROI on Your Analysis Efforts | p. 125 |
| Chapter 9 Financial Analysis of a Corporation's Strategic Initiatives | p. 127 |
| Estimating the NPV of a Strategic Initiative Such as a New Product Introduction | p. 128 |
| Using the Spreadsheet to Structure the Deal | p. 139 |
| Using Monte Carlo Simulations to Model Risk and Uncertainty | p. 141 |
| Chapter 10 Equity-Based Compensation: Stock and Stock Options | p. 153 |
| How Do Stock Options Work? | p. 154 |
| What Is tire Intrinsic Value of an Option? What's the Time Value of an Option? | p. 154 |
| Are Options High-Risk Investments? | p. 157 |
| Do Employees Prefer Options or Stock? | p. 160 |
| Understanding the Inputs to the Black-Scholes Model | p. 168 |
| Firms Must Disclose the Methods and the Assumptions They Use to Cost Stock Options | p. 172 |
| Using Monte Carlo Simulation to Determine the Value of Employee Stock Options | p. 180 |
| Dilution, Overhang, and Run Rates | p. 181 |
| Equity Compensation Is One Tool for Aligning Executive and Shareholder Interests | p. 183 |
| Chapter 11 Financial Aspects of Pension and Retirement Programs | p. 185 |
| Defined Benefit (DB) Plans | p. 186 |
| Defined Contribution (DC) Plans | p. 186 |
| Hybrid Plans | p. 186 |
| The Shift from DB Plans to DC Plans | p. 187 |
| Pension Accounting | p. 189 |
| Why Base Costs on the Expected Rather Than the Actual Return on Plan Assets? | p. 198 |
| How Do Firms Select the Appropriate Discount Rate? | p. 203 |
| DB Plans Encourage Retirement | p. 213 |
| The Future? | p. 213 |
| Chapter 12 Creating Value and Rewarding Value Creation | p. 217 |
| Aligning Pay with Performance | p. 217 |
| Managing EPS Expectations | p. 234 |
| Putting It All Together | p. 240 |
| Appendix A A Sample of Financial Measures Currently in Use | p. 246 |
| Bibliography | p. 249 |
| Endnotes | p. 257 |
| Index | p. 263 |
