S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
ASSET OR LIABILITY? When companies total up assets and liabilities for accounting purposes, employees aren’t counted as assets. It’s a peculiarity that has significant repercussions and the potential to negatively affect both employees and shareholders, suggested Wharton professor Peter Cappelli in the Harvard Business Review.
“Many common practices for managing employees are hard to explain,” he wrote. “Why do companies obsess over cost per hire but spend so little time trying to see if they make good hires? Why do they provide so little training when we know it improves performance and many candidates say they’d take a pay cut to get it? Why do firms delay filling vacancies and let work go undone? Why do they spend so much money leasing personnel from vendors rather than hiring their own?”
Cappelli contends the problem is rooted in the standards set by the Financial Standards Accounting Board (FSAB) in the United States. While many companies assert that employees are their most significant competitive advantage, that belief is not reflected in generally accepted accounting principles for publicly traded companies. FSAB-established standards don’t count spending on employees – such as wages, salaries, training and development, and benefits – as investments. Instead, those expenditures are treated as expenses and liabilities.
“…accounting rules say that items with value are assets—but only if they’re owned by the company. On that basis, employees are not considered assets—even though the tenure of a valuable employee is often far longer than the life of any piece of capital equipment. Even when a company buys other businesses to get access to their skilled employees, the acquisition of talent cannot be treated as an investment.”
Under current accounting standards, layoffs are one way for employers to rapidly lower costs and make balance sheets look more attractive. The loss of knowledge, skills, and abilities that accompanies layoffs doesn’t factor into financial accounting, even though it may negatively affect company productivity.
While accounting standards have yet to change, companies’ thinking may be. In a Bloomberg opinion titled, ‘U.S. Companies Aren’t Firing People As They Usually Do’, Kathryn A. Edwards wrote, “…the trade-off between short-term cost-cutting and human capital appears to [be] changing as qualified workers become harder to find and hire.”
Weekly Focus – Think About It
“Everyone talks about building a relationship with your customer. I think you build one with your employees first.”
—Angela Ahrendts, businessperson
|