Are you an asset to your company?

John W. Schoen Senior Producer • Profile • E-mail

May 9, 2005 - Has your boss every told you: "you're an asset to the company"? If that's true, asks Dave in Texas, why don't companies list their employees on the books along with all their other assets? Meanwhile, Carol in Oklahoma thinks her credit card company isn't telling her the whole truth about how much they charge. Unfortunately, she hasn't read the fine print.  

'VALUED' ASSETS
Why do businesses not put the employees on their balance sheets as assets? It seems that every business always promotes their employees as assets but then doesn't act that way. — David W., Bedford, Texas

For most companies, employees are indeed their most valuable asset. But the accounting industry hasn't yet come up with a standard way of calculating an individual employee's worth as a fixed asset to the company. And it would be a tough assignment if they tried.

For starters, employees aren't fixed assets because the company doesn't own them (not legally, anyway). Workers are free to get up and leave any time they want. Unlike, say, a new factory.

But even if a worker is locked into a long-term, wriggle-proof, non-compete contract, how do you put a value on a human life? In lawsuits involving wrongful death of an individual who died young, courts will often look at that person's potential earnings power calculated over their expected lifespan. I was once asked in an interview right out of college: “If I hire you and you stay for 20 years, we’ll likely pay you more than $1 million by the time you retire. Why are you worth that much?” (I hadn’t prepared an answer for that one.)

Managers do assign value to employees already on the payroll when they decide how to hand out raises or slice up the bonus pie -- presumably based on an individual's contribution to the bottom line. (Though no doubt these awards are also skewed by lobbying on the golf course or the same kind of alliances formed on a typical reality TV show.)

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But how do you value the contribution of the young engineer who may come up with the breakthrough product that transforms a company? And if people were carried on the books as fixed assets -- like a delivery truck or copy machine -- would you "depreciate" their value over time? Is the 55-year-old career veteran less valuable because of "wear and tear" -- or more valuable because of the wisdom and experience she brings to the job?

Eventually, employees do show up on the balance sheet. There's a line on the asset side where the talent and expertise of the work force is mixed in with a lot of other things that are sometimes hard to put a number on -- like brand awareness and patents. That's the line called "intangible assets" -- which is really as close as you can get to describe the value of a company's workers.

Employees also show up again -- as a liability. Companies have to set aside funds for pensions and retiree health benefits they expect to have to pay in the future. And unfortunately, when it comes time to cut costs, that’s the side of the balance sheet that usually gets the most attention.

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