Human Capital Investments

1. Human Capital Investments HR Management MBAO 6030 MBAO 6030 Human Resource Management

2. Human Capital Investments Human Capital: knowledge, skills, abilities that can be applied to create value within a firm. • Training can be viewed as an investment in human capital. • Training can be used to increase productivity, improve quality, strengthen interpersonal skills or deepen organization culture. Examples: • McDonald’s: “Hamburger U.” to train managers • Anderson Accounting: St. Charles corporate training center to provide technical skills to new hires. MBAO 6030 Human Resource Management

3. With Training No Training Human Capital Investments Learning Curves P* Performance Time MBAO 6030 Human Resource Management

4. Human Capital Investments: Training Costs Employer must retain employee at firm over a specified period of time to recover Training Costs • Direct Costs: development, instructor, and materials costs • Indirect Costs: employee salary paid while being trained, salary of other employees who provide the training (instructors, evaluators), administrative overhead costs • Training can be viewed as a “Make or Buy” decision. One can avoid training costs by “buying” a trained employee in the market. MBAO 6030 Human Resource Management

5. Human Capital Investments: Training Costs Approaches used to Recover training costs: • Training Wage – wage below market levels • Training Contract – employee agrees to remain with employer for specified time period or pay back the cost of training (used at EDS) • Golden Handcuffs – employees forfeit attractive benefits if quit before a specified period of time (stock options and bonuses are used in this way) • Screen for high aptitude employees – require shorter training periods, have steeper learning curves MBAO 6030 Human Resource Management

6. Human Capital Investments: Firm Specific and General Firm Specific HC Investments: Skills that add value only within a specific firm.Example: proprietary software or product knowledge General HCInvestments: General skills that Add value to any firm. Example: management or sales skills • A firm should be willing to pay for specific skills but less willing to pay for general skills. • Employees who receive general HC investments can quit and receive a wage premium in the market. MBAO 6030 Human Resource Management

7. Human Capital Investments: Firm Specific and General Critical Thinking Questions: • Suppose a firm does not make investments in firm specific human capital. How will employees obtain these firm specific skills? • Some firms invest in general human capital such as providing classes in reading literacy, English language competency, and numerical skills to their employees. Why do they do this and how can this be explained with human capital theory? MBAO 6030 Human Resource Management

8. Human Capital Investments: Training Methods • On the Job Training (OJT): includes internships, apprenticeships, mentoring, role modeling. Example: medical intern, and post-doc scientists • Classroom Training – can be off-site or on-site. • Internet Training – flexible scheduling and engaging MBAO 6030 Human Resource Management

9. Human Capital Investments: Fit with HR Systems HR Policies Complementary to Investments in Training • Screening employees for aptitude & motivation • Benefits that increase in value with seniority such as vacation days and retirement income • High wages relative to the market • Internal career paths Government polices may also provide incentives to invest in training by discouraging employers from “poaching” employees. Example: France requires employers to spend 2% of employees salary on training. Creates a level playing field for employers to invest in training. MBAO 6030 Human Resource Management

10. Human Capital Investments: Fit with HR Systems Critical Thinking Questions: • How would you evaluate a management development training program? What about a technical training program such as for a software skill such as writing software code? • Suppose you wanted to establish a mentoring program for scientists that matches an inexperienced scientist with a more experienced one. What caveats would you recommend to be careful about when organizing this program? MBAO 6030 Human Resource Management