The Role of Behavioral Measures in Accounting for Human Resources

Author(s): Jerry Dermer and Jacob P. Siegel

Source: The Accounting Review, Vol. 49, No. 1 (Jan., 1974), pp. 88-97
Published by: American Accounting Association
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 The Role of Behavioral Measures in
Accounting for Human Resources
Jerry Dermer
Jacob P. Siegel
A THOUGH considerable attention has
been focused recently on the ad-
vantages of measuring and report-
ing the value of human resources,' there
is still a question as to the best method to
use. One approach suggested is to attempt
direct monetary measurement of the
values in question using the traditional
methods of accounting. Familiar concepts
such as acquisition cost,2 replacement
cost,3 and opportunity cost4 have been ad-
vanced as potential measurement bases.
However, it has been argued that attempts
at deriving direct measures of value, re-
gardless of how conceptually appropriate
they may be from the standpoint of eco-
nomics, do not tap necessarily the nature
and determinants of a person's value to an
organization.5 That is, they do not make
use of variables such as motivation and
group cohesion which determine a person's
value to a formal organization. Therefore,
an alternative approach has been sug-
gested, an approach which makes use of the
behavioral variables and relationships that
are the indirect determinants of value.
The importance of behavioral factors in
achieving organizational goals has already
been noted by accountants. This has led to
several suggested uses of behavioral vari-
ables in accounting for human resources.
One use of behavioral measures is in de-
termining the amortization rate of invest-
88
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ments related to the development and
maintenance of the condition of the human
organization. For example, "if ... an en-
terprise invests $50,000 in a systematic
developmental program which succeeds in
improving employee attitudes and motiva-
tions by a measurable amount, this invest-
ment need not be written down unless de-
teriorations are observed in these vari-
1 For example, R. L. Brummet, E. G. Flamholtz and
W. C. Pyle (eds.) Human Resource Accounting: De-
velopmentand Implementationin Industry (The Founda-
tion for Research on Human Behavior, 1969), M. H.
Gilbert, "The Asset Value of the Human Organization,"
Management Accounting (Vol. 52, No. 1), pp. 25-8,
B. Lev and A. Schwartz, "On the Use of the Economic
Concept of Human Capital in Financial Statements,"
THE ACCOUNTINGREVIEW (January 1971), pp. 103-12;
P. McCowan, "Human Asset Accounting," Manage-
ment Decision, (Vol. 2, No. 2), pp. 86-9; R. L. Wood-
ruff, "Human Resource Accounting," The Canadian
CharteredAccountant, (No. 3), pp. 156-61.
2 W. C. Pyle, "Human Resource Accounting," Finan-
cial Analysts' Journal (Vol. 26, No. 5), pp. 69-78, and
W. C. Pyle, "Monitoring Human Resources, On Line,"
Michigan Business Review (Vol. 22, No. 4), pp. 19-32.
3 D. J. Jenkins, "Measuring 'Secret' Corporate
Worth," Corporate Financing, (January-February
1971), pp. 22-6.
4 J. S. Hekimian and C. H. Jones, "Put People on
Your Balance Sheet," Harvard Business Review, (Janu-
ary-February 1967), pp. 105-13.
6 E. Flamholtz, "Toward a Theory of Human Re-
source Value in Formal Organizations," THE ACCOUNT-
ING REVIEW (October 1972), pp. 666-78.
Jerry Dermer is Visiting A ssociate Pro-
fessor of Management Science at the Mas-
sachusetts Institute of Technology and
Jacob P. Siegel is at the University of
Toronto.
Dermer and Siegel: Behavioral Measures
ables."6 It has been speculated that be-
havioral measures and relationships may
be of use in determining the total value of
human resources. Brummet et al. maintain
that if, e.g., ". . . a meaningful relationship
is established between changes in leader-
ship styles (causal variables) which results
in changes in subordinate attitudes, moti-
vations, and behavior (intervening vari-
ables), which produces changes in pro-
ductivity, innovation, and manpower de-
velopment (end result variables), then
trends in earnings can be predicted. Fore-
casts of predicted earnings can be dis-
counted to determine the present value of
the firm and its human resources."'
Finally, Flamholtz states that if meaning-
ful financial measures of human values
cannot be derived, the behavioral de-
terminants of value may be used instead:
". .. measures of these determinants
might be used as nonmonetary indicators
of human resource value, which would
serve as a proxy for monetary measures of
human value."8
Although these proposed uses of be-
havioral measures in accounting for hu-
man resources may appear to be only
tentative suggestions, there has been con-
siderable effort made to persuade users of
accounting data that this approach to
producing relevant data is the wave of the
future.9 Given the amount of exposure
this viewpoint is receiving, it is to be ex-
pected that even more attention will be
focused on these ideas in the future. There-
fore, questions may arise in the minds of
both practicing accountants and those who
use human resource data for managing
and making investment decisions as to the
role that behavioral measures can or
should play in accounting for human re-
sources.
The purpose of this study is to provide
some empirical evidence relevant to this
question by assessing the usefulness of
behavioral measures in accounting for
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89
human resources. Usefulness will be eval-
uated by determining the extent to which
employing behavioral measures can ac-
complish the stated objectives of human
resource accounting. These objectives are:
(1) ". . . to develop . . . capabilities for
measuring those human resource variables
which significantly affect organizational
performance over time" and (2) ". . . to
develop means for utilizing these data to
improve organizational affectiveness."10
The study is divided into two parts cor-
responding to these two objectives. The
first part attempts to determine if be-
havioral variables such as motivation,
effort, group cohesion, and satisfaction
actually do affect significantly task per-
formance, for it is only if they do that
they are of use in accounting for the hu-
man resources that accomplish this task
performance. The second part of the study
attempts to determine whether providing
measures based on such variables to man-
agers, in fact, will improve the administra-
tive effectiveness of the organizations.
BEHAVIORAL VARIABLES AND ORGANIZA-
TIONALEFFECTIVENESS
The belief that behavioral measures can
be used in accounting for human resources
6 R. L. Brummet, E. G. Flamholtz, and W. C. Pyle
(eds.) p. 53.
7 R. L. Brummet, E. G. Flamholtz, and W. C. Pyle,
"Human Resource Measurement-A Challenge for Ac-
countants," THE ACCOUNTING REVIEW (April 1968), pp.
223-4.
8 E. G. Flamholtz, p. 667.
9 These opinions have appeared in a number of peri-
odicals. R. Likert, "Human Organizational Measure-
ments: Key to Financial Success," Michigan Business
Review (Vol. 13, No. 3), pp. 1-5, R. Likert and D. G.
Bowers, "Organizational Theory and Human Resource
Accounting," Psychologist (Vol. 24, No. 6), pp. 585-92,
R. Likert, D. G. Bowers and R. M. Norman, "How to
Increase a Firm's Leadtime in Recognizing and Dealing
with Problems of Managing its Human Organization,"
Michigan Business Review (Vol. 21, No. 1), pp. 12-17,
R. Likert and W. C. Pyle, "Human Resource Account-
ing: A Human Organizational Measurement Approach,"
Financial Analysts' Journal (Vol. 27, No. 1), pp. 75-84,
and "A New Twist to People Accounting," Business
Week (October 21, 1972), pp. 67-8.
10R. L. Brummet, E. G. Flamholtz, and W. C. Pyle
(eds.), p. 23.
90
stems from the theory advanced by the
founder of the human resource accounting
(HRA) movement, Rensis Likert.1" Likert
has been concerned with the fact that the
current management practice focuses
mainly on end result (ER) measures such
as sales or profits and that managers con-
cern themselves with employee-related
problems such as satisfaction, group co-
hesion, and motivation only as required.
Because of their concern with measured
performance, Likert believes that man-
agers sometimes may pressure employees
in order to accomplish short-term im-
provements in end-result variables and
that this practice simultaneously causes a
significant deterioration of behavioral vari-
ables such as motivation and satisfaction.
Such occurrences, he believes, are harmful
to the long-run productivity of the organ-
ization because, according to his theory,
the condition of the human organization is
instrumental in attaining long-run growth
in end-result variables.'2 The crux of
Likert's theory of organizational produc-
tivity, thus, is his belief that the behavioral
health of an organization, as reflected by
such variables as satisfaction, group cohe-
sion, morale, or motivation, determines its
productive capacity.'3
In order to improve the productivity of
an organization, Likert therefore recom-
mends the establishment and maintenance
of a participative administrative climate
where management is sensitive and re-
sponsive to behavioral as well as end-result
variables. However, he is aware that man-
agers tend to focus on what is measured
rather than what may be more appropriate.
Achieving a supportive administrative
climate, then, requires establishing a sys-
tem that measures and reports behavioral
variables along with conventional end-
result variables so that managers and
subordinates can be kept abreast of the
changes in the condition of human re-
sources and of the importance of such
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The Accounting Review, January 1974
changes in the lagged relationship that
Likert says exists with end-result vari-
ables. He further reasoned that attention
only can be drawn to behavioral considera-
tions by reflecting changes in these vari-
ables in the monetary terms that manage-
ment is accustomed to dealing with.'4 Ac-
cordingly, he sought out accountants will-
ing to broaden the scope of their endeavor
to include the measurement and evalua-
tion of the human organization. Out of
this collaboration of behavioral scientists
and accountants, the human resource ac-
counting movement was launched.
As is indicated by his research and writ-
ing, Likert has developed a strong belief
that the behavioral health of an organiza-
tion does determine its performance and,
hence, that behavioral measures can be
employed in accounting for human re-
sources. However, although his theory has
received considerable attention, there is
also a substantial amount of evidence in-
dicating that these relationships are not as
straightforward as they are thought to
be." In fact, it may be that the importance
attached to behavioral variables such as
job satisfaction is nothing more than a
vestige of the human relations era of be-
havioral science when human-centered
management emphasizing employee satis-
faction and morale was foremost. As Cum-
mings and Schwab point out, there are
several other ways in which attitudes such
as job satisfaction and performance can be
related.'6 In many recent studies the rela-
11R. Likert, The Human Organization (McGraw-Hill,
1967).
12 R. Likert and S. F. Seashore, "Making Cost Con-
trol Work," Harvard Business Review (Vol. 41, No. 6),
pp. 96-108.
13 R. Likert, The Human Organization.
14
Ibid., p. 146.
15 A. K. Korman, "The Prediction of Managerial Per-
formance: A Review," Personnel Psychology (1968),
pp. 295-322.
16 L. L. Cummings and D. P. Schwab, "An Evalua-
tion of Theories Linking Employee Satisfaction and
Performance," Proccedings of the 79th Annual A.P.A.
Convention (1970).
Dermer and Siegel: Behavioral Measures
tionship has been posited as being in the
opposite direction, i.e., work performance
determining the level of job satisfaction.
For example, Siegel and Bowen found in a
laboratory study that there is greater sup-
port for the view that performance de-
termines satisfaction than for Likert's
hypothesis that satisfaction determines
performance." Furthermore, evidence ac-
cumulated over the last two decades indi-
cates that one must qualify any causal
statements between behavioral variables
and performances by the type of end result
considered. Certain end-result variables
such as turnover and absenteeism may
have a strong and consistent relationship
with measures of satisfaction, whereas
other end-result variables such as actual
job performance may show no consistent
relationship with them.18
Similarly, it has been shown that moti-
vation alone is insufficient to predict per-
formance, and that ability is one modera-
tor of the motivation-performance rela-
tionsip.19 Furthermore, House and Wigdor
have speculated that several additional
moderators may be relevant. "If one re-
flects on the kinds of conditions necessary
for productive work, it becomes quite clear
that motivation is only one of them.
Clearly, when working conditions, the
quality of leadership, the suitability of
supplies and equipment, the efficiency of
scheduling and coordinating procedures,
or the abilities of the members of the work
force are found deficient, highly motivated
behavior may have either little effect on
productivity or even possibly the effect of
causing frustration which interferes with
productivity."20 In addition, group cohe-
sion, which is a variable emphasized in
Likert's theory,21 may or may not be con-
ducive to effective performance. Although
it has been shown that work groups which
provide their members social satisfaction
have less absenteeism than less cohesive
groups, with respect to task performance
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91
it has been demonstrated that identifica-
tion with one's work group can make for
either above average or below average pro-
ductivity, depending upon the norms of the
particular group. In a study performed by
Seashore, highly cohesive groups moved to
either an extreme well above or well below
the production standards for the company
as a whole.22 In summary, then, although
Likert and his followers believe that the
behavioral condition of the human organ-
ization determines its productive capacity
and proselytize to that effect, there is
other empirical evidence indicating that
the relationship between performance and
behavioral variables may be circular,
moderated, or even reversible.
Given these contradictory results, it ap-
pears that the exact effect of behavioral
variables in determining task performance
is still to be established and, hence, that
the role such variables can play in ac-
counting for human resources is very
limited. However, assessing the applicabil-
ity of these findings to the problem of ac-
counting for human resources is hindered
by the fact that none of the studies indi-
cating that behavioral measures are of
little potential use in human resource ac-
17 J. P.
Siegel and D. Bowen, "Satisfaction and Per-
formance: Causal Relationships and Moderating Ef-
fects," Journal of VocationalBehavior (1971), pp. 263-9.
18 V. H. Vroom, Work and Motivation (Wiley, 1964),
F. Herzberg, B. Mausner, R. 0. Peterson, and D. F.
Capwell, Job Attitudes: Review of Research and Opinion
(Psychological Service of Pittsburgh, 1957); and A. H.
Brayfield and W. H. Crockett, "Employee Attitudes
and Employee Performance," Psychological Bulletin
(September 1955), pp. 416-21.
1' V. Vroom, Jay Galbraith, and L. L. Cummings,
"An Empirical Investigation of the Motivational De-
terminants of Task Performance: Interactive Effects
Between Instrumentability-Valence and Motivation-
Ability," Organizational Behavior and Human Per-
formance (1967), pp. 237-57; and E. E. Lawler, "Ability
as a Moderator of the Relationship Between Job Atti-
tudes and Job Performance," Personnel Psychology
(Summer 1966), pp. 153-64.
20 R. J. House and L. A. Wigdor, "Hertzberg's Dual-
Factor Theory of Job Satisfaction and Motivation,"
Personnel Psychology (1967), p. 375.
21 R. Likert, The Human Organization, pp. 219-29.
22 S. Seashore, Group Cohesiveness in the Industrial
Work Group (Institute for Social Research, 1954).
92
counting was carried out in an experi-
mental situation at all similar to an HRA
environment. That is, the behavioral
variables in these studies were never sys-
tematically measured and reported to the
participants as behavioral-based measures
would be if a human resource accounting
system based on behavioral measures were
in operation. The first objective of this
study, therefore, is to determine if the
behavioral condition of the human organi-
zation does, in fact, determine its per-
formance when operating in an HRA sys-
tem environment.
The utility of providing HRA data to a
manager depends on the use he will make of
this additional information. However, a
problem may arise in a behavioral-based
HRA system because a manager now is
confronted not only with the set of end-
result variables he traditionally has used
to guide his actions, but also with a num-
ber of behavioral-based measures. Un-
fortunately, there has been no empirical
research investigating how a manager will
behave in such situations. For example,
it may be asked if a manager can entertain
simultaneously both behavioral and end-
result variables or if he will become con-
fused and inconsistent. One may wonder
how he will distribute his emphasis among
goals reflecting behavioral as well as end-
result considerations. In particular, the
possibility exists that a manager who has
performed poorly in terms of the tradi-
tional variables by which he is evaluated
may rationalize his efforts by shifting
goal emphasis to the behavioral-based
variables now being reported, seeking con-
solation in the fact that attention paid to
behavioral variables is believed to result
ultimately in improved long-run financial
performance. The extensive research find-
ings supporting the concept of cognitive
dissonance indicate that such dissonant
resolution behavior is highly probable.23
In fact, goal shifting may even be en-
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The Accounting Review, January 1974
couraged by the fact that the manager is
protected from contradiction by the un-
certainty of the relationship between be-
havioral variables and end-result per-
formance. If this is the case, dysfunctional
consequences unanticipated by the de-
signer of the human resource accounting
system may result and, hence, the second
objective of human resource accounting
may not be accomplished by providing
these additional data. Therefore, the
second objective of this study is to
determine the effects of including beha-
vioral variables along with end-result
variables in the set of objectives available
to a managerial decision maker.
METHOD
Subjects-Sixty-five MBA students in
two sections of a University of Toronto
Management Information Systems Course
participated in the study. In the first week
of class the students in each section were
formed into 7 groups of 4 or 5 students,
each group making up one company tak-
ing part in a business game simulation.
The Task-The Business Game,24 a
decision-making exercise developed at the
Harvard Business School, was used as the
group task. This game is a simulation in
which seven companies, each selling three
products, compete against one another.
Company progress is measured and evalu-
ated in the traditional accounting terms
of sales, earnings, return on investment,
and stock price. Performance is affected by
marketing, financial, production, and man-
power planning decisions made in response
to the economic and competitive factors
presented. As a basis upon which to make
their first decision, each company was pro-
vided with data representing four previous
23 L. Festinger, A Theory of Cognitive Dissonance
(Peterson, 1957), and C. A. Insko, Theories of Attitude
Change (Appleton-Century-Crofts, 1969).
24 F. W. McFarlan, J. L. McKenney, and J. A. Seiler,
The Management Game (Collier-Macmillan Canada
Ltd., 1970).
Dermer and Siegel: Behavioral Measures 93

periods. Playing the game then required
making twelve plays or sets of decisions
throughout the semester. Performance in
the game determined 50%0of the grade in
the course.
Questionnaire Measures-A question-
naire was administered and completed by
each student every second play of the
game. To simulate the periodic issuance of
reports that would occur under a human
resource accounting system, some of the
results of the questionnaire were posted
and noted by the students before they
made their next play. The diagram below
describes the ordering of the question-
naire administration, questionnaire item
feedback, and decision made.
havioral measures of the type cited by
Likert26were computed for each individual
and the averages for each group were fed
back to all the groups. The four measures
were of:
(a) Motivation-measured by each stu-
dent's rating of the importance of coming
out on top times his assessment of the like-
lihood of coming out on top.27
25 A. Zander, "Students' Criteria of Satisfaction in a
Classroom Committee Project," Human Relations (Vol.
22), pp. 195-207.
26 R. Likert, The Human Organization, pp. 219-29.
27
The definition and measurement of motivation and
effort as a product of factors follow from the expectancy
or, as it is also called, the instrumentality theory of
motivation. See, for example, G. Graen, "Instrumen-
tality Theory of Work Motivation: Some Experimental

(T1) (T2) (T3) (T4) (T5) (T6)

Q Q Q Q Q Q

112 31 4 51t 6T 7T1 8 91 10 11 12._

ERF ERF IR E RF ERF I ERF ERF

ERF ERF
I ERF ERF ERF
BVF BVF BVF BVF BVF

Key:
Q-Questionnaire administered
ERF-End result variable feedback (e.g., sales, earnings, stock price)
BVF-Behavioral variable feedback (e.g., motivation, satisfaction, effort)
Ti-Time period i

A. Motivational and Attitudinal Variables

The first part of the questionnaire was
made up of 14 questions and was essen-
tially identical to the one employed by
Zander25 in his study of group problem
solving activity. Additional questions were
added to measure the effort expended over
the period since the last questionnaire.
Results and Suggested Modifications," Journal of Ap-
plied Pfychology (Vol. 53), and T. R. Mitchell and
A. Biglan, "Instrumentality Theories: Current Uses in
Psychology," Psychological Bulletin (Vol. 76), pp. 432-
54. Multiplicative models have been used to describe
and predict a wide variety of work related variables.
V. H. Vroom, Work and Motivation (Wiley, 1964), e.g.,
defined the force (F) on an individual to perform an
act as:
n

Typical questions were: How satisfied do F =E (E VA)

you feel about your personal performance
in the group?; In your view how important
is it that your group come out on top?;
How much effort did you put into the
game? From each questionnaire four be-
J=1
That is, force is a function of the valence (attractive-
ness) (V) of all outcomes and the strength of the ex-
pectancies (E) that the act will be followed by the at-
tainment of these outcomes. Similarly, T. R. Mitchell
and D. M. Nebeker, "Expectancy Theory Predictions
of Academic Effort and Performance," Journal of A p-
plied Psychology (Vol. 57, No. 1), pp. 61-7, define the

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94
(b) Satisfaction-measured by the sum
of each student's rating of satisfaction with
his own performance, his group's perfor-
mance, and his overall satisfaction with
the course.28
(c) Effort-measured by the product of
each student's rating of his effort in play-
ing the game times his estimate of the
number of hours spent on the game.29
(d) Group cohesion-measured by each
student's rating of the attractiveness of
his fellow group members.30
B. Ranking of Objectives
Each questionnaire also contained eight
goals which were randomly ordered and
presented to the student for ranking. The
instructions for this part read as follows:
"Your participation in this game is ori-
ented to accomplishing the following ob-
jectives. Rank the relative importance of
each of these eight objectives by placing
the numbers 1 to 8 beside each, with 1 indi-
cating the most important objective and 8
the least." Four of these goals were related
to maximizing end-result variables, i.e.,
sales, earnings, return on investment, and
stock price. Each group's performance in
three of these goals was computed and
tabulated as part of the Business Game
computer output, and all results were dis-
tributed to each team.3" The remaining
four goals were related to acquiring an
understanding of the processes that pos-
sibly determine task performance. These
related to their understanding of group
problem solving, generalized decision-
making structures, the role of information
in decision-making, and the interrelation-
ships among the functional areas of a firm.
RESULTS
Table I contains lagged, simultaneous,
and leading correlations of measures of
motivation, satisfaction, group cohesion,
and satisfaction with performance. Inspec-
tion of the data contained in Table I pro-
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The Accounting Review, January 1974
vides little support for the existence of a
causal relationship between the behavioral
state of a human organization and its per-
formance. A comparison of the correla-
tions computed with the behavioral vari-
ables leading performance, as is hypothe-
sized by Likert, against correlations of the
same variables measured simultaneously,
i.e., taken in the same time period, and.
also against correlations computed with
performance preceding, clearly provides
amount of work an individual will produce (W) as:
W = E (IiVi)
where
E is the expectancy
I is the instrumentality of performance for the at-
tainment of an outcome
V is the valence of the outcome
so that a person will work hard if he expects that his
effort will lead to good performance (E), and if he be-
lieves that good performance will lead to valued out-
comes
28 J. P. Wanous and E. E. Lawler, III, "Measurement
and Meaning of Job Satisfaction," Journal of A pplied
Psychology (Vol. 56, No. 2), pp. 95-103, have addressed
themselves to the problems of defining and measuring
satisfaction and to the lack of good theory about satis-
faction. They compared an additive (i.e., JS=Xfacets
(job facet satisfaction)) and a weighted (i.e., JS=Vfacets
(importanceXJFS)) model of job satisfaction (JS).
The resultant correlation using both methods was 0.92
indicating substantial agreement. Since no adequate a
priori weighting scheme was available to weight dif-
ferentiallv the several facets of satisfaction used in this
study, the simpler additive model was used. See also
M. G. Evans, "Conceptual and Operational Problems
in the Measurement of Various Aspects of Job Satisfac-
tion," Journal of Applied Psychology (Vol. 53, No. 2),
pp. 93-101 for a discussion of these issues.
29 See footnote 27.
30
The cohesiveness of a group is determined by the
attractiveness of the group to its members. However,
any group may have both attractive and repelling fea-
tures and its cohesiveness is the resultant of these oppos-
ing forces. See D. Cartwright and A. Zander, Group
Dynamics: Research and Theory, 2nd Edition (Row
Peterson, 1962), pp. 89-92. Cohesiveness therefore was
measured by each student's response on a 7 point bi-
polar scale from "Being with them is quite disagreeable
to me' to "I look forward with enthusiasm to the plea-
sure of being with them" to the statement "If I think
of the persons in my group:"
31 Return on investment was not a machine-computed
performance measure.
Dermer and Siegel: Behavioral Measures 95

TABLE I Likert than for the reverse direction.

LAGGED, SIMULTANEOUSAND LEADING CORRELATIONS Thus, it appears that even operating in an
OF MEASURES OF MOTIVATION,SATISFACTION,GROUP
COHESION, AND EFFORT WITH PERFORMANCEa HRA environment, the behavioral state
nz 60 Approximatelyb of an organization has no systematic
effect on its task performance.
Performance Satisfaction Both in
Period Preceding Preceding Period Same
Satisfaction Performance Period Table II contains the simultaneous,
T1-T2 0.05 -0.14 T1 0.08 leading and lagged correlations between
T2 -T3 - .10 .17 T2 .00 the sum of each individual's rankings of
T3-T4, - .08 .08 T3 .05
T4-T5 ..22* .12 T4 .28** the relative importance of the 4 ER objec-
T5-T6 .14 .15 T5 .14 tives, i.e., sales, earnings, stock price, and
T6 .45***
return on investment, and his company's
Performance Motivation Both in performance as measured by stock price,
Period Preceding Preceding Period 5Same
Motivation Performance Period earnings, and sales. Each column in the
table contains the correlation of the rank-
Tj-T2 0.15 0.07 T, 0. 28**
T2-T3 o.07 .17 T2 .18* ings of the ER variables with subsequent
T3-T4 .12 .12 T3 .14 performance. Along each row of the table
T4-T.F .28** .13 T4 .21*
T5-T6 .28** .15 T5 .12 the relationship is reversed with the corre-
T6 .40*** lations being computed between perfor-
Performance Cohesion Both in mance in periods preceding the periods in
Period Preceding Preceding Period Same which the ranking of ER objectives took
Cohesion Performance Period
place and these rankings.
T,-T2 .18* 0.05 T1 0.21* Inspection of Table II reveals evidence
T2-T3 - .22* .04 T2 . 05
T3-T4 - .05 .12 T3 .05 of the shifting of goal rankings as a result
T4-T5 0.08 - .10 TV4 -.03 of ER performance. Of the 45 correlations
T5-T6 .02 - .16 T5 .14
T6 .08 computed with performance leading rank-
Performance
ings (upper half of the matrix omitting the
Effort Both in
Period Preceding Preceding Period Same diagonal elements) 30 are statistically sig-
Effort Performance Period nificant at the p<0.10 level or better. A
T1-T2 -0.05 -0.24** T, -0.08 binomial test reveals that this result is sig-
T2-T3 - .07 - .07 T2 .29** nificant at the p<0.05 level.32 Closer in-
T3-T4, - .06 - .19* T3 - .02
T4-T5 .09 .03 T4 .11 spection of the table reveals that the rela-
T5-T6 - .01 .10 .06
T5 tionship is strongest between performance
T6 .22*
in the first two periods and subsequent
* p<0. 10.
** P<0.05.
rankings of ER objectives. Examining the
*** p<0.01. lower half of the matrix where performance
Two tail tests. lags the rankings of ER variables, it is seen
a Median inter-item Pearson product moment corre-
lation using sales, income, and stock price as per- that there are only 11 significant correla-
formance measures. tions. A binomial test reveals that this dis-
b n varies for each correlation due to absences from
class. tribution of significant correlations among
the upper and lower matrix halves could
occur by change only at the 0.01 level.
little support for the existence of a causal Thus by both counting the number of sig-
relationship. In fact, for all four behavioral nificant correlations in the upper half and
variables, there are fewer significant corre- comparing the upper and lower matrix
lations computed with the variables se-
32 S. Siegel, Non-parametric Statistics (McGraw-Hill,
quenced in the direction assumed by 1956), P. 36.

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96 The Accounting Review, January 1974

TABLE II
SIMULTANEOUS,LEADING, AND LAGGEDCORRELATIONSBETWEEN IMPORTANCERATINGSa
OF END RESULT OBJECTIVESWITHPERFORMANCE
n~ 60 Approximatelyb

Rating of ER ObjectivesPeriod
Period Performance
Measure 1 2 3 4 5 6
1 Stock price -0.22* -0.22* -0.22* -0.27** -0.23** -0.22*
Earnings - .25** - .22* - .29** - .30** - .35*** - .30**
Sales - .14 - .28** - .24** - .24** - .33*** - .14
2 Stock price - .26** - .25** - .22** - .17* - .24** - .16
Earnings - .01 - .10 - .13 - .21* - .29** - .21*
Sales .16 - .09 .03 - .08 - .08 - .06
3 Stock price - .22* - .24** - .24** - .22** - .29** - .22**
Earnings - .01 - .03 - .09 - .06 - .10 - .18*
Sales .10 - .10 .06 .14 .12 .16
4 Stock price - . 18* - .25** - .26** - .31*** - .33*** - .24**
Earnings .03 - .14 - .02 - .11 - .04 - .05
Sales .13 - .12 .10 .15 .17* .17*
5 Stock price - .12 - .30** - .23** - .25** - .24** - .20*
Earnings .01 .05 - .01 - .09 - .01 - .15
Sales .06 - .03 .11 . 17* .18* .20*
6 Stock price - .09 - .08 - .13 - .19* - .11 - .08
Earnings .00 - .09 - .02 - .09 .03 .14
Sales .03 - .09 .06 .10 .11 .18*

* p<0.10
** p<0.05
*** p<O.01
TWOtail tests.
a LOWscore (e.g., 1) indicates high rating.
b n varies for each correlation due to absences from class.

halves, it appears that the belief that goal-
shift behavior may occur as a result of ER
performance when alternative behavioral-
based objectives are also available has
been supported.
DISCUSSION
Can the measurement of behavioral
variables play a role in accounting for
human resources? The results of this labo-
ratory study, using simulated organiza-
tions, indicate that, at present, it cannot.
The first intent of this study was to de-
termine if, in a situation analogous to the
operating environment of a HRA system,
the use of behavioral variables in account-
ing for human resources can be justified on
the basis that they are related to task per-
formance. However, the data that were
collected and analyzed revealed no indica-
tion of a significant or a systematic rela-
tionship among any of the four behavioral
variables and performance, and hence, the
null hypotheses could not be rejected. But,
since this finding is consistent with the re-
sults of the previous research cited above,
these results can be interpreted as support-
ing the belief that, at present, there is no
empirical foundation upon which to ad-
vance the use of sociopsychological mea-
sures in accounting for human resources.
In fact, it can even be argued that these
results indicate that proposals to capital-
ize many human resource-related expendi-
tures cannot be justified by the assump-
tion that they improve the condition of
the human organization and, hence, will
eventually contribute to the earning of
revenue. For example, the results of this
study indicate that expenditures to im-
prove motivation or group cohesion (e.g.,
by sponsoring courses) should not be
capitalized because they may not result in
increasing a firm's income in later periods.

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Dermer and Siegel: Behavioral Measures
Thus it appears that proposals suggesting
that HRA systems should either make use
of behavioral measures in accounting for
human resources or attempt to develop
financial surrogates of the behavioral con-
dition of an organization cannot, as yet,
be justified empirically.
The second part of this study indicates
that not only are behavioral variables un-
related to ER performance, but that ac-
countants also must contend with the
potentially dysfunctional goal displace-
ments that may result from providing
behavioral-based information. It was seen
that an individual, when performing
poorly in terms of ER variables, may tend
to rationalize and hence justify his per-
formance not in ER but rather in be-
havioral terms. If this is the case, what is
the organization to do? If the organiza-
tion subscribes to the basic tenets of the
HRA model, it subscribes to the belief
that attention to behavioral consideration
will lead ultimately to good ER perfor-
mance. In this case, because of the uncer-
tain lags in this relationship, the organiza-
tion probably must accept the individual
rationalization of poor ER performance,
at least in the short run. But, given the
questionable validity of these relation-
ships, such practice may promote goal in-
congruence. On the other hand, if the
organization does not accept this explana-
tion and stresses the attainment of ER
variables, it is operating in the traditional
mode and really has little need for a be-
havioral-based HRA system. Thus, not
only -may HRA systems fail to increase
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97
organizational effectiveness, they may also
substantially augment the already difficult
problem of achieving organizational goal
congruence.
The results of this study clearly indicate
that both the assumptions underlying the
development of internal HRA systems
and the problems of implementing them
warrant careful scrutiny. But these results
should be interpreted as a need for cau-
tion rather than as an argument against
the future development of HRA systems.
To the extent that HRA is limited to
advancing better cost accumulation and
allocation schemata consistent with tradi-
tional practices, it is to be encouraged.
Proceeding thusly, the difficulties encoun-
tered will be no worse than those already
associated with traditional accounting
practice. However, as this study has dem-
onstrated, premature excursions into be-
havioral quagmires will do little to ad-
vance the contribution of accounting
to improving organizational effectiveness.
The variables and relationships examined
in this study are of such significance to
both behavioral scientists and accountants
that considerable future effort devoted to
their investigation can be expected. If be-
havioral scientists can establish valid rela-
tionships and reliable bases upon which
accountants can base measurements, there
is no reason why these measurements
should not be used to supplement tradi-
tional accounting information. But until a
valid behavioral foundation has been
established, accountants should retain
their traditional conservatism.