The theoretical value of understanding HRM’s financial value

Abstract

Although the paper by Joo et al. (2022) purports to demonstrate the value of acquiring star performers, we argue that the value of their paper lies more in the demonstration of the use of utility analysis as strong theory, implemented with computational modeling. We articulate why we see the Joo et al. (2022) paper contributing to a strong theory about employee value and how its efforts represent more of a theoretical contribution to the star performers, employee value, employee performance, and utility analysis literatures than one simply about the specific returns on investment related to acquiring star employees. Our commentary explains our view of their contribution and develops new questions and directions for future research that this perspective implies.

Keywords:

• Employee value
• utility analysis
• strong theory
• computational modeling

Notes

1 In Joo et al.’s (2022) procedures, their approach (referred to as the “global procedure”) is based on differences between the 85^th, 50^th, 15^th, and minimum percentiles, and then further simplified based on the overall average finding reported in Burke and Frederick (1986) that the ratio of SD_y to SD_O is an average of 2.75. They then multiply this by the estimate of SD_y using the 40% rule (where SD_y = 0.4 * mean salary), and thus their estimate from the global procedure ultimately equals (2.75 * 0.4 * mean salary =) 1.1 * mean salary.