Financial Reporting to Employees

From Past to Present

Lee Parker

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781317974178
• Edition: 1
• Topic: Business
• Subtopic: Contabilità finanziaria
• Index: Business

This book introduces accountants and managers to an historical perspective of corporate financial reporting to employees. It presents a resource for research and practice based upon a literature that for its pre-1970 decades has been largely unfamiliar to contemporary educators, researchers and practitioners alike. In addition the pieces not only provide an historical view of issues and arguments, but of actual reporting practice and audience responses. For the students and researcher, these readings offer a first-hand glimpse into the intentions of employee report producers, the critiques of observers at the time, and the requirements of employees in some instances. For report producers, managers and accountants, it reveals some of the reporting traditions that we have inherited today as well as reporting practices that have already been recommended, tried and tested in the past.

The readings selected cover a sixty year period from the 1920s through to the close of the 1970s, with the exception of the first contribution by Lewis, Parker and Sutcliffe (1984) that serves as the historical overview and analysis for the whole text.

REPORTING METHODS

There have been a great many papers published on the subject of appropriate content and presentation of financial reports to employees. This section is comprised of papers mostly drawn from the 1940s, during which a significant upsurge in interest occurred.

In the Harvard Business Review, Barloon (1941) considers appropriate terminology, content and format, narrative explanations, and graphics. Barloon's contribution is notable in several respects. He argues against the inclusion of a balance sheet, warns of the potential dysfunctional employee response to a president's statement of personal economic philosophy, and calls for an auditor's certificate to counteract managerial bias.

Wallace's (1946) paper is based on a number of proposed normative standards for employee report effectiveness. These are making it understandable to readers, giving confidence in the validity of figures, appealing to the employees' viewpoint, being factual and accurate, and being short in length.

A broader-brush approach to the subject is represented by the text of a presentation by J.A. Fuller (1948), Vice-President of Shawinigan Water and Power Company. Clearly influenced by the Scientific Management school of thought, he conceives employee reporting as being part of a “human engineering” strategy. His discussion includes employee magazines and handbooks, company information programs, meetings and conferences of supervisors, simplified financial reports, and timing of such reporting.

Of further interest is the abridged version of a paper presented at the Ohio State University Tenth Annual Institute on Accounting by a civil engineer named Stephen Derry (1949). Published by Journal of Accountancy, it provides a neat summary of types of information that can be provided to employees and a comprehensive listing of methods for disseminating that information.

An academic's contribution to this literature is provided by Walter Burnham, Associate Professor of Accounting at Ohio State University (1949). He examines the format of simplified income statements as well as items of significance to employees and then presents a proposed income statement for employees.

A comprehensive treatment of the subject is provided by Heckert and Willson (1952). They cover objectives, information presented, financial statements, simplified and “per employee” statements, format, media, and dangers in reports to employees.

This collection of papers provides an example of the quite advanced stage of development that thinking and practice on employee report content, presentation, and dissemination had reached during the 1940s in particular. The majority of issues still being discussed and employed in the 1970s and 1980s had to all intents and purposes been fairly thoroughly canvassed decades earlier.

FINANCIAL REPORTS TO EMPLOYEES

BY MARVIN J. BARLOON

IN recent years a number of companies have been issuing financial reports to their employees. In general, these reports are modified versions of the Report to Stockholders, though they tend toward greater brevity and toward placing slightly more emphasis on points of especial employee interest. In addition, some of them attempt to explain the accounting terms appearing in the statements and to stress certain financial points by means of pie-charts and pictorial graphics. For the most part, however, the reports do not appear to have been thoroughly worked out to meet the peculiar needs of employees for information.

A financial report to employees, very carefully devised as to content and form, might prove an implement of industrial relations policy reaching to the very heart of some of the most serious labor problems. This is not to imply, of course, that an employee report is indispensable to successful labor relations or that such a report should constitute the major portion of a labor relations program. But the report to employees may be adapted to the performance of a very fundamental educational function.

There are some things about company finance which it is vitally important that employees know. The first of these is the limit to the company's wage-paying capacity. Over-estimation of an employer's ability to increase wages and employ men probably causes more dissatisfaction among workmen than any other misunderstanding of company finance. Union leaders, in negotiating the renewal of agreements, sometimes press wage and hour demands which, if granted, would reduce profits to the vanishing point or even precipitate insolvency. Excesses of this kind are often contrary to the long-run interests of the employees themselves, especially in the tendency to reduce the wage-paying potentialities of the business. To ascribe these difficulties to the character of unionism or to the personal shortcomings of union leadership is to view only the surface of the problem. In most instances the union program is necessarily designed to appeal to the attitudes and understanding of the rank and file. Any permanent modification of union demands, therefore, must begin by dispelling employee illusions as to the size of the business income.

The same problem partially underlies the industrial relations outlook in nonunion areas. Men are prepared for organization and its accompanying disturbances, in part, by the belief that their employer is withholding from them substantial sums which might be wrung from him by collective action. The labor organizer places his main emphasis on the prodigious size of company profits and on the inadequacy of wages. The employer who has long familiarized his employees with the basic facts is in less danger of having the case against him overstated.

Emplovers may feel some hesitancy in taking up with their workers the question of conflict between wages and profits. If the workers were unaware of this aspect of the wage question, such hesitancy would be fully warranted. In fact, however, the workers are often more inclined to view their interests as being in opposition to those of the employer than the latter suspects. The hardships of the depression and the trend of public discussion and government policy have habituated employees to the conflict view. The employer is not in a position to eliminate prevailing issues from the thinking of his workmen. He is, however, in a position to assure that their thinking will be in terms of the financial facts in so far as his business is concerned.

The second important need which might be served by the employee report has to do with the bearing of worker productivity—in quantity, quality, and waste control—on wages. This aspect of employee education is so widely recognized by employers as hardly to require elaboration here. Financial information can be utilized to increase the worker's awareness of this source of his welfare.

The requirements of a good employee report become evident from these considerations. The report has a specific message to convey. It should state this message as clearly and as pointedly as possible. To do this the following principles should be applied:

1. The information should be stated in terms and on a scale with which the employee is familiar.

2. The report should be organized around the financial interest of the employee in the business.

3. The wording and contents should be such as to impress the employee with the fundamental sincerity and honesty of the report.

The Terms of the Statement

1. Difficult accounting concepts should be omitted.

Some companies include the balance sheet in the employee report, showing, among other things, the Reserves for Depreciation, Ca...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Dedication
• Table of Contents
• Acknowledgments
• Preface
• Introduction
• “Financial Reporting to Employees: The Pattern of Development 1919 to 1979,” Accounting, Organizations and Society (No. 3/4, 1984), pp.275–289.
• Early Stirrings
• Reporting Rationales
• Reporting Methods
• Reporting Practices: Case Studies and Surveys
• Assessing Employee Interest
• Reporting in an Industrial Relations Context
• Bibliography
• Further Reading