Valuation of human capital — the top talent

One of the more difficult intangible valuation issues is human capital. A standard methodology for “assembled workforce” is replacement cost — how much would it cost to hire everyone. Another method that has come about indirectly is “key man” insurance — essential life insurance of the top talent drops dead. How much the company is willing to insure that person is a rough proxy for the value of their services — at least the value of avoiding the disruption that the lose of their services would entail.
Here is another version, from the Economist, “The Corzine put”:

MF Global, a smallish broker with big ambitions, is breaking new ground when it comes to pricing this risk. It is offering an extra percentage point of interest to investors in its latest bond issue, should Jon Corzine, MF’s chief executive, quit to take a government job before July 2013.
. . .
Buyers of the $300m debt issue stand to make an extra $15m over its five-year life if Mr Corzine leaves soon.

Not sure that this is the right level. This is the company setting a level of one percentage point. It would be interesting to see how the market reacts as it sets its own valuation of Mr. Corzine’s worth through trading of these bonds. Or better yet, some one could set up a market on the risk premium itself. That would be very interesting.

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