Employees are an important firm resource and a source of intellectual capital; 
hence, they drive firm performance. Employee expenses capture information about 
employees and are one of the largest earnings components. We analyze whether 
this earnings component contributes incremental information content over and 
above that of earnings alone. Our results confirm the importance of employee 
expenses from an accounting perspective and show that they indeed add to the 
prediction of future firm performance. Analyses are based on a sample of 938 U.K. 
firms that mandatorily report employee expenses, resulting in 5039 observations 
within a time period ranging from 1999 to 2010. Results are consistent across 
industries, years, and different sample selections. We further provide evidence 
that there are underlying determinants that influence the incremental 
information content of employee expenses. Specifically, more persistent employee 
expenses are associated with higher earnings predictability and value relevance. 
For firms with a higher proportion of loss years, employee expenses contribute 
more strongly to the prediction of future performance. We interpret this finding 
to support the role of employees as a firm resource which can be allocated to 
more profitable activities in the case of loss years.