HUMAN RESOURCES ACCOUNTING IN INFOSYS

By: Swapnil Chaudhari

INTRODUCTION

Infosys was the first software company to value its human resources in 1995-96 The compnay valued its human resources to Rs 1.86 billion HRA is very essential for any knowledge intensive company Slowly the concept gained importance and companies like satyam computers, and even manufacutring firms like Reliance industries started adopting it The assets could be classified into tangibles and intangibles. Human resources was an intangible asset which involved capabilities, knowledge, skills, and talents of the employees in the company In HRA cost was assigned to every employee when recruited and revenue generated by him/her during the tenure in the company.

 HRA measured the performance of all the people in the organization and this information was made available to all the stake holders to help them make critical investment decisions. The companies started realizing that human capital was now an investment for future earnings and not expenditure.

MODELS

A) Cost Based Model Historical Cost Model Replacement Cost Model Opportunity Cost Model Competitive bidding model Standard Cost Model- Standardizing cost for class of employees.

B) Economic Models Goodwill Method HR Value= Goodwill * amt invested in HR/ Total Investment Behavioral Model Lev & schwartz Model Jaggi & Lau Method Myers & Flowers Method- Employees Value = Employees Attitude index* wages payable to employee

HRA IN INFOSYS

Infosys HRA model was based on the present value of employees future earnings. It had the following assumptions: Employees salary package included all benefits, direct or indirect, earned both in India and foreign nations The additional earnings on the basis of age and was also taken into account. All the employees were divided into 5 groups based on their avg age Each group compensation was calculated (including the compensation at retirement) Total compensation of each group was calculated. Sum of all values discounted at 27.36% ( cost of human capital) came to Rs 1.86 billion.

BENEFITS

The employee costs remained almost the same. Increase in value addition Net profits increased by more than 150%. Value of human resources per employee increased significantly Information on absenteeism and employee turnover rate Compensation could be decided upon the worth of the employee. Provided vital information for strategic human resource management Easier for share holders to make investment decisions Helped to calculate the value of the organization whose intangible assets are more than the tangible assets.

DRAWBACKS/DISADVANTAGES

The companies act 1956, did not have a provision for inclusion of human assets in financial statements. In what form and manner, their value to be included in the financial statement is the question yet to be classified on which there is no consensus in the accounting profession. As human resources are not capable of being owned, retained and utilized, unlike the physical assets, there is problem for the management to treat them as assets in the strict sense. There is constant fear of opposition from the trade unions as placing a value on employees would make them claim rewards and compensations based on such valuation. There is no universally accepted method of human asset valuation.

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