HRA in Infosys

Q1.Explain in detail the HRA model adopted by Infosys. What benefits did the company reap after valuing its human resource? Infosys used the Lev and Schwartz method to value Human Resource

According to this model the present value of future earning capacity of an employee, from the time of joining the organization till retirement was estimated. Infosys used this model based on the following assumption • An employee’s salary package included all benefits, whether direct or otherwise, earned both in India and in a foreign Nation. • The additional earnings on the basis of age group were also taken into account. The method is as follows. • • • • All the employees of Infosys were divided into five groups, based on their average age .Each group’s average compensation was calculated. Infosys also calculated the compensation of each employee at retirement by using an average rate of increment. The increments were based on industry standards, and the employee’s performance and productivity. Finally the total compensation of each group was calculated. This value was discounted at the rate percent per annum which was the cost of capital at Infosys to arrive at the total human resources of Infosys. Benefit experienced By Infosys by valuing its human resources. 1) Infosys could determine whether its human asset was appreciating over the years or not. This information was important for the company as its success depended solely on the knowledge of the employees. 2) The company could also use this information internally to compare the performance and productivity of employees in various departments. 3) HRA also helped Infosys to decide the compensation of employees. The company ensured that it compensated each employee according to his / her net worth. 4) HRA also helped Infosys in indentifying and retaining valuable employees. 5) It helped organization to take managerial decisions based on the availability and the necessity of human resources.

6) When human resources gets quantified it gave Infosys investors and other clients true insights into the organization and its future potential. It restored faith amongst shareholders. 7) BY adopting HRS the following information could be obtained • Cost per employee • Human capital investment ratio • The amount of wealth created by each employee • The profit created by each employee. • The ratio of salary paid to the total revenue generated. To sum up HRA in Infosys helped in identifying the right person for the right job, based on the person’s specialized skills, knowledge, capabilities experience, etc.

What are the possible disadvantages of the evaluation of the human capital by organizations? Do you think it’s ethical on the part of an organization to place a monetary value on its employees? Explain. Disadvantages for the evaluation of human capital. 1) Companies use various HRA models and comparing two companies using two different models was difficult. 2) Companies could also misuse HRA to enhance their image .A company could use this image to prop up its image in the investors mind, and change assumption to keep the values positive. 3) There could be a concern of the creditability of the numbers reported 4) The model was based on assumptions and was subjective. Hence figures could be totally ambiguous. 5) Some employees may be underestimated since a numeric figure did not clearly quantify what their true capabilities are. Ethical Consideration: I don’t think it’s unethical on the part of an organization to place a monetary value on its values. In fact employees are shown as” assets “to an organization and valuing them would show their true worth which everyone should appreciate. If employees are considered as assets of an organization then why not show their productivity in the balance sheet. The company would be able to boost its investor confidence and it would be considered a great place to work (like Infosys) Companies should make it clear that it’s the employees who define the company and it also shows a highly performance based organization. There may be a downside with respect to falsified information but on the whole I don’t think it’s a unethical Kuruvilla Abraham EPGDBM090112

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