A CASE STUDY ON HUMAN RESOURCE ACCOUNTING IN INFOSYS

INTRODUCTION Human is the buzzwor in the mo ern !now"e #e base so$iet%& It is the most 'ita" in(ut on whi$h the su$$ess ) *ai"ure o* the or#anization 'er% mu$h e(en u(on& Startin# *rom the $"assi$a" e$onomist to mo ern human $a(ita" e$onomist su$h e'e"o(ment is $onsi ere to be a $ontinuous (ro$ess& It is one o* the most im(ortant +M+ asso$iate , whi$h is $onsi ere whi"e ta!en $are o* -M+s asso$iate with an% or#anization an the% are mone%, ma$hines, materia"s an men& .ut the most interestin# thin# is that the *irst three are re$o#nize an *in a ("a$e in the assets si e o* the .a"an$e sheet o* the or#anization& .ut in $ase o* *ourth one ambi#uit% (re'ai"s amon# the a$$ountant& In s(ite o* its use*u"ness has been a$$"aime in 'arious "iterature o'er the e$a es but its a(("i$ation sti"" remain a sus$e(tib"e issue, the IAS. an the AS. in i**erent $ountries ha'e not been ab"e to *ormu"ate an% s(e$i*i$ a$$ountin# stan ar *or measurement ) re(ortin# o* su$h 'a"uab"e e"ements& The assets o* an or#anization $ou" be broa "% $"assi*ie into tan#ib"e an intan#ib"e assets& Tan#ib"e assets re*erre to a"" the (h%si$a" assets whi$h $ou" be (resente in the ba"an$e sheet in$"u in# ("ant an ma$hiner%, in'estments in se$urities, in'entories, $ash, $ash e/ui'a"ents an ban! ba"an$e, mar!etab"e se$urities, a$$ounts an notes re$ei'ab"es, *inan$e re$ei'ab"es, e/ui(ment on o(eratin# "eases, et$& Intan#ib"e assets in$"u e the #oo wi"", bran 'a"ue an human assets o* a $om(an%& The human assets in'o"'e the $a(abi"ities, !now"e #e, s!i""s an ta"ents o* em("o%ees in an or#anization& In the (ast, "ess im(ortan$e was #i'en b% or#anizations to 'a"ue their human assets& Moreo'er, it was a"so $onsi ere i**i$u"t to 'a"ue them sin$e there were no e*ine (arameters o* 'a"uation& Com(anies i not 'a"ue human resour$es as these were ne'er treate as an asset in the (ast& A"" in'estments re"ate to em("o%ees, in$"u in# sa"ar% as we"" as re$ruitment an trainin# $osts were $onsi ere as e0(en itures& In a ition, a$$ountants a"so *e"t that the sta!eho" ers o* a $om(an% ma% not a$$e(t the $on$e(t o* ("a$in# a monetar% 'a"ue on human resour$es&

The im(ortan$e an 'a"ue o* human assets starte to be re$o#nize in the ear"% 1223s when there was a ma4or in$rease in em("o%ment in *irms in ser'i$e, te$hno"o#% an other !now"e #e5base se$tors& In the *irms in these se$tors, the intan#ib"e assets, es(e$ia""% human resour$es, $ontribute si#ni*i$ant"% to the bui" in# o* shareho" er 'a"ue& The $riti$a" su$$ess *a$tor *or an% !now"e #e5base $om(an% was its s!i""e an inte""e$tua" wor!*or$e& There*ore, to a%, it is a (o(u"ar (henomenon amon# the In ian $or(orate wor" is to is$"ose in*ormation re"atin# to human resour$e in annua" statements& It was *irst (romu"#ate b% .HE6 7.harat Hea'% E"e$tri$a" 6t 8, a "ea in# (ub"i$ enter(rise, urin# the *inan$ia" %ear 129:59;& 6ater it was a"so a o(te b% other "ea in# (ub"i$ an (ri'ate se$tor or#anization in the subse/uent %ears& Some o* them are Hin ustan Ma$hine Too"s 6t & 7HMT68, Oi" an Natura" Gas Cor(oration 6t &7ONGC8, NT<C, Co$hin Re*ineries 6t & 7CR68, Ma ras Re*ineries 6t &7MR68, Asso$iate Cement Com(an% 6t &7ACC8 an In*os%s Te$hno"o#ies 6t &7IT68& Howe'er, a a(tabi"it% o* 'arious mo e"s 7main"% 6e' an S$hwartz mo e", F"amho"tz mo e" an =a##i an 6e' mo e"8 an is$ount rate *i0ation an is$"osure (attern i&e&, either a#e wise, s!i"" wise et$ in .HE6, SAI6, MMTC 7Minera"s ) Meta"s Tra in# Cor(oration O* In ia 6t &8 HMT6, NT<, et$ ma!e it $"ear, that there has been no uni*ormit% amon# In ian enter(rises re#ar in# Human Resour$e A$$ountin# is$"osure&

Meanin# O* Human Resour$e A$$ountin# HRA has been e*ine b% Ameri$an A$$ountin# Asso$iation+s $ommittee as >the (ro$ess o* i enti*%in# ) measurin# ata about human resour$es ) $ommuni$atin# this in*ormation to intereste (arties>& Ste(hen !nau* e*ine HRA as >The measurement ) /uanti*i$ation o* human or#anizationa" in(uts su$h as re$ruitin#, trainin#, e0(erien$e ) $ommitment&> A$$or in# to Eri$& G *"amho"tz, ? HRA re(resents a$$ountin# *or (eo("e as an or#anizationa" resour$e& It is the measurement o* the $ost ) 'a"ue o* (eo("e *or the or#anization>& Hen$e, it $an be sai that, it is the (ro$ess o* e'e"o(in# *inan$ia" assessment *or (eo("e within or#anization ) so$iet% an monitorin# o* these assessment throu#h time, it ea"s with& A"thou#h HR 'a"uation has im(ortant im("i$ation *or e0terna" *inan$ia" re(ortin#, in the $ontem(orar% e$onomi$ s$enario 'a"uin# HR has been #reater si#ni*i$an$e *or interna" HRM e$ision&

HRA in*ormation is$"ose b% some o* the $om(anies Name o* the or#anization HRA intro u$e in the %ear Mo e" Dis$ount rate 7in @8 .HE6 129;596e' ) S$hwartz mo e" 1: SAI6 12A; B A6e' ) S$hwartz mo e" with Some re*inements as su##este b% Eri$&G& F"amho"tz) =a##i an 6e' 1MMTC 12A: B A; 6e' ) S$hwartz mo e" 1: ONGC 12A15A: 6e' ) S$hwartz mo e" 1:&:C NT<C 12A-5AC 6e' ) S$hwartz mo e" 1: INFOSYS

122C52D 6e' ) S$hwartz mo e" 1:&2D :33D539 6e' ) S$hwartz mo e" 1-&29

Mo e"s o* Human Ca(ita" Ea"uation Man% mo e"s ha'e been $reate to 'a"ue human $a(ita"& Some are base on histori$ $osts whi"e some are base on *uture earnin#s& .ut ea$h has its own "imitations an one mo e" has (ro'e to be more 'a"i than other& A"thou#h the 6e' an S$hwartz mo e" has been the most wi e"% use mo e" *or its ease o* use ) $on'enien$e&

The 6e' ) S$hwartz Mo e" The 6e' an S$hwartz mo e" states that the human resour$e o* a $om(an% is the summation o* 'a"ue o* a"" the Net (resent 'a"ue 7N<E8 o* e0(en iture on em("o%ees& The human $a(ita" embo ie in a (erson o* a#e FrGis the (resent 'a"ue o* his earnin# *rom em("o%ment& Un er this mo e", the *o""owin# ste(s are a o(te to etermine HR Ea"ueH I C"assi*i$ation o* the entire "abour *or$e into $ertain homo#eneous #rou(s "i!e s!i""e , uns!i""e , semis!i""e et$& an in a$$or an$e with i**erent $"asse an a#e wise&e#& In In*os%s the $"assi*i$ation is base on so*tware (ro*essiona"s ) su((ort sta** et$& I Constru$tion o* a'era#e earnin# stream *or ea$h #rou(& For e0am("e, at In*os%s In$rementa" earnin#s base on #rou(J a#e ha'e been $onsi ere & I Dis$ountin# the a'era#e earnin#s at a (re etermine rate in or er to #et (resent 'a"ue o* human resour$es o* ea$h #rou(& I A##re#ation o* the (resent 'a"ue o* i**erent #rou(s whi$h re(resent the $a(ita"ize *uture earnin#s o* the $on$ern as a who"e,

Er K

I 7t8 J L71Mr8N7t5r8O

Phere, Er K the 'a"ue o* an In i'i ua" r %ears o" I 7t8 K the in i'i ua"+s annua" earnin#s u( to retirement t r K retirement a#e K a is$ount rate s(e$i*i$ to the $ost o* $a(ita" to the $om(an%&

Criti$a" a((raisa" o* the 6e' ) S$hwartz mo e" a8 It is essentia""% an in(ut measure &It i#nores the out(ut i&e& (ro u$ti'it% o* em("o%ees& b8 Ser'i$e state o* ea$h in i'i ua" em("o%ee is not $onsi ere &

$8 The trainin# e0(enses in$urre b% the $om(an% on its em("o%ees are not $onsi ere & 8 The attrition rate in or#anization is a"so i#nore &

e8 Fa$tors res(onsib"e *or hi#her earnin# (otentia"it% o* ea$h in i'i ua" em("o%ees "i!e seniorit%, bar#ainin# $a(a$it%, s!i"", e0(erien$e et$& whi$h ma% $ause i**erentia" sa"ar% stru$ture are a"so i#nore& HRA IN <RACTICE AT INFOSYS In the *inan$ia" %ear 122C52D, In*os%s Te$hno"o#ies 7In*os%s8 be$ame the *irst so*tware $om(an% to 'a"ue its human resour$es in In ia& The $om(an% use the 6e' ) S$hwartz Mo e" an 'a"ue its human resour$es assets at Rs 1&AD bi""ion& In*os%s ha a"wa%s #i'en utmost im(ortan$e to the ro"e o* em("o%ees in $ontributin# to the $om(an%+s su$$ess& Ana"%sts *e"t that human resour$es a$$ountin# 7HRA8 was a ste( *urther in In*os%s+ *o$us on its em("o%ees& Nara%ana Murth% 7Murth%8, the then $hairman an mana#in# ire$tor o* In*os%s, sai H >Com(arin# this *i#ure o'er the %ears wi"" te"" us whether the 'a"ue o* our human resour$es is a((re$iatin# or not& For a !now"e #e intensi'e $om(an% "i!e ours, that is 'ita" in*ormation&> The $on$e(t o* HRA was not new in In ia& HRA was (ioneere b% (ub"i$ se$tor $om(anies "i!e .harat Hea'% E"e$troni$s 6t & 7.HE68 an Stee" Authorit% o* In ia 6t & 7SAI68 wa% ba$! in the 1293s& Howe'er, the $on$e(t i not #ain mu$h (o(u"arit% an a$$e(tan$e urin# that time& It was on"% in the mi 51223s, a*ter In*os%s starte 'a"uin# its em("o%ees, that the $on$e(t #aine (o(u"arit% in In ia& .% :33:, HR a$$ountin# ha been

intro u$e b% "ea in# so*tware $om(anies "i!e Sat%am Com(uters an DSQ So*tware, as we"" as "ea in# manu*a$turin# *irms "i!e Re"ian$e In ustries& HR mana#ers were /ui$! to res(on on the abo'e e'e"o(ments b% statin# that more an more or#anizations ha now starte to rea"ize the im(ortan$e o* s!i""e wor!*or$e& The% *e"t that to be su$$ess*u" in hi#h"% $om(etiti'e mar!ets, the Com(an% re/uires to $ontinuous"% im(ro'e the "e'e" o* (er*orman$e o* its wor!*or$e& HRA enab"e the Com(an% to un erstan whether the s!i"" sets o* its human $a(ita" was a((re$iatin# or not& R& Rrishnaswam%, an a$tuaria" a$$ountant, sai , >The 'a"ue $an be use interna""% b% an or#anization to ma!e $om(arisons *rom unit to unit, *rom %ear to %ear, as we"" as within its in ustr%&> Sto$! mar!et ana"%sts *e"t that the +$om(rehensi'e is$"osure (o"i$%+ was be$omin# a i**erentiatin# *a$tor amon# $om(anies in 'arious in ustries& Yez i H& Ma"e#am, mana#in# ire$tor, S&.& .i""imoria ) Com(an% $ommente , >In the "ast *ew %ears, (eo("e are rea"izin# that their intan#ib"e assets are worth mu$h more than their tan#ib"e ones& Now an attem(t is bein# ma e to (ut a 'a"ue to these intan#ib"es, an to brin# these hi en 'a"ues to boo!&> Ana"%sts *e"t that HRA was an in'estor5*rien "% is$"osure, an assure sta!eho" ers that the $om(an% ha the ri#ht human $a(ita" to meet its *uture business re/uirements& Use o* the 6e' an S$hwartz Metho to Ea"ue HR in In*os%s A *un amenta" i$hotom% in a$$ountin# (ra$ti$es is between human an non5 human $a(ita"& As a stan ar (ra$ti$e, non5human $a(ita" is $onsi ere as assets an re(orte in the *inan$ia" statements, whereas human $a(ita" is most"% i#nore b% a$$ountants& The e*inition o* wea"th as a sour$e o* in$ome ine'itab"% "ea s to the re$o#nition o* human $a(ita" as one o* the se'era" *orms o* wea"th su$h as mone%, se$urities an (h%si$a" $a(ita"& In*os%s ha'e use the 6e' ) S$hwartz mo e" to $om(ute the 'a"ue o* human resour$es& The e'a"uation is base on the (resent 'a"ue o* *uture earnin#s o* em("o%ees an on the *o""owin# assum(tionsH a8 Em("o%ee $om(ensation in$"u es a"" ire$t an in ire$t bene*its earne both in In ia an o'erseas& b8 The in$rementa" earnin#s base on #rou( J a#e ha'e been $onsi ere

$8 The *uture earnin#s ha'e been is$ounte at the $ost o* $a(ita" o* 13&D3@ 7(re'ious %ear B 1:&1A@8&

The tab"e showin# the 'a"ue o* human resour$e in In*os%s 7 in Rs& $rore, un"ess state otherwise8 :313 :332 Em("o%ees 7no&8 So*tware (ro*essiona"s 1,3D,AD29,;-2 Su((ort D,2;: 9,C31 Tota" 1,1;,92D 1,3-,AC3 Ea"ue o* human resour$es So*tware (ro*essiona"s 1,3D,19; 2C,D33 Su((ort 9,11D,C;; Tota" 1,1;,:A9 1,3:,1;; Tota" in$ome ::,9-:

:1,D2; Tota" em("o%ee $ost 1:,3AC 11,-3C Ea"ue5a :3,2;9 12,39; Net (ro*its e0$"u in# e0$e(tiona" items D,:1A C,2AA Ratios Ea"ue o* human resour$es (er em("o%ee 1&3 3&29 Tota" in$ome J human resour$es 'a"ue 7ratio8 3&:3 3&:1 Em("o%ee $ost J human resour$es 'a"ue 7@8 13&9 11&: Ea"ue5a 3&1A 3&12 Return on human resour$es 'a"ue 7@8 C&C C&2 e J human resour$es 'a"ue 7ratio8 e

The metho is as *o""owsH S A"" the em("o%ees o* In*os%s were i'i e into *i'e #rou(s, base on their a'era#e a#e &Ea$h #rou(Gs a'era#e $om(ensation was $a"$u"ate & S In*os%s a"so $a"$u"ate the $om(ensation o* ea$h em("o%ee at retirement b% usin# an a'era#e rate o* in$rement& S The in$rements were base on in ustr% stan ar s, an the em("o%eeGs (er*orman$e an (ro u$ti'it%& S Fina""% the tota" $om(ensation o* ea$h #rou( was $a"$u"ate & This 'a"ue was is$ounte at the rate (er$ent (er annum whi$h was the $ost o* $a(ita" at In*os%s to arri'e at the tota" human resour$es o* In*os%s& .a"an$e sheet o* In*os%s with the Human resour$e 'a"ue is as *o""owsH .a"an$e Sheet in$"u in# intan#ib"e assets As at Mar$h ;1, in Ru(ee S%mbo"$rore :311 :313 ASSETS Current assets Cash an $ash e/ui'a"ents 1D,DDD 1:,111 A'ai"ab"e5*or5sa"e *inan$ia" assets :1 :,C1A In'estment in $erti*i$ates o* e(osit 1:; 1,123 Tra e re$ei'ab"es -,DC;

;,-2Unbi""e re'enue 1,:-; A-1 Deri'ati'e *inan$ia" instruments DD 2C <re(a%ments an other $urrent assets 219 D-1 Tota" $urrent assets :;,DA2 :3,A23 Non5$urrent assets <ro(ert%, ("ant an e/ui(ment -,A--,-;2 Goo wi"" A:C A:2 Intan#ib"e assets .ran 'a"ue -3,C32 ;D,239 Human resour$es 'a"ue 1,;C,13C

1,1;,:A9 Other intan#ib"e assets -A CD A'ai"ab"e5*or5sa"e *inan$ia" assets :; ;A De*erre in$ome ta0 assets ;9A ;-D In$ome ta0 assets 22; DD9 Other non5$urrent assets -D; ;-9 Tota" non5$urrent assets 1,A;,1AA 1,CD,21D Tota" assets :,3D,A99 1,99,A3D 6IA.I6ITIES AND EQUITY Current "iabi"ities Tra e (a%ab"es --

13 Current in$ome ta0 "iabi"ities A19 9:C"ient e(osits :: A Unearne re'enue C1A C;1 Em("o%ee bene*it ob"i#ations 1-3 1;1 <ro'isions AA A: Other $urrent "iabi"ities :,31: 1,939 Tota" $urrent "iabi"ities ;,D-1 ;,12; Non5$urrent "iabi"ities De*erre in$ome ta0 "iabi"ities B 11-

Em("o%ee bene*it ob"i#ations :C2 191 Other non5$urrent "iabi"ities D3 D1 Tota" "iabi"ities ;,2D3 ;,C;2 E/uit% Share $a(ita" :AD :AD Share (remium ;,3A: ;,3-9 Retaine earnin#s :;,A:D :3,DDA Ca(ita" reser'es5intan#ib"e assets 1,9C,D11,C3,12Other $om(onents o* e/uit% 132 9: Tota" e/uit% attributab"e to e/uit% ho" ers o* the Com(an%

:,3:,219 1,9-,:D9 Tota" "iabi"ities an e/uit% :,3D,A99 1,99,A3D

Notes HThe *i#ures abo'e are base on IFRS *inan$ia" statements& This .a"an$e Sheet is (ro'i e *or the (ur(ose o* in*ormation on"%& Pe a$$e(t no res(onsibi"it% *or an% ire$t, in ire$t or $onse/uentia" "osses or ama#es su**ere b% an% (erson re"%in# on the same .ene*its e0(erien$e .% In*os%s b% 'a"uin# its human resour$es The bene*its o* a o(tin# HRA were mani*o" & It he"(e an or#anization to ta!e mana#eria" e$isions base on the a'ai"abi"it% an the ne$essit% o* human resour$es& Phen the human resour$es were /uanti*ie , it #a'e the in'estors an other $"ientsG true insi#hts into the or#anization an its *uture (otentia"& <ro(er 'a"uation o* human resour$es he"(e or#anizations to e"iminate the ne#ati'e e**e$ts o* re un ant "abour& .% a o(tin# an im("ementin# Human Resour$e A$$ountin# in the Or#anization, a8 In*os%s $ou" etermine whether its human asset was a((re$iatin# o'er the %ears or not& This in*ormation was im(ortant *or the $om(an% as its su$$ess e(en e so"e"% on the !now"e #e o* the em("o%ees& b8 The $om(an% $ou" a"so use this in*ormation interna""% to $om(are the (er*orman$e an (ro u$ti'it% o* em("o%ees in 'arious e(artments& $8 HRA a"so he"(e In*os%s to e$i e the $om(ensation o* em("o%ees& The $om(an% ensure that it $om(ensate ea$h em("o%ee a$$or in# to his J her net worth& 8 HRA a"so he"(e In*os%s in in enti*%in# an retainin# 'a"uab"e em("o%ees& e8 It he"(e or#anization to ta!e mana#eria" e$isions base on the a'ai"abi"it% an the ne$essit% o* human resour$es& *8 Phen human resour$es #et /uanti*ie it #a'e In*os%s in'estors an other $"ients true insi#hts into the or#anization an its *uture (otentia"& It restore *aith amon#st shareho" ers&

#8 .Y a o(tin# HRS the *o""owin# in*ormation $ou" be obtaine H S S S S S Cost (er em("o%ee Human $a(ita" in'estment ratio The amount o* wea"th $reate b% ea$h em("o%ee The (ro*it $reate b% ea$h em("o%ee& The ratio o* sa"ar% (ai to the tota" re'enue #enerate &

To sum u(, HRA in In*os%s he"(e in i enti*%in# the ri#ht (erson *or the ri#ht 4ob, base on the (ersonGs s(e$ia"ize s!i""s, !now"e #e, $a(abi"ities e0(erien$e, et$& Disa 'anta#es o* e'a"uation o* human $a(ita" S Com(anies use 'arious HRA mo e"s an $om(arin# two $om(anies usin# two i**erent mo e"s was i**i$u"t& S Com(anies $ou" a"so misuse HRA to enhan$e their ima#e &A $om(an% $ou" use this ima#e to (ro( u( its ima#e in the in'estors min , an $han#e assum(tion to !ee( the 'a"ues (ositi'e& S There $ou" be a $on$ern o* the $re itabi"it% o* the numbers re(orte & S The mo e" was base on assum(tions an was sub4e$ti'e& Hen$e *i#ures $ou" be tota""% ambi#uous& S Some em("o%ees ma% be un erestimate sin$e a numeri$ *i#ure i not $"ear"% /uanti*% what their true $a(abi"ities are& Ethi$a" Consi erations It $annot be $onsi ere that HRA is unethi$a" on the (art o* an or#anization to ("a$e a monetar% 'a"ue on its 'a"ues& In *a$t em("o%ees are shown as ?assetsT to an or#anization an 'a"uin# them wou" show their true worth whi$h e'er%one shou" a((re$iate& I* em("o%ees are $onsi ere as assets o* an or#anization then wh% not show their (ro u$ti'it% in the ba"an$e sheet& The $om(an% wou" be ab"e to boost its in'estor $on*i en$e an it wou" be $onsi ere a #reat ("a$e to wor! 7"i!e In*os%s8 Com(anies shou" ma!e it $"ear that itGs the em("o%ees who e*ine the $om(an% an it a"so shows a hi#h"% (er*orman$e base or#anization& There ma% be a ownsi e with res(e$t to *a"si*ie in*ormation but on the who"e it $annot be $onsi ere as an unethi$a" (ra$ti$e& CONC6USION

The $on$e(tua" thin!in# about 'a"uation o* human resour$es is sti"" in a e'e"o(in# sta#e& No mo e" o* HR a$$ountin# is a$$e(te b% the a$$ountin# bo ies a"" o'er the wor" & Howe'er, sti"" we *in some a(("i$ation o* 6e' ) S$hwartz mo e" in most o* the (ub"i$ se$tor units an IT base se$tors& The $ase o* In*os%s #i'es as a $"ear (i$ture about the merits an e5merits o* this mo e"& Howe'er, in other !now"e #e base se$tors where human resour$es are $onsi ere to be the !e% e"ements *or monitorin# the business a$ti'ities to atten their #oa"s su$$ess*u""%, ma% not be o'er"oo!e this si e& Hen$e, $onsi erin# the #reat si#ni*i$an$e o* HRA (ro(er initiation shou" be ta!en b% the #o'ernment a"on# with that other (ro*essiona" ) a$$ountin# bo ies both at the nationa" ) internationa" "e'e"s *or the measurement ) re(ortin# o* su$h 'a"uab"e assets