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Human Resource Accounting at Infosys- A Case Study

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 Human Resource Accounting at Infosys
A Case study

“Human Resource Accounting is an attempt to identify and report investments made in

human resources of an organization that are presently not accounted for in conventional
accounting practice. Basically it is an information system that tells the management what
changes over time are occurring to the human resource in the business.”
- Woodruff
“Human resource accounting is the measurement of the cost and value of the people for
the organization.”
1
Eric Flamholtz of university of California, Los Angeles

BACKGROUND NOTE
Success of any organisation depends upon its quality of human resource. It is accentuated
that; human element is the most important input in any organisation, but Indian
companies focus on ‘Return on Investment’ (ROI), with very few concrete steps being
taken to track ‘Return on Knowledge’. The investments directed to raise knowledge;
skills and aptitudes of the work force of the organization are the investments in human
resource.
In the late 60s and early 70s, a number of writers proposed that the capital nature of
certain human resource costs be recognized as investments rather than as expenses, which
collectively became known as Human Resources Accounting. While the underlying
concept was simple and straightforward, academics observed that capitalization and
amortization of applicable Human Resources Accounting costs had no measurement of
"value" or worth of the HR investment.
Accordingly, proposals were developed to take the basic information and add the
dimension of "value" of individuals and the whole organization. Since accounting
measures "cost," not "value" or "worth,” the proposed improvements in Human Resource
Accounting took it out of the realm of acceptable accounting practice.
The American Accounting Association’s Committee on Human Resource Accounting
(1973) has defined Human Resource Accounting as “the process of identifying and

1
Dr. Vidya Sekhri* - Prof. and Chairperson Finance
IMS,Ghaziabad
E- Mail-sekhri_vidya@yahoo.com

Prof. Anita Singh** - Associate professor and Chairperson HR

E-Mail-anitasinghims@yahoo.com
IMS,Ghaziabad

This case study was compiled from published sources, and is intended to be used as a
basis for class discussion. It is not intended to illustrate either effective or ineffective
handling of a management situation. Nor is it a primary information source.

1
measuring data about human resources and communicating this information to interested
parties”. HRA, thus, not only involves measurement of all the costs/ investments
associated with the recruitment, placement, training and development of employees, but
also the quantification of the economic value of the people in an organisation. Flamholtz
(1971) too has offered a similar definition for HRA. They define HRA as “the
measurement and reporting of the cost and value of people in organizational resources”.
As far as the statutory requirements go, the Companies Act, 1956 does not demand
furnishing of HRA related information in the financial statements of the companies. The
Institute of Chartered Accountants of India too, has not been able to bring any definitive
standard or measurement in the reporting of human resources costs. While qualitative
pronouncements regarding the importance of Human Resources is often made by the
chairmen, in the AGM, quantitative information about their contribution is rarely
recorded or communicated.

Though Human Resource Accounting (HRA) plays an important role in picking up the
overall value of an organization, unfortunately, a majority of the Indian organizations are
neglecting this issue. If HRA is also considered as one of the individual valuation
elements which deserve more importance and consideration, the value of the organization
will be more than what is depicted by the traditional financial statement. What is needed
is measurement of abilities of all employees in a company, at every level, to produce
value from their knowledge and capability. “Human Resource Accounting (HRA) is
basically an information system that tells management what changes are occurring over
time to the human resources of the business. HRA also involves accounting for
investment in people and their replacement costs, and also the economic value of people
in an organisation,” says P K Gupta, the director of strategic development-
intercontinental operations, of Legato Systems India. The current accounting system is
not able to provide the actual value of employee capabilities and knowledge. This
indirectly affects future investments of a company, as each year the cost on human
resource development and recruitment increases.

Experts point out that company can derive many benefits by going in for HRA. Not only
can they measure the return on capital employed on total organisational assets (including
the human assets), but the resources can also be planned accordingly. Information
generated by HRA systems can be put to use for taking a variety of managerial decisions
like recruitment planning, turnover analysis, personnel advancement analysis and capital
budgeting, which can help companies save a lot of trouble in the future.
“Once organizations realize the actual benefit and take it as a growth process, it will only
help them in increasing their shareholders’ value. When a company is able to assess an
individual’s worth, it helps in increasing its own worth,” says Ajay Sharma, senior HR
manager of Cadence Systems

HRA can help in identifying how much an organisation can earn from an individual, as
the intellectual assets of a company are often worth three or four times the tangible book
value. Human capital also provides expert services such as consulting, financial planning
and assurance services, which are valuable, and very much in demand.

2
There are a few organizations, however, that do recognize the value of their human
resources, and furnish the related information in their annual reports. In India, some of
these companies are: Infosys, Bharat Heavy Electricals Ltd (BHEL); the Steel Authority
of India Ltd. (SAIL), the Minerals and Metals Trading Corporation of India Ltd.
(MMTC), the Southern Petrochemicals Industries Corporation of India (SPIC), the
Associated Cement Companies Ltd, Madras Refineries Ltd., the Hindustan Zinc Ltd.,
Engineers India Ltd, the Oil and Natural Gas Commission, Oil India Ltd., the Cement
Corporation of India Ltd. etc.
For valuing human resources, different models have been developed. Some of them are
opportunity cost Approach, standard cost approach, current purchasing power Approach,
Lev and Schwartz present value of future earnings Model Flamholtz’s stochastic rewards
valuation Models etc.(Refer to Exhibit 1) Of these, the model suggested by Lev and
Schwartz has become popular in Indian companies
As Baruch Lev and Aba Schwartz developed this model, it is called the Lev and Schwartz
Model. Since this model has been adopted widely by Indian organizations like SAIL,
BHEL, Infosys, Satyam Computers, DSQ Software Ltd., Reliance Industries, etc., it is
more popular in India.
Majority of Indian Companies in Public as well as private sector use Lev and
Schwartz Model to calculate the value of their Human Resource:
Table1
Company Publishing HRA Method Used Discounting Rate
information since

ONGC 1981-82 Lev and Schwartz 11.25

NTPC 1986-87 L&S 12

MMTC 1983-84 L&S 12

BHEL 1974-75 L&S 14

INFY 1990-91 L&S 13-14

SAIL 1986-87 Lev and Schwartz 12

Source: Journal of finance and Accounts, 2006

According to this model, an organization’s HR is divided into uniform groups of

employees like skilled, semi-skilled, and unskilled workforce, different sorts of

3
engineers, managerial cadres, sales force, etc. Based on the sample data, average earnings
profiles are created and the present value of the future earning capacity of an employee,
from the period of joining the organization up to the retirement is computed. The amount
of present values over the various employee groups indicates the total human value of the
organization. The expected value of an employee’s human capital is calculated based on
the following formula:

Where, Vr = the value of an Individual r years old

I (t) = the individual's annual earnings up to retirement
t = retirement age
r = a discount rate specific to the cost of capital to the company

HUMAN RESOURCE ACCOUNTING AT INFOSYS

In 90’s Infosys recognized human resource costs as an investments rather than as
expenses, and added the dimension of "value" of individuals and the whole organization.
Infosys, has started showing human resource as an asset in its balance sheet, and has been
reaping high market valuations. Human Resources accounting, also known as Human
Asset Accounting, involved identifying, measuring, capturing, tracking and analyzing the
potential of the human resources of a company and communicating the resultant
information to the stakeholders of the company. It was a method by which a cost was
assigned to every employee when recruited, and the value that the employee would
generate in the future. Human Resource accounting reflected the potential of the human
resources of an organization in monetary terms, in its financial statements. (Refer Exhibit
2.)

The Value of Human Resource has been shown on the Assets side of the balance sheet
under Intangible Assets along with Brand value. And the same amount has been balanced
by opening the capital reserve A/c and transferring the whole value of Intangible Assets
to that a/c.
Comparison with the Traditional Balance Sheet:
The only difference between the Traditional Balance Sheet and the one, which includes
the Intangible assets, is that of inclusion of Intangibles Assets in the later. . The amount
of Intangibles has been transferred to Capital a/c just in order to show the balancing
effect because valuation of Human Resource in done by way of Lev and Schwartz Model
which takes into account the present value of future earning of its employees till the time
of retirement. However no any such fund is maintained, the valuation is done in order to
get the valuation of Human Resource. (Refer Exhibit 3. & Exhibit 4)
The current year’s amount of intangibles may be treated in the P/L a/c and the remaining
amount in unabsorbed reserve under capital reserve.

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 that an employee’s salary

4
package included all benefits, whether direct or otherwise, earned both in India and in a
foreign Nation and the additional earnings on the basis of age group were also taken into
account. To calculate the value of its human capital 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. (Refer
Table 2)

Table 2
Human Resource in Infosys (Rs. In Crore)

No. of years 2000 2001 2002 2003 2004 2005 2006 2007 2008

Total No. of 5389 9831 10738 15876 25634 36750 52715 72241 91187
Employees
Value of 2237.4 5123.4 9539.2 10777.9 21139.9 28334.2 46637 57452 98821
Human
Resource
Total Revenue 921.46 1959.9 2670.0 3740.24 4976.33 7253.55 9521 13893 16692

Value Added 723.31 1563.2 2239.1 3050.62 4184.96 6052.85 8030 11879 14820

Net Profit 285.95 623.32 807.96 954.77 1243.63 1846.48 2479 3861 4659
(excluding
extraordinary
Income)
RATIOS

Total Revenue/ 0.38 0.41 0.27 0.34 0.23 0.26 0.21 0.24 0.17
Value of Human
Resource

Total Revenue / 0.17 0.19 0.24 0.24 0.19 0.19 0.18 0.19 0.18
No. of
Employees
Value added / 0.32 0.32 0.23 0.28 0.19 0.21 0.17 0.20 0.15
Human
Resource Value
Value of Human 0.41 0.52 0.88 0.67 0.82 0.77 0.84 0.75 1.87
Resource Per
employee
Return on 12.7 12.17 8.47 8.88 5.88 6.51 6.08 6.72 4.71
Human
Resource Value
Human resource Value in Infosys

5
Value Added here means Total Revenue less Software development cost, provision for
post sales client support, selling and marketing expenses and other costs other than
provisions. Although Total Revenue to HR value in the year 2002 declined considerably
due to may be increase in cost (training or salary or in form of any other monetary
benefits) but the ratio of Total Revenue to no. of employees has increases to 0.24, as a
result the Value of HR per employee has considerably increased in that year to 0.88.

In year, 2008, return on Human Resource Value was the least, reason being the global
downturn, which led to slowdown in businesses in India and also in rest of the world.
There has been always a gap between the value added by Human Resource and Human
Resource value per employee. Present value of Future Earnings is calculated taking into
consideration all the direct and indirect benefits earned both in India as well as abroad.

Table 3

A graphical presentation of Human Resource value of Infosys over the period of

nine years.
Table3 depicts that there has been a consistent increase in the Human resource value of
the employees in Infosys.

6
 Table 4.

.
The graph in the Table 4 depicts that the value of HR, revenue and Value added are
increasing over the years and that it is the increase in Human resource value which is
making the revenue and the value added component to grow.

Analysis and Discussion

The data was collected using the information available on the annual report of Infosys.
To identify is there any correlation between the Human Resource Value of the Infosys
and Revenue by taking a significance level of 1% and using two tailed Z-test. It was
observed that Correlation can be applied to estimate the degree of closeness between the
two variables i.e. Human Resource Value of Infosys & Revenue. (Refer to Table 6)

Table 6

Correlation between “Human Resource Value” and the “Revenue” of Infosys

Correlations
HRV REVENUE
HRV Pearson Correlation 1 .975**
Sig. (2-tailed) .000
REVENUE Pearson Correlation .975 **
1
Sig. (2-tailed) .000
**. Correlation is significant at the 0.01 level (2-tailed).
a. Listwise N=9

The correlation coefficient of “0.975” clearly shows that there is a very high correlation
between the “Human Resource Value of the Infosys” and “Revenue” in the Infosys. This

7
 signifies that Human Resource Value has a bearing on the revenue and hence the growth
of the company depends on its presence and value of Human resource working in the
organization. It necessarily means that if more is the value of human resource, greater
will be the revenue of the company.
It was also observed that by taking a significance level of 10%, and using two-tailed Z-
test, we can apply correlation to estimate the degree of closeness between the two
variables, i.e human resource value and value added from the trained and technical staff
(.Refer to Table 7)

Table 7
Correlation between “Human Resource Value” and the “Value added” by the
employees of Infosys.

Correlations
HRV VALUEADDED
HRV Pearson Correlation 1 .974**
Sig. (2-tailed) .000
N 9 9
VALUEADDED Pearson Correlation .974 **
1
Sig. (2-tailed) .000
N 9 9
**. Correlation is significant at the 0.01 level (2-tailed).

The correlation coefficient of “0.974” signifies that there is a higher correlation between
“human resource value” and the “value added” by the employees of infosys. Further it
can be concluded that the total value added component of the company depends a lot
upon the human resource value of the technically skilled staff of the Infosys. So Infosys
must remain focused upon maintaining, developing, retaining and increasing their value
of technically skilled software professional.
It was further observed that we can apply correlation to estimate the degree of closeness
between the two variables, i.e. human resource value and net profit. The correlation
coefficient of “0.968” signifies that there is a high degree of correlation between “Human
Resource Value of the infosys” and “Net profit”. Further it can be concluded that the
turnover of the company depends much on the value of HR in Infosys.
(Refer to Table 8)

8
 Table 8
Correlation between “Human Resource Value” and “Net profit (excluding
extraordinary items)” of Infosys

Correlations
HRV NETPROFIT
HRV Pearson Correlation 1 .968**
Sig. (2-tailed) .000
N 9 9
NETPROFIT Pearson Correlation .968** 1
Sig. (2-tailed) .000
N 9 9
**. Correlation is significant at the 0.01 level (2-tailed).

By using Regression analysis of the “Net Profit” of Infosys it was observed that the most
significant factor affecting the turnover of the company is the revenue, since it has got the
highest value of ‘beta’ i.e. “0.570”. And the least significant factor is “no. of employees
”, since it has got ‘beta’ with a very low value of “0.214”, which is in agreement with the
results drawn earlier. The next most significant factor is “H” having a ‘beta’ value of
“0.284”. (Refer to Table 9)

Table 9

Regression analysis of the “Net Profit” of Infosys:

Model Summary

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 107.824 55.241 1.952 .123
HRV -.015 .006 .504 2.614 .059
REVENUE -.516 .222 .570 2.321 .081
NOofEMPLY .011 .015 .214 .718 .513
VADDED .922 .244 .450 1.781 .019
a. Dependent Variable: NETPROFIT

Hence the regression equation for the net profit of the company may be interpreted as
follows:

Y = 0.504X1 + 0.570X2 + 0.214X3 + 0.450X4

9
Where,
X1 = Human Resource Value
X2 = Revenue
X3 = Total no. of employees
X4 = Value Added
Y = Net Profit

INFOSYS REAPING BENEFITS THROUGH HRA

HRA helped Infosys to 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. The Study shows that growth of the company
depends on its presence and value of Human resource working in the organization. It
necessarily means that if more is the value of human resource, greater will be the revenue
of the company. Further it can be concluded that the total value added component of the
company depends a lot upon the human resource value of the technically skilled staff of
the Infosys. So Infosys must remain focused upon maintaining, developing, retaining and
increasing their value. This information can also be used by the company to compare the
performance and productivity of employees in various departments and retaining valuable
employees. HRA also helped in deciding the compensation of employees. The effort to
quantify human resources helped Infosys investors and other client’s true insights into the
organization and its future potential. It restored faith amongst shareholders.

Questions for Discussion

1. Briefly discuss the concept of valuation of Human Resources and compare
the various models available for Human Resource Accounting

2. What are the benefits of Human Resource Accounting? Discuss in detail the
HRA Model adopted by Infosys .

3. What are the possible drawbacks of this model?

10
 Exhibit 1
Models for Valuing /Measuring Human Resource
Cost –Based Models:
Historical Cost Method (Brummet, Flamholtz and Pyle)
Brummet, Flamholtz and Pyle developed this model. It is very similar to conventional
accounting practices . As per this method, the costs, which were incurred on recruiting,
selecting, training and development of HR with an intention to get benefits in future,
should be treated as investment or assets and subsequently be amortized over the years to
reflect the value of personnel in the organization.

Under this method, the cost of acquisition, i.e., selection, hiring, training costs of
employees are capitalized and written off over the expected useful life of the employees.
Another case exists on the employees' anticipatory period of service. If they leave the
company before this service time, the remaining unamortized costs will be written off
against the profit and loss account in the corresponding year. If the service period exceeds
the anticipated time then the amortization of costs is rescheduled.
Real Capital cost-
All capital cost such as training cost should be capitalized by entry:
Training Expenses a/c Dr
To Cash/Bank
This should be written off equally in estimated service period by entry
P&L A/C DR
To Training expenses
At the time of leaving/death of employee whole amount should be charged to P&L
A/C
Replacement Cost Method (Flamholtz)
Under this method, the HR is valued at its replacement cost, i.e., the monetary
implications of replacing the existing personnel. Replacement costs could be positional,
i.e., replacing personnel for particular positions or personal, in other words replacing
specific talent or ability of particular persons.
According to this model, the cost incurred by an organization on replacing the previous
employees and strengthening the organization further, should reflect the HR value to both
the employees and organization. Flamholtz suggested there are three areas involved in
replacement costs:
i. The cost of acquiring new people for existing positions
ii. The cost of training these recruited employees to the appropriate level of
performance, and
iii. The cost of moving existing position holders to new positions or out of the
organization
The disadvantage of replacement cost is that it does not consider the knowledge,
competence and loyalty or the ability to work as a team. Also, it does not take into
account that there may be some people who are paid less than they are worth and some
paid more than they are worth. If the historical cost method and the replacement cost
method are implemented together, the organization will get a more reliable value of its

11
HR.

Opportunity Cost Model (Hekimian and Jones)

To overcome the pitfalls of the replacement cost method, this method was proposed by
Hekimian and Jones. This method is also known as the competitive bidding model.
According to this method, the investment managers will bid for rare employees as per
the organizational need. These rare and needed employees come from within the
organization. If the employee is put to an activity which is most suitable to him, then how
much additional return will be generated by him is to be estimated and that amount will
be his price. The maximum bid can go up to the capitalized value of the expected extra
return and it is to be shown in the balance sheet. The major disadvantage of this method
is that the bid price of an employee may be based on the perception of the bidder which
may be interpreted by other employees as discriminatory. This may result in lowering the
morale of the specialist who cannot be used in other divisions, with their same specialty.
This approach suggests competitive bidding for scarce employees in an organization, i.e.,
opportunity cost of employees linked to scarcity. The approach proposes the capitalizing
of additional earning potential of each HR within the company.

Methods Based on Value

Economic Value Method
Under this method, the net present value of incremental cash flows attributed to human
resources is taken as the asset value.
Goodwill Method
As this method was developed by Hermanson, it is also called as the Hermanson Model.
According to this model, the extra profit generated by an organization during a specified
period is compared to the industry’s average rate, that is goodwill credited to the
organizational HR for its valuation.
The HR value is measured by adopting the following formula:
HR value = goodwill x (investment in HR/total investment).

The major drawback of this model is that, additional revenues or earnings generated by
an organization during a specified period may be controlled by various external factors,
and therefore cannot say how much HR has actually contributed to the revenues.

Adjusted Discounted Future Wages Method (Harmanson)

According to this method, the present value of future wages which is payable for the
next five years, is discounted at the adjusted rate of return and considered as the value
of the HR of the organization. The adjusted rate of return indicates the average rate of
return on owned assets of all organizations in the economy multiplied by the efficiency
ratio of the organization. The efficiency ratio is the weighted average of the ratio of the
return on investment of the specified organization to all organizations in the economy for
a particular period, normally five years, i.e., the current year and the preceding four years.
The current year is given the highest weight, i.e., 5 and the weight given to the preceding
year is 1.
The efficiency ratio = [5 (RF0/RE0) + 4 (RF1/RE1) + 3 (RF2/RE2) + 2 (RF3/RE3) +
(RF4/RE4)] /15]

12
 Where;
RF0 = the rate of accounting income on owned assets for the organization for the current
year.
RE0 = the average rate of accounting income on owned assets for all organizations in
the economy for the current year.
RF4 = the rate of accounting income on owned assets for the organization for the fourth
preceding year.
RE4 = the average rate of accounting income on owned assets for all organizations in
the economy for the fourth preceding year.
If the ratio is greater than 1, it indicates that the average rate of return of the organization
is more than the average rate for all organizations in the economy and the average rate of
return for an organization will be lower than the average rate for all organizations in the
economy, if the ratio is lesser than 1.
Various critics have criticized the model, mainly because the weightage given to calculate
the efficiency ratio is fully arbitrary and has no empirical justification. Also, the valuation
period of five years has no justification. Another disadvantage of this method is that the
rate of return of an organization may not be comparable with that of all other
organizations in the economy, or even with the organizations in the same sector.

Flamholtz Model
According to this model the value of an employee is calculated using the discounted sum
of the values of the service states that the individual will occupy (i.e., rank and
performance rating) during his career in the organization. To compute the value of an
individual to an organization, the following information is needed.
i. The mutually exclusive service states that the individual may occupy within the
1. organizational system.
ii. The value of these service states.
iii. The estimated tenure an individual will occupy for each service state at a particular
2. period.
iv. The discount rate to be applied to find out the present value of future cash flow.

Flamholtz suggested that the service state values can be measured through the price-
quantity method or the income method. Determining the product of the price per unit of
human services and the quantity of the services are involved in price-quantity method.
The income method involves forecasting the expected earnings of an organization and
allocating them among other resources and HR, and further assigning them to particular
people.
Various critics opposed that though Flamholtz suggested the above two methods (i.e.,
price-quantity method and income method) to measure the service states values, both
these methods are subjective and also very critical. The value of the surplus created
jointly by all the factors of production may be calculated relatively easily but splitting
this surplus to find out the contribution of each factor accurately is highly problematic.
The price-quantity method may be applicable to small organizations or where employees
work alone and the produced goods or services are sold out directly to customers, but in
large organizations where HR activities are highly integrated, it is a very complicated
task.

13
 Jaggi and Lau Method
The past performance of an employee is assumed to be an indicator of the future. The
value placed on an employee is on the basis of the past performance. The criticism is that
the past performance cannot be an indicator of the future, especially in the technological
industry, it does not reflect the future potential.

According to this method, the value of an employee is computed by considering the

employee’s past performance in relation to his exit from the organization due to
retirement or death or resignation before retirement, estimated over the period, assuming
that the past trend of employee movement will also continue in the future. The present
value of the future services from the employees relevant to different service states is
considered as the value created by the employee.

The main drawback of this method is that it is based on the assumption that past trend of
employee movement will also continue in future which may not practically be possible,
especially in the technological industry. Also, this model does not advocate any method
to evaluate the period of service which may be available from the employees.

Myers and Flowers Method

According to this method, the productivity of an employee is decided by his attitude and
general outlook towards the job in the organization. Since, the individual employees
together make a group, the attitude of an individual employee is more
important than the overall attitude of a group. Based on the above assumption, the value
of HR is calculated by adopting the following formula:

Employee’s value = employee’s attitude index multiplied by (x) wages payable to the
employee (i.e., the likely benefits) less wages payable (i.e., the cost).

Knowledge, skills, health, availability and attitude are the five dimensions used in valuing
human assets.
Critics disparaged this model, because there are several other factors other than the
attitude which influences human behavior. Also, if the employees know the benefits of
showing positive attitude, then the measurement of an individual’s attitude will not be the
rationale. Model has been adopted widely by Indian organizations
Lev and Schwartz Model
Present value of future earning model or capitalization of salary method. The present
value of the future earning capacity of an employee from the time he joins till retirement
will be estimated.
As Baruch Lev and Aba Schwartz developed this model, it is called the Lev and Schwartz
Model. Since this model has been adopted widely by Indian organizations like SAIL,
BHEL, Infosys, Satyam Computers, DSQ Software Ltd., Reliance Industries, etc., it is
more popular in India.
According to this model, an organization’s HR is divided into uniform groups of

14
employees like skilled, semi-skilled, and unskilled workforce, different sorts of
engineers, managerial cadres, sales force, etc. Based on the sample data, average earnings
profiles are created and the present value of the future earning capacity of an employee,
from the period of joining the organization up to the retirement is computed. The amount
of present values over the various employee groups indicates the total human value of the
organization. The expected value of an employee’s human capital is calculated based on
the following formula:
T

Vr. =  I (t)
t=r (1+R) t-r
Where
Vr = the value of an individual are years old
I (t) = the individual’s annual earnings upto the retirement
T = retirement age
R = a discount rate

15
 Exhibit 2
Treatment of Value of Human Resource in INFOSYS in Balance sheet

Source: Infosys Annual Report 2008

16
 Exhibit 3
Comparison with the Traditional Balance Sheet

Source: Infosys Annual Report 2008

17
 Exhibit 4

Source : Infosys annual report 2008

18

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