CHAPTER 3

HUMAN RESOURCE ACCOUNTING

IN
VARIOUS INDIAN COMPANIES

Sr. Topic Topic Details Page

No. No. No.
1 3.1 11. R. A. in NINFOSYS TECHNOLOGIES 39

2 3.2 II R A in BHARAT HEAVY ELECTRICALS Ltd. 46

3 3.3 H R A in STEEL AUTHORITY OF INDIA Ltd. 48

4 3.4 H R A in CEMENT CORPORATION OF INDIA Ltd. 50

5 3.5 H R A in NATIONAL THERMAL POWER 56

CORPOARATION Ltd.

6 3.6 HRA in O H & NATURAL GAS CORPORATION OF 59

INDIA (ONGC)

7 3.7 HRA in HINDUSTAN PETROLEUM CORPORATION 62

Ltd. (HPCL)

38
 CHAPTER 3

HUMAN RESOURCE ACCOUNTING

IN VARIOUS INDIAN COMPANIES
3.1 H. R. A. IN INFOSYS TECHNOLOGIES

In the financial year 1995-96, Infosys Technologies became the first software
company to value its human resources in India. The company used the Lev &
Schwartz Model and valued its human resources assets at ? 1.86 billion. Infosys had
always given utmost importance to the role of employees in contributing to the
companys success. Analysts felt that human resources accounting (HRA) was a step
further in Infosys focus on its employees. Narayana Murthy, the then chairman and
managing director of Infosys, said :Comparing this figure over the years will tell us
whether the value of our human resources is appreciating or not. For a knowledge
intensive company like ours, that is vital information.
The concept of HRA was not new in India. HRA was pioneered by public
sector companies like Bharat Heavy Electrical Limited (BHEL) and Steel Authority
of India Ltd. (SAIL) way back in the 1970s. However, the concept did not gain much
popularity and acceptance during that time. It was only in the mid -1990s, after
Infosys started valuing its employees, that the concept gained popularity in India. By
2002, HR accounting had been introduced by leading software companies like Satyam
Computers and DSQ Software, as well as leading manufacturing firms like Reliance
Industries.
HR managers were quick to respond on the above developments by stating
that more and more organizations have now started to realize the importance of
skilled workforce. They felt that to be successful in highly competitive markets,
companies require to continuously improve the level of performance of their
workforce. HRA enabled companies to understand whether the skill sets of their
human capital was appreciating or not. R. Krishnaswamy, an actuarial accountant
said, The value can be used internally by an organization to make comparisons from
unit to unit, from year to year, as well as within its industry.

Stock market analysts felt that the comprehensive disclosure policy was
becoming a differentiating factor among companies in various industries. Yezdi H.
Malegam, managing director, S.B. Billimoria & Company commented, In the last
39
few years, people are realizing that their intangible assets are worth much more than
their tangible ones. Now an attempt is being made to put a value to these intangibles,
and to bring these hidden values to book. Analysts felt that HRA was an investor
friendly disclosure, and assured stakeholders that the company has the right human
capital to meet its future business requirements.
Infosys HRA model was based on the present value of the employees future
earnings with the following assumptions:
- An employees 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 and group were also taken into
account.
To calculate the value of its human assets in 1995-96, all the 1,172 employees of
Infosys were divided into five groups, based on their average age. Each groups
average compensation was calculated. Infosys also calculated the compensation of
each employee at age of retirement by using an average rate of increment.
The increments were based on the industry standards, and the employees
performance and productivity. Finally, the total compensation of each group was
calculated. This value was discounted at the rate of 27.36 percent per annum which
was the cost of capital of Infosys, and the sum of the values of all the groups was
calculated to arrive at the figure o f? 1.86 billion. The formula used by Infosys was as
per the Lev and Schwartz model.
Infosys believed that valuing intangible assets and reporting it in the balance sheet
and other financial statements would help the investors to evaluate the market
worthiness of the company. In its 2009 annual report, the company stated, The
dichotomy in accounting between human and non human capital is fundamental. The
latter is recognized as an asset and is therefore recorded in the books and reported in
the financial statement, whereas the former is totally ignored by accountants. The
definition of wealth as a source of income inevitably leads to the recognition of
human capital as one of the several forms of wealth such as money, securities and
physical capital. To evaluate its intangible assets including the human assets and the
Infosys brand, Infosys has framed models based on a score sheet from the book The
New Organizational Wealth.23

23 Written by Dr. Karl-Erik Sveiby, published by Berrett-Koehler, San Francisco.

40
 Table No. 1
The Infosys Intangible Assets Score sheet
Knowledge Capital

Our Organization (Internal Structure) Our People (Our Competence)

2000-01 1999-00 2000-01 1999-00

Growth / Renewal

IT investment/value 9.32 7.47 Education Index of 28,725 15,544

added (%Percentage) all (?)

R&D / Value added 1.09 1.14

(%)

Total Investment in 29.64 22.10

organization / value
added (%)

Efficiency

Average proportion of 10.30 12.70 Value added per 2.214 1,771

support staff (%) software engineer
(in ? million)

Sales per support staff . 24.3 15.5 Value added per 1.987 1.546
(in ? Million) employee (in ?
million)

Stability

Average age of support 30.61 31.14 Average age of all 25.67 26.14
staff (years) employees (years)

Source : Infosys Annual Report 2000-01.

In table 1 it has given the Asset Score sheet relating to its intangible assets
including human resources. This is perhaps the one of few companies to have given
such detailed analysis including growth of intangibles, Efficiency of its software
engineers and its supporting staff too. The average age of all employees and
supporting staff given for two years, may from the basis of computing value of its
human resources.

41
 The value of human resources at Infosys rose from a humble figure o f? 1.86 billion
in 1995-96 to ? 51.23 billion as on March 31, 2001. In 2001, Infosys valued its human
resources based on the present value of the future earnings of its employee with the
following assumptions:
- Employee compensation included all direct and indirect benefits earned both
in India and abroad.
- The incremental earnings based on group/age was considered.
- The future earnings were discounted at 21.08% in 2001, compared to 22.29%
in 2000 being the cost of capital for Infosys. Beta was assumed at 1.54 based
on an average beta for software stocks in the US.
Table No. 2
Value of Human Resources in Infosys
As on March 2001 2000
31

No. of Value of HR No. of Value of HR (in ?

' Employees (in ? Billion) Employees Billion)

Production 7,641 44.06530 4,292 19.65140

Support 1,230 3.02830 450 0.81650

technical24

Others 960 4.14060 647 1.90630

Total 9,831 51.23420 5,389 22.37420

Source : Infosys Annual Report 2000-01.

The table 2 gives value of its human resources in billions of rupees. Here the
company has divided its employees in three groups viz. Production employees,
Supporting technical staff and others. The highest number and value of employee
being that of production department, as it is the main activity of the company. The
company is giving so much importance to its employees and so the value of its HR of
production department which was ? 19.65 billion in 2000 has increased to ? 44.065
billion in 2001. Which is an increase of 124% in one year only. Similar increase is
noticed in value of support technical staff which also increase from ? 0.817 billion to
? 3.03 billion again an increase of nearly 270% within one year. The total value of

24 Support -technical includes trainees, employees m R&D activities and support personnel allocated to
production.

42
human resources which was ? 22.37 billion in 2000 has jumped to 51.23 billion
rupees in the year 2001.

Table No. 3
Revenues and Value of Human Resources in Infosys
As on March 31 2009 2008

(figures are in (figures are in

crores) crores)

(figures are in crores )

Number of employees 1,04,850 91,187

Value of human resources 0.97 1.08

Total Revenue 21,693 16,692

Software Revenue 95,600 92,331

Employee cost 11,405 8,878

Value added excluding extraordinary income 19,063 14,820

Net profits excluding extraordinary income 5,988 4,659

Total revenue/human resources value (ratio) 0.21 0.17

Total software revenue/human resources value 0.37 0.39

(ratio)

Value added/human resources value (ratio) 0.19 0.15

Value of human resources per employee 0.97 1.08

(? Million)

Employee cost/human resources value (%) 11.2% 9%

Return on human resources value (%) 5.9% 4.7%

Source : Infosys Annual Report 2008-09

Table 3, the latest one is a wonderful presentation of various details regarding

human resources. Hardly have we found such calculations of various aspects of
human resources being presented by a few companies in India. It shows that the value
of human resources which was ? 1.08 million per employee in the year 2008 ha come
down to 0.97 million rupees. The return on human resources value.which was 4.7% in
2008 has increased to 5.9% in 2009.

43
 All these the company has done, as reported by Mr. Murthy that by adopting
HRA, the company could determine whether its human asset was appreciating over
the years or not.
Infosys reported several benefits due to the early adoption of HRA, Murthy
felt that by adopting HRA, the company 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. In addition, the
company could also use this information internally to compare the performance and
productivity of employees in various departments.
HRA also helped Infosys to decide the compensation of employees. The
company ensured that it compensated each employee according to his/her worth.
Mohandas Pai, CEO, Infosys explained, We are entering an era when compensation
will be directly correlated to what an individual is capable of earning - not to his rank
or seniority. Above all, HRA helped Infosys in identifying and retaining valuable
employees.
Table No. 4
Infosys Balance Sheet (Including Intangible Assets)
Sources of funds (As on March 31, 2010) Shareholders Funds ? In million

Share Capital 286

Reserves & surplus

Capital reserves 1,50,194

Other resources 22,763

Deferred tax liability 232

1,73,475

Application of funds - Fixed Assets

Tangible Assets - at cost 7,839

Less: Depreciation 2,893

Net block 4,946

Add: Capital work-in-progress 409

Intangible assets

44
 Brand equity 36,907

Human resources 1,13,287

Investments, current assets, Loans and advances 3,712

Deferred tax assets 432

Sundry Debtors 3,494

Cash & bank balances 10,556

Loans and advances 4,187

18,237

Less: Current Liabilities 2,343

Provisions 2,112

Net current Assets 13,782

1,73,475

Source : Infosys Annual Report 2009-10

Note to the Balance sheet:
- The balance sheet is provided only as additional information. The
management accepts no responsibility for any direct, indirect or consequential
losses or damages suffered by any person relying on the same.
- Capital reserves include the value of Infosys brand and human resources.
- The figures above are based on Indian GAAP financial statements.
From the above tables and comments provided by the company, it seems it is
the first company in India to so exhaustively give an analysis of its human resources.
Table 4 is the most important table from the viewpoint of presenting value of
human resources of the company. As the company has stated very clearly, it is not a
part of schedule VI of the companies Act, but it is an additional information. As there
has been no standard method of valuing human resources and as it is not compulsory
by law to present Balance sheet showing value of human resources, this additional
balance sheet has been given by way of information and the company has accepted no
responsibility for its use. On the asset side (application of funds side) the value of
human resources has been stated to be ? 1,13,287 million i.e. ? 11,328.7 crores, the
corresponding liability, being the discounted value of future earnings of the
employees based on the average age and average period for which employees are
45
likely to stay in employment with the company. This liability of the company has
been included under the heading capital reserves. This is treated as a liability of the
company, as the company would be required to pay it to the employees in future by
way of salaries and wages. Analyzing the balance sheet, it seems out of the total
assets of the company valued at ? 17,347.5 crores in the year 2009-10, the value of
human resources forms 65% of the total assets, which is a substantial portion of all
assets.

3.2 H R A IN BHARAT HEAVY ELECTRICALS LIMITED

BHEL recognizes that in any organization the value of its employees cannot
be over emphasized. It has been valuing and reporting human asset in its annual
reports since 1978-79. the human assets valuation is done by following the Lev &
Schwartz model and application of a discount factor of 12% per annum on the future
earnings to arrive at the present value of human resources. Prior to 1981-82, BHEL
was using Lev & Schwartz model without any changes but since 1981-82, BHEL one
change from the model has been made which assumes the maintenance of staff
strength at the existing level and replacement as and when retirement takes place.
BHEL disclosure value of its human assets in its annual report 1987-1988 in the
following manner.

Table No. 5
BHEL HUMAN ASSET ACCOUNT VALUE OF HUMAN ASSETS
1987-88 1986-87

Executives 4,744 3,960

Superiors 3,841 3,121

Artisans 5,850 5,169

Supporting Technical staff 74 698

Clerical & office supporting staff 1,106 1,036

Unskilled and semi skilled staff 1,982 1,899

Total 18,265 15,883

Ratios

46
Turnover / Human Resources 1.27 1.26

Turnover / Fixed assets at current cost 1.31 1.30

Turnover / Total Resources 0.58 0.56

Value added / Human Resources 0.49 0.50

Value added / Fixed assets 0.50 0.51

Value added / Total resources 0.22 0.22

Human Resource / Total Resources 0.46 0.44

Source : BHEL Annual Report 1987-88

Just like Infosys Technologies, BHEL has also given due importance to its
human capital and started showing the value of human resources as an asset in the
additional balance sheet meant for further information from the Table 5 it seems the
company has divided its human resources into six groups: Executives who take
decisions and its value has increased from ? 3,960 crores to 4,744 crores. The second
group is that of supervisors who control and direct employees and workers working in
their departments. They are very valuable staff as they are the persons who extract
work from workers and artisans and direct them as their performance. The third group
consists of artisans who are working at the grass root level and on whose efficiency
and sincerity depend the performance of the company. As their age and experiences as
well as their pay scale increase, their valuation also goes up from year to year. The
fourth group relates to supporting technical staff. Though their importance is very
much less, without them the continuity of production would be disturbed and
efficiency would suffer. Hence, they form a separate group. The fifth group consists
of clerical and other office supporting staff. In fact, without their help, the production
staff would not be able to perform their duties efficiently. All the records of
production, purchase and sales are kept by this staff and even the calculation and
payment of salaries and wages are in their hands. But they are not as significant as
artisans and executives and hence their valuation is limited. The unskilled and semi
skilled staff is equally important. However trained and intelligent the artisans and
executives may be, they cannot perform. The total valuation of human resources has
increased from ? 15,889 crores to t 18,265 crores within a year, which is an increase
of nearly 15%.

47
 The ratios given in the table 5 also shows significant importance of human
resources. The ratio of turnover of human resources and ratios of turnover of fixed
assets are almost equal suggesting that only use of fixed assets is not important in
business.
3.3 H R A IN STEEL AUTHORITY OF INDIA LTD (SAIL)

In evaluating human assets SAIL adopts the Economic Valuation Method

and the basic model as conceived by Lev & Schwartz incorporating refinements as
suggested by Eric Flamholtz and Jaggi & Lau and also makes certain modifications as
considered necessary to suit special circumstances of SAIL. The valuation of human
capital is done by ascertaining the present value of future anticipated earnings and
discounting the same to their present worth by applying a discount factor of 14%.
SAIL discloses Human resource value in its annual report of 1985 1986. Under the
dual aspect of accounting, value for human assets is shown both on liabilities and
assets side of the balance sheet. On the assets side it is shown after the fixed assets as
human assets while on the liabilities side it appears after the capital as employees
contribution. SAIL discloses human resources in its Social Balance Sheet as in the
table.
Table No. 6
SAIL HUMAN RESOURCE VALUE
Age Groups

Below 25-35 35-45 45-50 Above Total

25 50

Managers 9.12 90.56 57.99 30.63 188.30

Executives 96.34 395.44 466.90 165.99 59.27 1,183.94

Supervisors 30.34 333.46 1,050.53 737.44 175.20 2,326.97

Clerical Staff 20.44 261.64 292.91 57.75 9.59 642.33

Skilled Workers 131.35 889.20 1,382.10 525.68 103.30 3,031.63

Semi 202.67 987.32 792.93 196.52 35.88 2,215.63

skilled/Unskilled
workers

Total 481.14 2,876.18 4,075.93 1,741.37 413.87 9,588.49

48
 -j 2

Previous year 515.21 3,008.56 4,065.40 1,656.44 335.52 9,581.13

Source : Annual Report 1985-86.

The first group consists of Managers and it will be noticed that there are no
managers who are below the age of 25 years. For age group of every ten years the
figures given are ? 9.12 crores, between age group of 35 to 45, the value is the
maximum, namely ? 90.56 crores, while in the age group above 50, the value is ?
30.63 erore. The total value of managerial group is given as 188.30 crores of rupees.
The second group consists of executives who have to carry out decisions made by the
top managers and other managerial personnel. There are a few executives below the
age of 25 and their value is put at ? 96.34 crores, while the maximum value of
executives is ? 466.90 crores in the age group of 35 to 45 years. It means the most
executives are quite young and the total value of executive personnel is ? 1183.94
crores. The third group comprises supervisors. Here again the maximum value is
between age group of 35 to 45 years which is ? 1050.53 crores. The fourth group is
meant for clerical staff. Analyzing the values given for this group you seems that
there are very few persons below the age of 25 years valuing only ? 20.44 crores,
while most of the persons retire above the age of 50, where the value of the whole
clerical staff is only ? 9.59 crores. Then comes group of skilled workers, who form
the highest vale amounting to
? 3031.63 crores out of total value of ? 9588.99 crores, which is the value of all the
human resources. The next is importance o f? 2215.63 crores.
The last group consists of semiskilled and unskilled workers who are also
equally important The company has given social balance sheet in the new form. On
the liabilities side there are only two items, one of which is the social equity which is
Employees contribution, which forms 98% of the total equity. As against that the
value of human resources shown on the Assets side is ? 9588.49 which is almost the
same as in the previous year.

49
 Table No. 7

SOCIAL BALANCE SHEET OF SAIL AS ON 31st MARCH, 1986

t
Liabilities ~] As
* on T ist March,1986
31st in o i; a.on 1
As 1stA
31st ,To
March, 1985

Organization Equity 268.85 242.52

Social Equity (Employees Contribution) 9,588.49 9,581.13

Total 9,857.34 9,823.65

Assets As on 31st March,1986 As on 31st March, 1985

Social Capital Investments:

Land 7.42 7.21
Residential & other buildings 198.94 175.00
Roads & Bridges 16.82 16.06
Electrification 11.66 10.99
Water supply & sewages 26.87 26.11
Furniture & Fittings 1.23 1.18
Other Equipments 5.91 5.97
Human Resources 9,588.49 9,581.13

Total 9,857.34 9,823.65

Source : SAIL Annual Reports !985-86.

The SAIL another public sector company was also the pioneer in the field of
human resources accounting along with BHEL. It has given detailed information
about values of human resources age wise, which is more important to understand
whether the turnover is normal or excessive. It has divided its human resources into 6
groups just as BHEL has done.

3.4 H R A IN CEMENT CORPORATION OF INDIA LIMITED

(CCI)

Human Resources are of vital importance and significance to an employee and

constitute a primary segment of the total resources held. A peculiar aspect of Human

50
Resources is that while these have infinite potential yet whatever is realized out of
this resources is generally akin to the tip of the iceberg the remaining whole lot lying,
submerged untapped. Deliberate efforts have therefore, to be made to augment the gap
between Actual and potential Human Resources may also be branded as
Mother Resources through the medium of which other scare resources viz.
Machined, material, money are organized, coordinated, directed and controlled.
Maximum realization of the Potentialities of this Mother Resources is at crucial
importance for success of an enterprise. The in-house management and leadership
styles the participative, collaborative and supportive climate, the motivational
environment, care concern and fellow feelings for each other, the freedom and
flexibility to operate within given frame-work of organizational goal and objectives
productivity oriented performance yard sticks and continued managements positive
awareness for training & development effort to keep the threat of human obsolescence
at bay are some of the essential inputs for tapping this resource of human assets.
Besides, the human resources, the highly perishable by mere efflux of time unless
they are effectively and meaningfully put to use continually.
CCI is fully conscious of these phenomena and gives utmost attention and
priority to maintain the human assets in fine fettle. The procurement, development,
compensation, integration and maintenance of human resources are thoughtfully
planned, skillfully organized, carefully controlled and deftly directed so as to secure
the meaningful and the individuals needs, organizational goals and social objective
are successfully accomplished.
A good insight into existing human potential can be well perceived through
the profile of the human power distributed profession wise and age wise 15.21% of
the total employees strength of CCI represent technically and professional qualified,
degree/diploma holders. As such 30.52% of total strength of the organization are in
the age group of 36-50 year. However, average age of our employees comes to 52
years. The board distribution of CCIs human force is as under:

51
 TABLE No. 8

PROFESSIONAL PROFILE
No. of employees '
S.No. Particulars
As on 31-3-2010 As on 31-3-2009

1 Post Graduate Engineers 3 3

2 Engineers with MBA 1 1

3 Graduate Engineers 27 32

4 CA/SAS/ICWA 09 09

5 MBBS 1 1

6 MBAs 22 24

7 Engineer Diploma Holders 48 50

8 Professional Diploma 53 55
Holders

9 Post Graduate 58 59

10 Graduates 197 213

11 ITI Certificate Holders 225 235

12 Others 434 477

Total 1,078 1,159

Table no. 8 shows the total number of employees which were 1159 on 31-3-
2009 and 1078 on 31-3-2010. These are classified on the basis of qualification. The
company has classified the employees into 12 groups on the basis of qualifications.
Engineers are divided into four categories, viz. post graduate engineers (3 only),
Engineers with MBA (1 only), Graduate engineers 27 and 32, and Engineer diploma
holders 48. Accountancy professionals like CA, ICWA are nine only which MBAs are
22 and 24. There is one more inferior category of engineers namely ITI certificate
holders who are large in number 235 in 2008-09 and 225 in 2009-10. Other degree
holders, post graduate are 58 and 59 while graduates are 197 and 213 for 2010 and
2009 respectively.

52
 TABLE No. 9
The age wise and category wise distribution of employees as on 31-3-2010 is
given below:______________________________________________________
Years

Category 31-35 36-40 41-45 46-50 51-55 56 & Total Average

above
Age

Executives 1 15 35 52 17 120 51

Supervisors 2 10 30 87 45 174 52

Artisans 5 24 59 191 72 351 52

(skilled
workers)

Semi 3 13 46 87 30 179 51
skilled

Clerical & 3 08 28 75 26 140 52

other
supporting
staff

Unskilled 5 14 28 43 24 114 51

Total 19 84 226 535 214 1078 52

Percentage 1.76 7.79 20.96 49.63 19.86 100

Source: Annual Report 2009-' 10

Table 9 disclosures the age wise executives and other employees. The
employees for their purpose are grouped into six categories, namely, Executives,
Supervisors, Artisans who are skilled workers, semi skilled workers, clerks and other
supporting staff and unskilled workers. There are no person below the age of 35, the
maximum number of employees are between the age group of 51 to 55 years. As
stated in this table, the average age of its employees is 52. The percentage of
employees between the age group of 51 to 55 years is 49.63%. It seems these persons
are working with the company since its inception and there may be very little labour
turnover.
The dichotomy in accounting between human and non human capital is rather
fundamental in that while later is recognized as an asset and recorded as such in the

53
financial statements, the former is totally ignored with the accelerated growth in
science and technology the value of human capital is gradually increasing and hence it
is essential for a company to reflect the investment in human resources.
In the absence of clear cut well defined and universally accepted model for evaluation
of the economic worth of human assets of a company an attempt has been made to
assess the same, by working out the present value of the anticipated future earnings of
the employees taking into account the present pay scales and the promotional policies
being followed. The computation has been based on the guidelines and principles
enunciated in the economic models developed by Lev & Schwartz.(1971) Eric
Flamholtz (1974) and Jaggi & Lau (1974) with appropriate modifications found
necessary.
The company has given much importance to its human capital as it said in its
latest report Human Resources are of vital importance and significance to an
employee and constitute a primary segment of the total resources held....Human
Resources may also be branded as Mother Resources through the medium of which
other scarce resources are organized, co-ordinated, directed and controlled.
Hence the company has given considerable information about its human
resources, classified on the basis of qualifications and age of employees and has given
valuation of these employees group wise.
Table 10 shows the values of human resources group wise. As stated by the
company,

The total value of human assets of the company evaluated on the lines
indicated above is as follows.

54
 TABLE No. 10
Total value of human assets of the company
As at 31-3-2010 As at 31-3-2009 As at 31-3-2008
Category Value in No. of Value in No. of Value in No. of
Lakhs Employees Lakhs Employees Lakhs Employees

Executives 6,136.80 120 4,469.90 134 4,397.42 150

Supervisors 5,662.62 174 4,453.23 178 1,926.97 176

Skilled 5,827.97 351 5,177.07 388 4,421.46 534

Workers

Semi 2,734.33 179 2,557.44 184 1,739.41 233

skilled
Workers

Clerical & 1,952.62 140 2,168.25 150 2,290.88 209

other
Supporting
Staff

Unskilled 1,438.56 114 1,459.39 125 1,255.26 158

Workers

Total 23,752.90 1078 20,285.28 1159 16,031.40 1460

The dichotomy in accounting between human and non human capital is rather
fundamental in that while the latter if recognized as an asset and recorded as such in
the financial statements, the former is totally ignored. With the accelerated growth in
science and technology, the value of human capital is gradually increasing and hence
it is essential for a company to reflect the investment in human resources.
Table 10 depicts the values of human resources for consecutive three years.
For this purpose, the total number of employees has been divided into six categories,
namely Executives, Supervisors, skilled workers, semi skilled workers Clerical and
other Supporting staff and Unskilled workers. The total number of employees at the
end of 2007-08 was 1460 and it was valued at ? 160.314 crores. The number of
employees at the end of 2008-09 was 1159 and its valuation was put at ? 202.8528

55
crores and at the end of 2009-10 the total number of employees was 1078 and they
were valued at ? 237.529 crores.
It seems the company has done commendable job in the field of human
resource accounting. As there is no standard method of valuing human resources, the
company has made use of Lev and Schwartzs model with necessary modifications.

3.5 H R A IN NATIONAL THERMAL POWER CORPORATION

LIMITED

National Thermal Power Corporation Ltd. (NTPC) is a leading power company of

India, the following details regarding HRA shows importance of HR.

Table No. 11

Expenditure incurred by NTPC for H R

Description 2010 2009 2008 2007 2006 2005

(A) Salaries, 26,666 25,807 19,093 11,703 9,568 8,248

wages &
benefits* (inch
Provident fund
and other
contribution)

(B) Other
Benefits

1. Welfare 2,802 3,169 3,200 1,975 1,807 1,723

expenses

2. Township 562 745 656 610 567 629

3. Educational 141 269 221 183 160 160

& school
facilities

4. Medical 661 657 650 571 444 424

facilities

5. Subsidised 24 49 48 36 46 47
transport

56
6. Social & 132 115 120 102 100 108
cultural
activities

7. Subsidised 185 185 262 223 174 160

canteen

Total (B) 4,507 5,189 5,157 3,700 3,298 3,251

Total (A + 31,173 30,996 24,250 15,403 12,866 11,499

B)

8. Year end 23,743 23,390 23,677 23,602 21,870 21,420

number of
employees

9. Average 23,567 23,534 23,640 22,736 21,645 21,196

number of
employees

10. Average 11,31,497 10,96,584 8,07,657 5,14,734 4,42,042 3,89,139

Salary, wages &
benefits per
employee per
annum (?)

11.Average cost 1,91,242 2,20,490 2,18,147 1,62,738 1,52,368 1,53,382

of other benefits
per employee
per annum (?)

12. Average 13,22,739 13,17,074 10,25,804 6,77,472 5,94,410 5,42,521

cost of
employees
remuneration &
benefits per
annum (?)

* Excluding payment to personnel employed for socia amenities

The company has given costs which it is incurring for the last 6 years. As per
table 11, the salaries and other benefits to the staff which are amounted to ? 11,499
crores has risen to ? 31,173 crores. The average number of employees is 23,567
which has increased to 21,196 employees. The average cost of employees
remuneration and other benefits per annum is ? 13,22,739.

57
 Table No. 12

Revenue Expenditure on Social Overheads for the year ended 31st March, 2010

Sr. Particulars Town Educat Medic Sub. Social Sub. Total Land Previou-
no ship -ion & al scapin- s
school Tran & Cant
g
(Lak- Faciliti sport een Year
-h) Facilit -es Cultural &
ies
Activities wastel
and

develo
pment

1 Payments to 304 71 758 4 3 11 1,151 50 1,085

employees

2 Material 37 122 159 205

consumed

3 Rates & 21 21 1 33
Taxes

4 Welfare 17 103 516 23 109 172 940 1,126

expenses

5 Others 510 33 44 2 24 12 625 1 655

including
repairs &
maintenance

6 Depreciation 168 5 8 1 1 183 198

7 Sub total 1,057 212 1,448 29 137 196 3,079 52 3,302

(1-6)

8 Less 191 29 1 2 223 197

Recoveries

9 Net 866 212 1,419 28 135 196 2,856 52 3,105

Expenditure
(7-8)

10 Previous 990 327 1,348 57 178 205 3,105 7

Year

The company has given importance to its human resources but has not been
able to provide valuation o f its human resources. The company said in its Report,

58
Your company take pride in its highly motivated competent human resource that has
contributed its best to bring the company to its present stature. The productivity of
employees if reflected in the consistent improvement of Man-MW ratio over the
years. The total employees strength of the company stands at 24,713 as on 31-3-2009
against at 24,547 as on 31-3-2008.
Table no. 12 shows the Revenue expenditure on social overheads. The table
shows the expenditure of the company on employees of the company. The net
expenditure on employees amounted to ? 2,856 in 2010 against ? 3,105 in the year
2009.

3.6 H R A IN OIL & NATURAL GAS CORPORATION OF INDIA

(ONGC)

Table No. 13

Employees Group Age Distribution Total

<31 31-40 41-50 51-60 2009-10 2008-09

(A) Technical

Executive 1,290 1,182 8,216 8,854 19,542 19,110

Non Executive 124 544 1,575 823 3,066 3,452

Total (A) 1,414 1,726 9,791 9,677 22,608 22,562

(B) Non Technical

Executive 174 460 1,602 2,706 4,942 4,834

Non Executive 46 659 2,198 2,373 5,276 5,639

Total (B) 220 1,119 3,800 5,079 10,218 10,473

Grand Total (A+B) 1,634 2,845 13,591 14,756 32,826 33,035

Note : Whole time Directors exe uded

Source: Annual Report 2009-10

59
 Table No. 14
Valuation as on 31st March, 2010 of ONGC
Employees Age Distribution Value per
Total
Group Employee

<31 31-40 41-50 51-60 2009- 2008-

10 09

(A) Technical

Executive 37,389 31,039 1,50,096 82,588 3,01,112 15.4 13.5

Non Executive 1,557 6,233 16,288 4,469 28,547 9.3 9.2

Total (A) 38,946 37,272 1,66,384 87,057 3.29,659 14.6 12.9

(B) Non
Technical

Executive 4,923 11,703 27,225 23,104 66,955 13.5 11.8

Non Executive 590 6,909 18,097 9,144 34,740 6.6 6.6

Total (B) 5,513 18,612 45,322 32,248 1,01,695 10.0 9.0

Grand Total 44,459 55,884 2,11,706 1,19,503 4,31,354 13.1 11.7

(A+B)

Source: Annual Report 2009- 10.

* Valuation based on most widely used Lev & Schwartz model.
* Aggregate future earnings during remaining employment period of employees,
discounted @ 7% p.a. provides present valuation.
* Future earnings based on current emoluments with normal incremental profile.

Here is another public sector company which has given importance to

valuation of its human resources. The company has given the information about its
human resources in the form of two tables. The first one shows the number of
employees classified on the basis of ages of employees. The employees are divided
into two categories only just as HPCL has done. They are Executives (Management
personnel) and Non Executive (Non managerial personnel). Again the company has
grouped them into two categories, viz. (namely) Technical personnel and Non
technical personnel. As the main work of ONGC is of technical nature, the number of
technical personnel was 22,608 out of total of 32,826, which forms almost 70% of the

60
total personnel in 2009-10. In 2008-09 also the technical personnel were 22,562 out of
the total of 33,035 persons.
Considering the number of employees in the basis of age groups the
maximum employees are between the age of 41 to 50 years and 51 -60 years out of the
total 32,826 in 2009-10. It seems, the company has adopted a policy of keeping their
staff highly satisfied, so that the most of the employees have decided to stick to then-
jobs in ONGC so that most of there are of the age between 41 to 60 years.
Table 2 gives the valuation of human resources age wise. The total value of all
personnel executive and non executive, technical and non technical is ? 43,135.40
crores as on 31-3-2010. The division between technical staff and non technical staff is
? 32,965.9 crores and for non technical staff it is ? 10,169.5 crores.
s

Comparing the valuation of human resources age wise it seems that the
valuation of person between the age group of 41 to 50 years is the maximum, being
? 21,170.6 crores out of the total of 43,135.4 crores of rupees.
The valuation of human resources between technical and non technical staff it
revels that the total value of technical personnel has been put at ? 32,965.9 crores as
against t 10,169.5 crores for non technical staff. It is due to the fact that the main task
of the company is of technical nature and hence the number of employees are also
more and their efficiency is also more than that of non technical staff.
It may also be noted that await discounting the future earnings of employees,
the discount factor taken into account is 7% only, which may be the cost of capital of
the company.
Secondly, it has been stated that the valuation is based on most widely used
model Lev and Schwartz, without any modifications as some other companies do.
It has also been stated that the future earnings are based on the current
involvements, which would give incorrect valuation looking to the fact the cost of
living is rising very fast and frequent revisions have to be made in the pay scales of
employees. Some estimate would have been better taken while estimating future
earnings of employees.

61
3.7 H R A IN HINDUSTAN PETROLEUM CORPORATION
LIMITED (HPCL)

HPCL considers human resource dimension as the key to Organizations success.

Several initiatives for development of Human Resources to meet new challenges in
the competitive business environment have gained momentum. HPCL recognizes the
value of the Human Resource Assets who are committed to achieve excellence in all
spheres. The Human Resource Profile given below in table shows that HPCL has a
mix of energetic youth and experienced seniors who harmonize the efforts to achieve
the Corporations goal.
Table No. 15
Employees as on 31st March, 2010 of HPCL

Age Distribution
Employee Group Total
21-30 31-40 41-50 Above 50

No. of employees 1,695 1,517 5,024 3,055 11,291

Management 1,335 786 1,711 947 4,779

Non Management 360 731 3,313 2,108 6,512

Average Age 44

Source : Annual Report 2009-10.

The Lev & Schwartz model is being used by our company to compute the value
of Human Resource Assets. The evaluation as on 31st March,2010 is based on the
present value of future earnings of the employees on the following assumptions.
1. Employees compensation represented by direct & indirect benefits earned by
them on cost to company basis.
2. Earnings up to the age of superannuation are considered on incremental basis
taking the Corporations policies into consideration.
3. Such future earnings are discounted @ 8.25%.

62
 Table No. 16
Valuation as on 31st March, 2010 of HPCL
? / Crores
Particulars 2009-10 2008-09

Value of Human Resource Assets

Management Employees 9,341 8,523

Non Management Employees 6,313 4,624

15,654 13,147

Human Resource Assets vis - vis Total Assets

Value of Human Resource Assets 15,654 13,147

Net Fixed Assets 15,307 11,655

Investments 11,387 14,196

Net Current Assets 4,531 4,237

46,879 43,235

Employee Cost 1,617 1,137

Net Profit Before Tax (PBT) 2,125 712

Ratios (in %)

Employee cost to Human Resource Assets 10.33 8.65

Human Resource Assets to Total Resource 33.29 30.41

PBT to Human Resource Assets 13.58 5.42

Source : HPCL Annual Report 2009-10

As can be seen from the discussion so far, it seems public sector companies
are pioneers in the field of human resource accounting. Out of the outstanding private
sector companies except Infosys Technologies, no other company even the giants like
Reliance, Tatas and Birlas have not cared to enter into the area of human resource
accounting. Though all the management of these companies agree that human
resource is the most important resource of any company. It give to the shareholders
the minimum information as required by the companies Act.
Hindustan Petroleum Corporation Ltd. Which is a public sector company. The
company has given excellent information about its human resources. The table no 1.

63
discloses the number of employees age group wise. Company has grouped the
employees into four categories on the basis of age. Personnel between the age group
of 21 to 30 years, 31 to 40 years, 41 to 50 years and rest above 50 years. The total
number of employees as shown is 11,291 of which Management personnel are 4,775
and Non management personnel are 8,512. The maximum number of employees in
both the groups are in the age group of 41 to 50 years. It is a fire blend of young
persons and experienced and middle aged persons. The average age of employees is
44 years which for a company of long standing is ideal.
Table no. 16 of valuation of human resources the company has not classified
human resources into six categories suggested by Lev and Schwartz and followed by
most of the companies. But it has grouped them into two categories, namely,
Management employees and Non management employees. The total value of human
resources which was ? 13,147 crores in 2008-09 has increased to ? 15,654 crores in
2009-10. O f these the total value of Management employees was ? 9,341 crores and
of Non management employees ? 6,313 crores in the year 2009-10.
Another novel way of presentation of human resource valuation is the
comparison between human resource assets and other Assets of the total value of all
assets in 2009-10 ? 46,879 crores (? 43,235 crores in 2008-09) which comes to
33.39% in 2009-10 (30.41% in 2008-09). The employee cost has been computed as
? 1,617 and ? 1,137 crores in 2009-10 and 2008-09 respectively.
It may also be noted that this company while valuing human resource
accounting has discounted the future earnings of employees at 8.25%. While some
companies take the discount factor at 20%, 12%, 15% and so on. It would be equal to
the cost of capital of the respective company.
The company has presented its balance sheet with valuation of human
resource assets in a different way than what other companies do. Even the ratios given
are different than the ratios given by other companies like Infosys, BHEL etc.

64