2. STAGE I
(1960-66)
STAGE II
(1966-71)
STAGE III
(1971-76)
STAGE IV
(1976-80)
STAGE V
(1990 onwards)
HISTORICAL DEVELOPMENT OF HRA
Beginning of academic interest in the area of HRA
The focus here was more on development and validating
deferent models
This period was marked by a widespread interest in the
field of HR. R.G. Barry experiments contributed
substantially during the stage
This was the period of decline in
the areas of HRA
There was a sudden
renewal of interest
in the field of HRA
3. Human Resource Accounting practices in
Indian Organization
Traditional accounting involves treatment of human capital and non-human
capital differently.
Indian companies are now considering human resource factor just like another
factor to production.
Report shows that approximately 73 per cent of national income is utilized to
compensate employees.
The concept of Human Resource Accounting in India is a recent phenomenon
and is struggling for its acceptance.
In India, Human Resource Accounting has not been introduced so far as a
system .
4. Growing Awareness
• Indian Companies Act does not provide any scope for furnishing any
significant information about human resources in financial statements.
• However, a growing trend towards the measurement and reporting of
human resources, particularly in the public sectors, is noticeable during
past few years.
• Some of the organization which have started disclosing some valuable
information regarding human resources in their financial statements are
BHEL Cement Corporation of India
ONGC Engineers India Ltd.
National Thermal Power Corporation Mineral and Metals Trading Corporation
Madras Refineries Associated Cement Companies
Infosys Cochin Refineries Ltd. Etc.
5. Advantages of HRA
1. Information for manpower planning
2. Information for making personnel policies
3. Utilization of human resources
4. Proper placements
5. Increases morale and motivation
6. Attracts best human resources
7. Designing training and development programs
8. Valuable information to investors
HRA provides valuable information to present and future
investors. They can use this information to select the best
company for investing their money.
6. Methods Of HRA
Cost approach
Economic value approach
This method measures the organization’s investment in employees
using the five parameters: recruiting, acquisition; formal training
and, familiarization; informal training, Informal familiarization;
experience; and development.
This method links HRM with money aspect involved in it and the
amount of money that can be saved using it.
Monetary Measures:
7. Methods Of HRA
Expected reliable value method:
Discounted net present value of future earnings:
Elements of expected realizable value such as productivity,
transferability and promotability can be measured through
personal research, appraisal techniques.
Rensis Likert proposed 3 sets of variables- causal,intermediate and
output. Causal variables affect intermediate variables, which in
turn affect output variables.
Non - Monetary Measures:
8. HISTORICAL COST
OPPORTUNITY COST
REPLACEMENT COST
A calculation of what would have been the returns if the money spent
on HR was spent on something else
COST APPROACH IN HRA
The cost that would have to be incurred if present employees are to be
replaced
The historical cost of human resources is the sacrifice that was made to
acquire and develop the resource
9. PRESENT VALUE OF FUTURE EARNINGS
COMPETITIVE BIDDING MODEL
INDIVIDUAL VALUE TO ORGANIZATION
An internal market for labor is developed and the value of the
employees is determined by the managers. Managers bid against each
other for human resources already available within the organization.
The highest bidder ‘wins’ the resource
ECONOMIC VALUE APPROACH
This method helps in determining what an employee’s future
contribution is worth today.
Value of an individual is the present worth of the services that he is
likely to render to the organization in future
10. Stochastic Rewards Model
Sk. Chakraborty Model
Lev and Schwartz compensation model
Sk. Chakraborty of Indian institute of management Calcutta was the
first Indian to attempt at valuation of resources
OTHER MODELS
This model developed in 1971 by Lev and Schwartz for valuing human
resources, value of human assets is estimated for a person at a given
age which is the present value of his remaining future earning from his
employment
Stochastic Rewards Model was developed by Eric G. Flamholtz. This
model identified some major variables that are help to determine the
value of an individual to the organization
11. Methods Of HRA
Non-Monetary Measures:
Expected reliable value method:
Elements of expected realizable value such as productivity,
transferability and promotability can be measured through
personal research, appraisal techniques.
Discounted net present value of future earnings:
Rensis Likert proposed 3 sets of variables- causal,intermediate
and output. Causal variables affect intermediate variables,
which in turn affect output variables.
12. Approaches to Control Manpower Costs
• Management by objective(MBO)
Business of personnel is judged in terms of goals. Employee feelings and
attitudes are regarded as important as assets, costs and profits.
• Ratio Analysis
Performance indicators called personnel ratios are used to control manpower
costs.
• Personnel Productivity
Productivity gains and control of manpower costs can be achieved through
quality circles, productivity-linked rewards and work simplification.
• Personnel reports budgets and audits
They help in providing information, checking deviation, examining policies
and initiating remedial steps whenever required.
13. 1. HMTL (Hindustan Machine Tools Limited):
HMTL uses the Lev and Schwartz economic value based model for the
valuation and reporting of information regarding its human resources as
supplementary information in its annual reports.
Year Value per
employee(Rs. In
Cr.)
Value of
production(Rs.
In Cr.)
Value
Added(Rs.
In Cr.)
Manpower
in numbers
1999-01(18 months) 1001.66 12043 0.083 335.91
2001-02 586.86 9502 0.062 153.09
2002-03 501.53 7865 0.064 147.37
2003-04 543.43 5995 0.089 212.3
2004-05 631.24 5665 0.111 328.53
2005-06 1053.34 5583 0.189 385.39
2006-07 1909.18 5451 0.350 781.08
2007-08 1993.48 5405
14. 2. Steel Authority of India Limited (SAIL):
Results on Human
Resource
Evaluation
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
Revenue factor (N per
employee)
0.122 0.161 0.223 0.201 0.255 0.307 0.356 0.370 0.405
Expenses factor (N per
employee)
0.044 0.053 0.048 0.046 0.054 0.232 0.287 0.279 0.334
Income Factor (N per
employee)
-0.002 0.020 0.074 0.041 0.071 0.089 0.077 0.087 0.065
Production factor (N
per employee)
0.319 0.353 0.363 0.375 0.396 0.424 0.431 0.450 0.485
SAIL reports value of its human resources from the financial year 1983-84, and
it follows the human resource valuation model suggested by Lev and Schwartz
by taking some adjustments given by Flamholtz and Jaggi and Lau.
15. 3. Infosys Technologies Limited:
This model developed in 1971 by Lev and Schwartz for valuing human
resources, value of human assets is estimated for a person at a given age
which is th In Infosys, the Lev and Schwartz model has been used to
measure the value of human resources. The company has valued its HR
based on certain assumptions, which include:
(a) Employee compensation includes all direct and indirect benefits
earned both in India and abroad
(b) The incremental earnings based on group/age are considered
(c) The future earnings are discounted at the rate which is equivalent
to the weighted average cost of capital of the last five years. e present value
of his remaining future earning from his employment
17. 4. Satyam Computer Services Limited
Period
Human Resources Valuation
Category Number ` in Cr.
March 2007
Development 33,812 39,319
Support 1,858 1,581
Total 35,670 40,900
March 2008
Development 85,013 92,331
Support 6,174 6,490
Total 91,187 98,821
March 2009
Development 97,349 95,600
Support 7,501 6,533
Total 1,04,850 102,133
The company uses the Lev and Schwartz model for measuring its HR value. HR
value is the present value of the future earnings up to the retirement age, and
the future earnings are discounted by the weighted average cost of capital for
the past years.
18. 5: HPCL
Year-wise
Manpower
No. of
Management
Employees
No. of Non-
management
Employees
Total Strength
2002 3,571 7,786 11,357
2003 3,583 7,630 11,213
2004 3,594 7,494 11,088
2005 3,562 6,999 10,561
2006 3,849 6,929 10,778
2009 11,246 4551 15,797
2010 11,291 4,779 16,070
HPCL has a mix of energetic youth and experienced seniors, who harmonize
the efforts to achieve the corporation’s goals. The Lev and Schwartz Model is
being used.
19. HRA practices by various companies in India
Name of the
enterprise HRA introduce
in the year
Model
adopted
Discount rate
(in %) applied
Category
wise no. of
employees
Age and
category
wise no. of
employees
Category
wise human
resource
values
Productivity &
performance
ratios
BHEL 1974-75 Lev and Schwartz model 12 Yes Yes Yes Yes
SAIL 1983-84 Lev Schwartz model,
Flamholtz and Jaggi and Lau
15 Yes Yes Yes --
EIL 1980-81 Not reported 10 Yes -- Yes --
HMTL 1986-87 Not reported Not reported Yes Yes -- --
ONGC 1981-82 Not reported 12.25 Yes -- Yes --
NTPC 1986-87 Lev and Schwartz model 12 Yes Yes Yes Yes
ELIL 1983-84 Lev and Schwartz model 12 Yes -- Yes --
PEC 1980-81 Lev and Schwartz model Not reported Yes -- Yes Yes
MRL 1985-86 Lev and Schwartz model 15 Yes -- Yes Yes
ACC 1983-84 Lev and Schwartz model Not reported Yes -- Yes --
OIL 1982-83 Lev and Schwartz 10.5 Yes -- Yes Yes