Human resource valuation

A fundamental dichotomy in accounting practices is between human and non-human capital. As a standard practice, non-human capital is considered as assets and reported in the financial statements, whereas human capital is mostly 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.

We have used the Lev & Schwartz model to compute the value of human resources. The evaluation is based on the present value of future earnings of employees and on the following assumptions:

a) Employee compensation includes all direct and indirect benefits earned both in India and overseas
b) The incremental earnings based on group / age have been considered
c) The future earnings have been discounted at the cost of capital of 10.60% (previous year – 12.18%).

in Rs. crore, unless stated otherwise
  2010 2009
Employees (no.)    
Software professionals 1,06,864 97,349
Support 6,932 7,501
Total 1,13,796 1,04,850
Value of human resources    
Software professionals 1,06,173 95,600
Support 7,114 6,533
Total 1,13,287 1,02,133
Total income 22,742 21,693
Total employee cost 12,085 11,405
Value-added 20,937 19,073
Net profits excluding exceptional items 6,218 5,988
Value of human resources per employee 1.0 0.97
Total income / human resources value (ratio) 0.20 0.21
Employee cost / human resources value (%) 10.7 11.2
Value-added / human resources value (ratio) 0.18 0.19
Return on human resources value (%) 5.5 5.9