HUMAN RESOURCE INFORMATION DISCLOSURE PRACTICES IN FINANCIAL REPORT * Silender Singh, Assistant Professor, Chaudhary Devi Lal University, Sirsa. ** RenuSindhu, Research Scholar, Deptt. Of Coomerce, Chaudhary Devi Lal University, Sirsa. ABSTRACT In the last few decades a number of economists have approved the importance of human resource for overall management of organization. As information about these resources are most important for every stakeholder.In the present study data iscollected from 2005 to 2015 of50 companiesof public and private sector. The techniques used for analyzing data include average, percentage and HRI disclosure index. It is found that out of 28 variables on (11) which are strategic have severe gaps in disclosure in annual financial reports of both sectors. It is suggested that separate HRA statement should be disclosed by private sector firms so that execution of government policies for the welfare of employees may be examined and investors may be able to decide how efficiently and effectively their investments will provide dividend. Keywords: Disclosure, HRADI. 1. INTRODUCTION In current era,isgetting much importance as manufacturing and services sectors largely depending on computer integrated manufacturing activities.Therefore, HR value of human resource is chiefly in organization‟s total wealth. HR should also be recorded as an asset in financial statements under the head of fixed assets. Presently, financial statements are prepared under the guidelines of conventional reporting framework and treats human resources investment as expenditures, and writeoff these investments from current year profits and loss account, which is violation of International Accounting Standard -1, presentation of financial statements (IAS-1) which states that financial statement should be prepared on the basis of matching concept. There are two major reasons for recognition of human capital as an asset; first, HR are a valuable resource for a firm to sustain a long-term competitive advantage as long as employees rendered services for organization, future economic benefits flow towards organization from the investment made on HR. Secondly, thevalue of HR is based on the knowledge, capabilities andskills developed in the organization through investment. (Eric G Flamholtz, D. Gerald Searfoss& Russell Coff,1988) also supported that training increased future benefits from the service of the employees so cost of employee should be capitalised and not expensed as is current practice. Eric Flamhoitz (1988) defines HRA as „accounting for people as an organizational resource. It involves measuring the costs incurred by organizations to recruit, select, hire, train and develop human assets. It also involves measuring the economic value of people to the organization‟. According to Stephen Knauf, „HRA is the measurement and quantification of human organizational inputs such as recruiting, training, experience and commitment‟. Human Resources (HR) is the energies, skills, talents and knowledge of people which are, or which potentially can be applied to the production of goods or rendering useful services. HRA also find out the present economic value of its employees and managers, after measuring the cost and value of its employees, the organization prepares a report is called HRA report. It is shown to the top-level management and employees and outside parties. According to the American Accounting Associations Committee on HRA, it is the process of identifying and measuring data about human resources and communicating INTERCONTINENTAL JOURNAL OF HUMAN RESOURCE RESEARCH REVIEW ISSN: 2320-9704 - ONLINE ISSN:2347-1662 - PRINT IMPACT FACTOR:4.169 VOLUME 5, ISSUE 12, DECEMBER 2017 An Open Access, Peer Reviewed, Refereed, Online and Print International Research Journal www.icmrr.org 5 [email protected]SILENDER SINGH* RENU SINDHU**
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HUMAN RESOURCE INFORMATION DISCLOSURE PRACTICES IN
FINANCIAL REPORT
* Silender Singh, Assistant Professor, Chaudhary Devi Lal University, Sirsa.
** RenuSindhu, Research Scholar, Deptt. Of Coomerce, Chaudhary Devi Lal University, Sirsa.
ABSTRACT
In the last few decades a number of economists have approved the importance of human resource for
overall management of organization. As information about these resources are most important for
every stakeholder.In the present study data iscollected from 2005 to 2015 of50 companiesof public
and private sector. The techniques used for analyzing data include average, percentage and HRI
disclosure index. It is found that out of 28 variables on (11) which are strategic have severe gaps in
disclosure in annual financial reports of both sectors. It is suggested that separate HRA statement
should be disclosed by private sector firms so that execution of government policies for the welfare of
employees may be examined and investors may be able to decide how efficiently and effectively their
investments will provide dividend.
Keywords: Disclosure, HRADI.
1. INTRODUCTION
In current era,isgetting much importance as manufacturing and services sectors largely depending on
computer integrated manufacturing activities.Therefore, HR value of human resource is chiefly in
organization‟s total wealth. HR should also be recorded as an asset in financial statements under the
head of fixed assets. Presently, financial statements are prepared under the guidelines of conventional
reporting framework and treats human resources investment as expenditures, and writeoff these
investments from current year profits and loss account, which is violation of International Accounting
Standard -1, presentation of financial statements (IAS-1) which states that financial statement should
be prepared on the basis of matching concept. There are two major reasons for recognition of human
capital as an asset; first, HR are a valuable resource for a firm to sustain a long-term competitive
advantage as long as employees rendered services for organization, future economic benefits flow
towards organization from the investment made on HR. Secondly, thevalue of HR is based on the
knowledge, capabilities andskills developed in the organization through investment. (Eric G
Flamholtz, D. Gerald Searfoss& Russell Coff,1988) also supported that training increased future
benefits from the service of the employees so cost of employee should be capitalised and not
expensed as is current practice. Eric Flamhoitz (1988) defines HRA as „accounting for people as an
organizational resource. It involves measuring the costs incurred by organizations to recruit, select,
hire, train and develop human assets. It also involves measuring the economic value of people to the
organization‟. According to Stephen Knauf, „HRA is the measurement and quantification of human
organizational inputs such as recruiting, training, experience and commitment‟. Human Resources
(HR) is the energies, skills, talents and knowledge of people which are, or which potentially can be
applied to the production of goods or rendering useful services. HRA also find out the present
economic value of its employees and managers, after measuring the cost and value of its employees,
the organization prepares a report is called HRA report. It is shown to the top-level management and
employees and outside parties. According to the American Accounting Associations Committee on
HRA, it is the process of identifying and measuring data about human resources and communicating
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SILENDER SINGH* RENU SINDHU**
this information to interested parties. In the HRA approach, expenditures related to human resources
are reported as assets on the balance sheet as opposed to the traditional accounting approach which
treats costs related to a company„s human resources as expenses on the income statement that reduce
profit. Same as non-financial information should be shown in the financial statements as additional
information which is useful to decision makers.
In India corporate sector has not given much consideration to issues related to human resource
accounting and information. This concept is struggling for acceptance and importance since its
inception in 1970. Indian Companies Act (1956) does not require company to furnish information
retaliated to personnel cost in their annual report. Human resource accounting was first used in public
sector by Bharat Heavy Electrical ltd (BHEL) in fiscal year 1972-73. In private sector,Infosys Ltd.
introduced it in 1990s and since then human resource accounting becoming popular. Further, this
concept has also gained popularity in manufacturing industry with firm such as Reliance Industries
furnishing information about human resource in their annual report. Human resource accounting and
information has gained much acceptance among the various professionals for making decision in
India such as managers, CEO, accountant and analyst.
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2. REVIEW
Review examined and evaluated research prevailing methodologies and gaps in research area identified. In the present section an attempt has been made to
review the studies concerned to human resource practice:
Table 1- Classification of Variables Concerned with HR Disclosure Practice:
Sr.
No.
Study Country Sample Dependent and Independent
variables
Test used Result
1 Williams (2001) U K 31companies listed
on the FTSE, from
1996- 2000
Dependent variables- quantity of
intellectual capital disclosure,
measured disclosure index,
independent variables organization
size, industry type, listing status,
leverage, physical capital
performance
Wilcoxon matched pair sign
rank test, paired sample t tests
Significant
Negative
2 Abdolmohammadi (2005) USA 58 companies (1993-
1997)
Dependent variable-intellectual
capital (internal capital, external
capital and human capital)
independent variable- market
capitalization
Standard deviation, coefficient
of variation (COV), regression,
Significant
Positive
3 White, Lee and Tower
(2007)
Australia 96 companies,
financial year 2005
Independent variables- firm age,
level of leverage, firm size
dependent variables- voluntary ICD
Bivariate correlation and linear
regression analysis
Significant
positive
4 Woodcock and Whiting
(2009)
Australia 70 Australian
publicly listed firms
Dependent variable-intellectual
capital disclosure (ICD),
independent variables-industry
type, ownership concentration,
listing age, leverage and auditor
type
Correlation and regression
analysis
Significant
Negative
5 Rimmel, Nielsen and Japan Initial public Dependent variable- intellectual Analysis of Variance (ANOVA) Significant
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Yosano (2009) offering (IPO)
prospectuses from
all stock exchange
listings on the Japan
stock exchange from
2003
capital disclosure, Independent
variables -industry differences,
managerial ownership, company
size, and company age
Negative
6 BruggenVergauwen,Dao
(2009)
Australia 125 publicly listed
Australian firms
Dependent variable ICD, and
independent variables were
company size, leverage, and
Information asymmetry
Ordinary Least Square (OLS),
multiple regression
Significant
Negative
7 Sharabati, Jawad and
Bontis (2010)
Jordan Primary data, 132
top- and middle-
level managers
Intellectual capital (human capital,
structural capital, relational capital)
and business performance
Pearson‟s bi-variate correlation
coefficient, ANOVA
Significant
Positive
8 Abeysekera (2010) Nairobi 26 firms Nairobi
Stock Exchange
Independent variables- intellectual
capital disclosure dependent
variables-strategic internal capital
disclosure, strategic external capital
disclosure, strategic human capital
disclosure, tactical internal capital
disclosure, tactical external capital
disclosure, tactical human capital
disclosure
Logistic regression Significant
Positive
9 Taliyang, Latif and
Mustafa (2011)
Malaysia 150 companies listed
in Bursa Malaysian
Independent variables- age, size,
Leverage, profit, ownership, growth
dependent variable- intellectual
capital disclosure
Ordinary Least Square (OLS)
regression
Significant
negative
10 Ahmed Haji and
Mubaraq (2012)
Nigeria 25 banks (2006-
2009)
Dependent variable- intellectual
capital (IC) disclosure practices,
Friedman test, one-way repeated
measures ANOVA), Wilcoxon-
Significant
positive
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independent variables- corporate
governance development,
restructuring exercise and the
subsequent policy changes
Signed ranks, paired sample t-
test, Kruskal-Wallis test, Mann
Whitney U-test
11 Wickramasinghe and
Fonseka (2012)
Sri
Lanka
30 firms listed in
stock exchange
Dependent variables- human
resource management, human
resource disclosure human resource
measurement
Independent variables -age and size
x 2 test, principal component
factor analysis, independent
sample t-test
Significant
positive
12 Fontana and Macagnan
(2012)
Brazil 29 companies (2005-
2009) listed in
Brazilian stock
exchange
Dependent variables- voluntary
human capital, independent
variables- size, debt, growth
Multiple linear regression,
correlation
Significant
positive
13 Athanasiosa, Antoniosa,
Despinaa (2013)
Greek 38 companies, listed
in Greek stock
exchange
Dependent variables-human
resource disclosure; corporate
social responsibility independent
variables- size, industry
membership, profitability,
Quotation on the Stock Market,
Global Reporting Initiative (GRI)
Multiple linear regression
model, Mann-Whitney and t-
tests
Significant
positive
14 Michael (2013) Nigeria 12 firms listed in
Nigeria stock
exchange
Dependent variable HRADI and
independent variable was size
ANOVA, T-test and Correlation Significant
positive
15 Kamardin, abuBakar and
Ishak et. al. (2013)
Malaysia 68 biggest
Malaysian
companies listed in
Bursa Malaysia
Dependent variable - intellectual
capital index Independent variables
-Profitability, firm size, Value
Added Intellectual Coefficient,
Leverage
Pearson Correlation,Regression
Analysis
Significant
negative
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16 EnyiandAkindehinde
(2014)
Nigeria 16 publicly quoted
Nigerian banks
Dependent variables- human
resource accounting, Independent
variables- decision making process
Regression analysis model and
validated using ANOVA and F
ratio
Significant
positive
17 Khodabakhshi and
Khadijeh (2014)
Annual reports of
Infosys for the years
2005-06 to 2011-12
Dependent variable- human
resource valuation, Independent
variables- financial variables,
predictor variables and HRV per
employee
Correlation analysis Significant
negative
18 Sharma and Kumar
(2014)
india 10 banks financial
year 2010-11
Dependent variable- HRADP,
Independent variables banks in
qualitative or quantitative term
HR disclosure index, t-Test Significant
positive
19 DyanaandKesavan(2015) india Primary data-300
respondents,
Dependent variable –nature,
characteristics of human resource
accounting
Independent variables-gender,
categories of employees,
designation of employees,
qualification of employees, years of
experience of employees
Factor analysis, independent t
test, anova
Significant
positive
20 Adebawojo, Enyi and
Adebawo (2015)
Nigeria 18 publicly quoted
banks in Nigeria
Dependent variable- human assets
accounting, Independent variables-
performance of business
organizations
Regression model Significant
positive
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These studies have been performed in different countries to take different dependent and
independent variables andthe results are shown in the table above. Present study has examined
28 independent variables which are important in disclosure of financial statements.
Objectives of the Study
1. To study the practices for disclosure of human resource information in financial
reports of Indian Public and Private corporate sector; and
2. To compare the human resource variable-wise disclosure practices in public sector
and private sector companies.
3. RESEARCH METHODOLOGY
Hypothesis: Dispersion of the ranks of public and private sector on the basis of HRIDI is
equally distributed.
Variables Selected for Human Resource Information Disclosure (HRID):Human resource
information disclosure has measured by constructing anindex comprising twenty-eight (28)
discretionary human capital disclosure itemsconsecutively includes (1) No of employees (2)
Cost of per employees (3) Human capital investment ratio (4) The profitcreated by each
employee (5) Average salary of eachemployee (6) Employees absenteeism rate (7) Loans and
advances to employees(8) Amount spent on employees welfare activities (9) Information on
labor contracts(10) Strike and lockouts (11) Employees participation in management (12)
Amountspent on HRD programmer (13) Employees‟ pension and retirement benefits
(14)Employees turnover rate and retention rate (15) General statement on industrialrelations
(16 Occupational groups of employees (17) Work safety and health ofemployees (18)
Information about top level employees- experience, qualification,training programme (19)
Performance appraisal of employees (20) Job satisfaction(21) Promotion and career planning
motivation, indirect remuneration (25)Separate HRA statement (26) Category wise
distribution (27) Discount rateapplied (28) Valuation model used.
Data Collection:The HRIDI has been constructed to quantify the levelof HRI disclosures in
annual reports of selected companies.HRI measurement and reporting practices of 50 public
and private Indian companies,the annual reports of the sample set of companies from 2005-06
to 2014-15 have been downloaded from therespective websites.
Measurement Scale:In examining each of these HRID items, a dichotomous procedure was
followed where each company was awarded a score of “1” if the company appears to have
disclosed the concerned reporting variable for each year and “0” otherwise. The score of each
company was total to find the net score of the company. An HRIDI was then computed by
using the following formula:
HRIDI = 𝑇𝑜𝑡𝑎𝑙 𝑠𝑐𝑜𝑟𝑒 𝑜𝑓 𝑖𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 ×100
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑃𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑆𝑐𝑜𝑟𝑒 𝑂𝑏𝑡𝑎𝑖𝑛𝑎𝑏𝑙𝑒
Kruskal-Wallis H Test has been used to analysis, whether the public and private sectors
disclosure practice significantly different.
Kruskal-Wallis H Test=12
𝑁(𝑁+1)(∑
𝑅2
𝑛)-3(N+1)
Friedman test has been applied to test whether the total ranks in two groups(Public Sector
Companies and Private Sector Companies) disclosure on the 28 variables are equal?
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1. ANALYSIS AND INTERPRETATION
Table 2- HRIDI, Public Companies for Last 10 Years (2005-2015)
Source: Developed from annual reports of companies (2005-15).
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The table 1 shows the public sector companies disclose information in their financial reports but they deviate in this regard to HRADI average score, asrank of
BHEL is 1 with (78.95), SAIL (75.35) with rank 2 and CCI (70.35) with rank 3, whereas it was found very low in case of MRL (47.49) and BPC (49.28). The
range coefficient value between the largestscore and smallest score is 24.90 per cent which shows large dispersion in disclosing human resource by public
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Source: Developed from Annual Reports of Companies (2005-15).
Table 2 illustratesthe private sector companiesdisclose information in their financial reports but they deviate in this regard to each other. The HRADI average
score shows rank of Rolta Ltd is 1 with (74.63), Tata Power (65.35) with ranks 2 and Infosys (63.92) with rank 3 whereas it was found very low in case of IBM
Ltd. (44.63) and Jindal Ltd. (46.78). The range coefficient value between the largest score and smallest score is 25.15 per cent, which shows large dispersion in
disclosing human resource by public companies.
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Table 4-Test Statistics of Ranking for Disclosure of Public and Private Companies
Sr. no.
HR
AD
I
of
Publi
c
Com
pan
ie
s Ran
kin
g
Sr.
no.
HR
AD
I
of
Pri
vat
e
Com
pan
ie
s Ran
kin
g
1 78.92 1.00 26 63.92 10.00
2 75.35 2.00 27 45.63 50.00
3 53.20 38.50 28 56.06 29.50
4 52.13 40.00 29 60.73 17.00
5 64.38 9.00 30 56.42 27.00
6 67.14 7.00 31 56.06 29.50
7 70.35 4.00 32 50.71 43.00
8 69.64 5.00 33 51.42 41.00
9 68.21 6.00 34 65.35 8.00
10 60.35 19.00 35 60.70 18.00
11 49.28 45.00 36 61.42 15.50
12 57.13 24.00 37 58.92 22.00
13 54.99 34.50 38 56.42 27.00
14 47.49 47.50 39 55.35 32.00
15 55.35 32.00 40 53.20 38.50
16 54.28 36.00 41 55.35 32.00
17 59.28 20.50 42 56.42 27.00
18 49.63 44.00 43 59.28 20.50
19 51.41 42.00 44 56.78 25.00
20 53.92 37.00 45 48.21 46.00
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21 62.84 12.00 46 57.85 23.00
22 54.99 34.50 47 74.63 3.00
23 63.38 11.00 48 62.49 13.00
24 62.13 14.00 49 47.49 47.50
25 61.42 15.50 50 46.78 49.00
Total of Ranks ∑R1=581.00 Total of Ranks ∑R2=694.00
The test Statistic for Kruskal-Wallis H = 4.00, Critical Value of 𝜒2at 5.00 per cent=3.84.
It showed that ranking on the basis of Disclosure Index of public and private companies are significantly different, H = 4.00, p<.05.
Source: Developed from Annual Reports of Companies (2005-15).
More uneven the dispersion of ranks between independent groups, more the chances of is rejecting the null hypothesis. The rank on the basis of last ten years
score of public sectors companies is (∑R1=581) smaller than private sector companies (∑R2=694.00). The public sectors companies showmore information than
private sector companies because smaller rank means higher score of disclosure.
Variables-wise Analysis of Disclosure Trend
Selected companies are disclosing human resource information on different variables in their financial reportswhich are shown in table 5 and 6.
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Table 5-Variables-wise HRI Disclosure of Public Sector Companies (2005-2015)
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Source: Developed from Annual Reports of Companies (2005-15).
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Table 6-Variables-wise HRI Disclosure of Private Sector Companies (2005-2015)
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Source: Developed from Annual Reports of Companies (2005-15).
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In table 5, rank 1(score=3) is given to variables,number of employees, average salary of each
employees, work safety and health of employees, employees’ pension and retirement benefits,
loans and advances to employees, each company shows information since last ten year. On
the other side, it is found that no one company has disclosed information about human capital
investment ratio. Further, it is elicited that Job satisfaction, employees’ loyalty, strike and
lockouts, information on labour contracts disclosed by few companies. Which implies that
disclosing information pattern of human resource variate from company to company in public
sector?
In table 6, rank 1(score = 4) is given to variables, number. of employees, average salary of
each employee, loans and advances to employees, amount spent on employee welfare
activities, employees pension and retirement benefits, information about top level employees’
experience, qualification and training programme, job stability, employee’s rights, motivation,
indirect remuneration, each company is showing regularly information regularly since last ten
year. On the other side, it is found that no one company has disclosed information about
human capital investment ratio, profit created by each employee,job satisfaction and
employees loyalty.
Table 7- Variable-Wise Human Resource Information Disclosure Practices Score Gap of
Public Sector and Private Sector Companies
Sr.
no.
Variable Total score
(public
Sector)
Total Score
(Private
Sector)
Gap
A Variable with Mild Gap in HR
Information Disclosure
1 No. of Employee 250 250 0
2 Cost of per Employee 247 248 1
3 Average Salary of each Employees 250 250 0
4 Loans and Advances to employees 250 250 0
5 Employees pension and retirement
benefits
250 250
0
6 Work safety and health of employees 250 249 1
7 Promotion and career planning 201 208 7
8 Manpower planning 227 215 12
9 Performance appraisal of employees 102 101 1
Average of Gaps 2.22
B Variable with Severe Gap in HR
Information Disclosure
1 The Profit Created by each employee 108 0 108
2 Information on Labour contracts 75 2 73
3 Separate HRA statement 166 29 137
4 valuation model used 107 17 90
5 Amount spent on employees welfare
activities
173 250 77
6 Employees participation in management 183 133 50
7 Amount spent on HRD programme 227 163 64
8 Job stability, employees rights,
motivation, and indirect remuneration
149 250 101
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9 Discount rate applied 124 177 53
10 Occupational groups of employees 152 104 48
11 Information about top level employees-
experience, qualification, training
programme
196 250 54
Average of Gaps 77.72
C Variable with Normal Gap in HR
Information Disclosure
1 Employees absenteeism rate 126 156 30
2 Strike and lockouts 17 40 23
3 Employees turnover rate and retention
rate
138 154 16
4 General statement on industrial relation 109 96 13
5 Job satisfaction 6 0 6
6 Employees loyalty 5 0 5
7 Category wise distribution 104 130 26
Average of Gaps 17.00
D Variable with negligible in HR Information Disclosure
1 Human capital investment ratio 0 0 0
Source: Developed from Annual Reports of Companies (2005-15).
In table 7, variable-wise score of human resource of both public and private sectors is
categories as mild, severe and normal gap containing variables. Categorization shows that
average gap of the mild category variables is 2.22, severe gap variables 77.72 and average of
normal gap variables is 17.00. But no information is disclosed about human capital
investment ratio by companies of both sectors.
2. CONCLUSIONS AND SUGGESTIONS
The range coefficient value between the largest score and smallest score is 25.15 and 24.90
per cent public and private sector companies respectively.While thedispersion of all the ranks
were found more uneven.
When the disclosurehas examined by dividing the variables in mild, severe and normal
categories it has been found that variables (11) which are strategic have severe gaps in
disclosure in annual financial reports. This study shows mixed results different from the
results shown by 20 studies reviewed.
Based on the findings, it is suggested that variables should be identified and may be
standardized for harmonization in information disclosure practices so that dispersion may be
minimized. Both sectors should clearly disclose model used for evaluation of HR. It is also
suggested that separate HRA statement should be disclosed by private sector firms so that
execution of government policies for welfare to employees may be examined and investors
may be able to uncover the best opportunities for their investments.
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