DPE

1

Workshop on

Performance Management System (PMS)

&

Performance Related Pay (PRP)

*******

(Department of Public Enterprises)

Govt. of India31.08.2012

Visakhapatnam

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2007 Pay Revision : Background

• Constitution of the II PRC in November, 2006

• Headed by Justice M.J. Rao, retired Supreme Court Judge

• Committee gave its recommendations in May, 08

• Some recommendations not accepted

• DPE O.Ms dated 26.11.2008 & 9.2.2009

• Appointment of Committee of Ministers (Chidambaram Committee)

• DPE O.M dated 2.4.2009

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PRP in 1997 pay revision

• Out of 5% ‘Distributable Profit’ for the entire CPSE as a whole

• Freedom to the management to decide the amount each individual should get

• Total PRP to be paid to all the employees including workmen not to exceed 5% ‘Distributable Profit’

• PLI ideally to be part of Perks & Allowances. However, if it is not sufficient it could be paid as PRP

• Problems in PRP system in 1997 pay revision

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Paradigm shift in PRP/PMS in 2007 Pay Revision

• DPE O.Ms dated 26.11.08 & 09.02.09 lay down transparent method for calculation of incentive w.e.f. 01.01.07 for all executives and Non-Unionised supervisors of CPSEs.

• O.Ms provide for PRP is linked directly to the profits of the CPSE and performance of the executive.

• PRP progressively increases with level of the executive.

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PRP determinants

1. Profit of CPSE2. Grade of Executives (E0 – 40% to CMD(A)

200%)3. MoU rating of CPSE (Excellent – 100% to poor

– 0%)4. PAR rating of Executive (Excellent – 100% to

poor - 0% in a system based on PMS)5. Remuneration Committee

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Profit of the CPSE and PRP PRP will come out of profits of the CPSE 60% of the PRP will be within ceiling of 3% of Profit

before Tax (PBT) 40% of PRP from 10% of incremental profit as

compared to previous year’s profit The total PRP, however, will be limited to 5% of the

year’s PBT, both for executives and non unionized supervisors

The PRP for the year will be calculated latest by December of the following year, based on the CPSE’s performance as per audited accounts

The proposed PRP scheme will begin w.e.f. financial year 2007-2008

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Maximum PRP for different Grades

Grade % of

Basic Pay

E0 to E3 40

E4 to E5 50

E6 to E7 60

E8 to E9 70

Director (C&D) 100

Director(A&B) &

CMD(C&D)

150

CMD(A&B) 200

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PRP & MoU

• Each CPSE to sign the MoU.• MoU rating will form the basis of PRP.• All the key Result Areas to be identified in the

MoU.• CPSEs not executing MoU will not be eligible for

PRP.

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PRP based on MoU rating

CPSEs ratingCPSEs rating %age of PRP for %age of PRP for ExecutivesExecutives

Excellent 100

Very Good 80

Good 60

Fair 40

No PRP for ‘Poor’ rating

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PMS - DPE Guidelines (26.11.2008)

• CPSEs to adopt ‘Bell Curve Approach’• Not more than 15% of executives to be graded as

“Outstanding”• 10% of executives to be graded as “Below Par”.• PMS to be introduced latest by 31.3.2009• Between 1.1.2007 and 31.3.2009 till a PMS is in

place, existing guidelines on PRP, (which is limited to 5% of distributable profit will be applicable)

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PRP and Performance Basedon PMS

PMS Rating PRP

Excellent At 100% eligibility levels

Very Good 80%

Good 60%

Fair 40%

Poor 0%

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Remuneration Committee

• Each CPSE to have Professional Boards with Independent Directors.

• CPSE to constitute a Remuneration Committee headed by an Independent Director.

• No PRP, if there are no Independent Director on the Board of the CPSE.

• Remuneration Committee will decide the annual bonus/variable pay pool and policy for its distribution across Executives and Non Unionised Supervisors.

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Amount of PRP from current and Incremental Profit

•Basic Pay X MoU rating X PAR

•60% will be from current years PBT

•40% will be from incremental profit

•Depending on availability of funds, the PRP would

be paid proportionately

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Annual Performance ReportsAnnual Performance Reports

– DPE issues guidelines for writing Annual DPE issues guidelines for writing Annual Confidential Reports for top management (Chief Confidential Reports for top management (Chief Executives, Directors and 2 levels below Board). Executives, Directors and 2 levels below Board).

– Earlier guidelines issued in 2005.Earlier guidelines issued in 2005.

– Earlier separate formats for Chief Executives and Earlier separate formats for Chief Executives and Directors.Directors.

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Salient Features of New GuidelinesSalient Features of New Guidelines

• Common format for Chief Executives, Directors, Executive Common format for Chief Executives, Directors, Executive Directors (E9) and General Managers (E8).Directors (E9) and General Managers (E8).

• Assessment based on MOU performance of company, Assessment based on MOU performance of company, Individual targets flowing from MOU and Personal attributes Individual targets flowing from MOU and Personal attributes and functional competencies and differential weight to these and functional competencies and differential weight to these aspects.aspects.

• Detailed time schedule prescribed.Detailed time schedule prescribed.

• Clear channel of submission of PAR prescribed.Clear channel of submission of PAR prescribed.

• Provision of strict monitoring of PAR process.Provision of strict monitoring of PAR process.

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Salient Features of New Guidelines Salient Features of New Guidelines (contd.)(contd.)

• Provision of numerical grading for the purpose of Provision of numerical grading for the purpose of objectivity objectivity

• Clear description of Personal Attributes, Functional Clear description of Personal Attributes, Functional Competencies and Benchmarking of assigning Competencies and Benchmarking of assigning grades.grades.

• Aspects such as Medical examination, annual Aspects such as Medical examination, annual property return, training programmes attended, property return, training programmes attended, additional qualifications acquired, etc. included in additional qualifications acquired, etc. included in PAR. PAR.

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Salient Features of New Guidelines Salient Features of New Guidelines (contd.)(contd.)

• Grading to follow Bell Curve approach.Grading to follow Bell Curve approach.

• Nomination of nodal officer both in CPSEs and Ministries.Nomination of nodal officer both in CPSEs and Ministries.

• Designation of PAR Repository Authorities to keep PARs in Designation of PAR Repository Authorities to keep PARs in their custody.their custody.

• While prescribed PAR form, guidelines and procedure to be While prescribed PAR form, guidelines and procedure to be treated as Core elements, Boards of CPSEs authorized to treated as Core elements, Boards of CPSEs authorized to supplement the contents of PAR under intimation to DPE.supplement the contents of PAR under intimation to DPE.

• Oversight of Performance Appraisal exercise by DPE. Oversight of Performance Appraisal exercise by DPE.

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DPE guidelines have further concretized the Performance Appraisal System for E 8 and above.CPSEs are expected to do this exercise for other levels.

Weightage

MoU Targets

Individual targets

flowing from MoU Targets

Personal Attributes and

functional competencies

Total

What is being

Assessed

Designation

Company Unit Individual

Chief Executive 75 25 100

Functional Director

40 35 25 100

EDs(E9) & GMs (E8)

25 50 25 100

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Why Performance Management System ?

• What is measured well is managed well• Bring objectivity, fairness, transparency in

assessment (Build Credibility of process)• Harmonize individual, group and Company goals• Recognize & Incentivise superior Performance• Motivate employees for superior performance

From each, to the best of his/her ability

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DPE Website : www.dpe.nic.in

Link to DPE pay related guidelines : http://dpe.nic.in/newgl/glch4index.htm

Contact details in case of any query on salary/wage related matters.

Shri Rajendra Kumar, Director, DPE

Telefax : 011 24360624

Email : [email protected]

Shri P.J. Michael, Under Secretary, DPE

Tele : 011 24360823

Email : [email protected]