Workshop on Performance Management System PMS Performance Related

Workshop on Performance Management System (PMS) & Performance Related Pay (PRP) ******* (Department of Public Enterprises) Govt. of India 31. 08. 2012 Visakhapatnam 1

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 2

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 3

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. 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. 4

PRP determinants 1. Profit of CPSE 2. Grade of Executives (E 0 – 40% to CMD(A) 200%) 3. Mo. U 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 5

Profit of the CPSE and PRP Ø PRP will come out of profits of the CPSE Ø 60% of the PRP will be within ceiling of 3% of Profit before Tax (PBT) Ø 40% of PRP from 10% of incremental profit as compared to previous year’s profit Ø The total PRP, however, will be limited to 5% of the year’s PBT, both for executives and non unionized supervisors Ø 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 Ø The proposed PRP scheme will begin w. e. f. financial 6 year 2007 -2008

Maximum PRP for different Grades Grade % of Basic Pay E 0 to E 3 40 E 4 to E 5 50 E 6 to E 7 60 E 8 to E 9 70 Director (C&D) 100 Director(A&B) & 150 CMD(C&D) CMD(A&B) 200 7

PRP & Mo. U • Each CPSE to sign the Mo. U. • Mo. U rating will form the basis of PRP. • All the key Result Areas to be identified in the Mo. U. • CPSEs not executing Mo. U will not be eligible for PRP. 8

PRP based on Mo. U rating CPSEs rating %age of PRP for Executives Excellent 100 Very Good 80 Good 60 Fair 40 No PRP for ‘Poor’ rating 9

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) 10

PRP and Performance Based on PMS Rating PRP Excellent At 100% eligibility levels Very Good 80% Good 60% Fair 40% Poor 0% 11

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. 12

Amount of PRP from current and Incremental Profit • Basic Pay X Mo. U 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 13

Annual Performance Reports – DPE issues guidelines for writing Annual Confidential Reports for top management (Chief Executives, Directors and 2 levels below Board). – Earlier guidelines issued in 2005. – Earlier separate formats for Chief Executives and Directors. 14

Salient Features of New Guidelines • Common format for Chief Executives, Directors, Executive Directors (E 9) and General Managers (E 8). • Assessment based on MOU performance of company, Individual targets flowing from MOU and Personal attributes and functional competencies and differential weight to these aspects. • Detailed time schedule prescribed. • Clear channel of submission of PAR prescribed. • Provision of strict monitoring of PAR process. 15

Salient Features of New Guidelines (contd. ) • Provision of numerical grading for the purpose of objectivity • Clear description of Personal Attributes, Functional Competencies and Benchmarking of assigning grades. • Aspects such as Medical examination, annual property return, training programmes attended, additional qualifications acquired, etc. included in PAR. 16

Salient Features of New Guidelines (contd. ) • Grading to follow Bell Curve approach. • Nomination of nodal officer both in CPSEs and Ministries. • Designation of PAR Repository Authorities to keep PARs in their custody. • While prescribed PAR form, guidelines and procedure to be treated as Core elements, Boards of CPSEs authorized to supplement the contents of PAR under intimation to DPE. • Oversight of Performance Appraisal exercise by DPE. 17

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 What is being Assessed Mo. U Targets Individual targets flowing from Mo. U Targets Personal Attributes and functional competencies Company Unit Individual Total Designation Chief Executive 75 Functional Director 40 EDs(E 9) & GMs (E 8) 25 25 100 35 25 100 50 25 100 18

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 19

DPE Website : www. dpe. nic. in Link to DPE pay related guidelines : http: //dpe. nic. in/newgl/glch 4 index. htm Contact details in case of any query on salary/wage related matters. Shri Rajendra Kumar, Director, DPE Telefax : 011 24360624 Email : rajendrakumar 67@nic. in Shri P. J. Michael, Under Secretary, DPE Tele : 011 24360823 Email : michael. pj@nic. in 20