Employees of Central Public Sector Enterprises (CPSEs) would lose their performance-related pay (PRP) if they fail to reach new market capitalization, capital return, asset-turnover ratio, and production and capex goals. Under the customary Memorandums of Understanding (MoUs), which are signed between administrative ministries and individual CPSEs, these conditions will be included in the PRP requirements effective in the 2021-22 financial year.
Although aiming to increase the efficiency of CPSEs, the move would also help fuel the interest of investors in these companies, many of which are to be privatized under a new strategy within the next few years. The revised MoU guidelines are aimed at building skin in the game for the management of the CPSEs while aiding the Centre to fetch more non-debt receipts from disinvestment, a source said.
What this means is that a slippage in the performance on the parameters could result in a firm’s performance rating downgrade and consequent reduction in variable pay of its staff.
Currently, PRP can be as high as 150% of basic pay for CMDs while it is 40% for the lowest grade officers, if the rating of the PSU performance is ‘excellent’ (a score above 90%), which ensures 100% PRP eligibility. A downgrade would bring down MoU rating from ‘excellent’ to ‘very good’ and from ‘very good’ to ‘good,’ resulting in reduction from 100% eligibility of performance-linked pay for excellent rating to 80% and 60%, respectively. Less than 50% score means staff may be denied PRP.
The combined salary bill of around 250 CPSEs stood at Rs 1.53 lakh crore in FY19; these firms employ over 15 lakh people. The CPSEs’ aggregate return on net worth (net profit as % of net worth), which was 13.87% in FY14 came down to 12.11% in FY19. Return on capital employed (operating profit as % of total capital employed) has fallen to 10.76% in FY19 from 12.93% in FY14. Similarly, the assets turnover ratio (total income to total assets) reduced from 0.76 in FY14 to 0.61 in FY19.