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3rd Pay Revision for CPSE Employees – Performance Related Pay

3rd Pay Revision for CPSE Employees – Performance Related Pay

(Annexure to DPE OM No. W-02/0028/2017-DPE (WC)-GL-XIII/17 dated: 3rd August, 2017)

Performance Related Pay – 3rd Pay Revision of Board Level and Below Board Level Executive & N.U. Supervisors of CPSE – Annexure – IV

Annexure-IV
(para 11)

Performance Related Pay

(I) Allocable profits:

a. The overall profits for distribution of PRP shall be limited to 5% of the year’s profit accruing only from core business activities (without consideration of interest on idle cash / bank balances), which will be exclusively for executives and for non-unionized supervisors of the CPSE. The ratio of break-up of profit
accruing from core business activities for payment of PRP between relevant year’s profit to Incremental profit shall be 65:35 to arrive at the Allocable profits and the Kitty factor.

(I) PRP differentiator components:

(A) PRP payout is to be distributed based on the addition of following parts / components:-

Part-1 : CPSE’s performance component:-

(a) Weightage = 50% of PRP payout
(b) Based on CPSE’s MOU rating:

MOU rating %age eligibility of PRP
Excellent 100%
Very Good 75%
Good 50%
Fair 25%
Poor Nil

Part-2 : Team’s performance component:- *

(a) Weightage = 30% of PRP payout

(b) Based on Team rating (i.e. linked to Plant / Unit’s productivity measures and operational / physical performance):

Team rating %age eligibility of PRP
Excellent 100%
Very Good 80%
Good / Average 60%
Fair 40%
Poor Nil

* In case of a CPSE not having Plants/Units and if there is a no Team Performance areas/rating, then the PRP for such CPSE will be determined based specifically on MoU rating after merging the weightage of Team performance component to the Company’s performance component.

(c) The Team rating shall be linked to individual Plant / Unit’s productivity measures and operational / physical performance, as primarily derived from CPSEs’ MOU parameters and as identified by CPSE depending on the nature of industry / business under the following suggested performance areas:-

  • ‘Achievement Areas’, in which performance has to be maximized (e.g. market shares, sales volume growth, product output / generation, innovations in design or operation, awards and other competitive recognition, etc.); and
  • ‘Control Areas’ in which control has to be maximized (e.g. stock / fuel loss, operating cost control, litigation cost, safety, etc.).

(d) For office locations of CPSEs, the Team rating should be linked to the Plant / Unit as attached to the said office; and if there is more than one Plant / Unit attached to an office or in case of Head Office / Corporate Office of the CPSE, the Team rating shall be the weighted average of all such Plants / Units. The weighted average shall be based on the employee manpower strength of the respective Plants / Units.

[Plants/Units shall primarily mean the work place where industry’s manufacturing process is carried out and in case of a CPSE not having any manufacturing process, it shall mean the work place where the main business is carried out. The individual department/section within a work place shall not be recognized as a Plant/Unit].

Part-3 : Individual’s performance component:-

(a) Weightage = 20% of PRP payout

(b) Based on Individual performance rating (i.e. as per the CPSE’s Performance Management System):

Individual performance rating %age eligibility of PRP
Excellent 100%
Very Good 80%
Good / Average 60%
Fair 40%
Poor Nil

(c) The forced rating of 10% as below par / Poor performer shall not be made mandatory. Consequently, there shall be discontinuation of Bell-curve. The CPSEs are empowered to decide on the ratings to be given to the executives; however, capping of giving Excellent rating to not more than 15% of the total executive’s in the grade (at below Board level) should be adhered to.

(II) Percentage ceiling of PRP (%age of BP):

(a) The grade-wise percentage ceiling for drawal of PRP within the allocable profits has been rationalized as under:-

Grade
Ceiling
(% of BP)
E0 40%
E l 40%
E2 40%
E3 40%
E4 50%
E5 50%
E6 60%
E7 70%
E8 80%
E9 90%
Director (C&D) 100%
Director (A&B) 125%
CMD / MD (C&D) 125%
CMD / MD (A&B) 150%

Note:

1.For Non- Unionized supervisors, the PRP as percentage of BP will be decided by the respective Board of Directors of the CPSE.

(III) Kitty factor: After considering the relevant year’s profit, incremental profit and the full PRP payout requirement (computed for all executives based on Grade-wise ceilings, CPSE’s MOU rating, Team rating & Individual performance rating), there will be two cut-off factors worked out based on the PRP distribution of 65:35. The first cut-off shall be in respect of PRP amount required out of year’s profit, and the second cut- off shall be in respect of PRP amount required out of incremental profit, which shall be computable based on the break-up of allocable profit (i.e. year’s 5% of profit bifurcated into the ratio of 65:35 towards year’s profit and incremental profit).

The sum of first cut-off factor applied on 65% of Grade PRP ceiling and the second cut-off factor applied on 35% of Grade PRP ceiling will result in Kitty factor. The Kitty factor shall not exceed 100%.

(IV) Based on the PRP components specified above, the PRP pay-out to the executives should be computed upon addition of the following three elements:-

(a) Factor-X (% of BP):

Weightage of 50% Multiplied with Part-1 (CPSE’s MOU rating) Multiplied with Kitty factor

(b) Factor-Y (% of BP):

Weightage of 30% Multiplied with Part-2 (Team’s performance) Multiplied with Kitty factor.

(c) Factor-Z (% of BP):

Weightage of 20% Multiplied with Part-3 (Individual’s performance) Multiplied with Kitty factor.

(d) Net PRP= Factor X + Factor Y + Factor Z =Net %age of Annual BP

EXAMPLES

Performance Related Pay (PRP): Examples for calculating Kitty factor/Allocable profit

  • PRP Kitty Distribution: within 5% of profit accruing from core business activities (hereinafter, for brevity, referred to as Profit).
  • Ratio of relevant year’s profit : incremental profit = 65 : 35
Example — 1: 
Sl. Parameters
Amount (Rs.)/ %age
1 FY 2016-17 Profit = 5000 crore
2 FY 2017-18 [for  which  PRP  is  to  be distributed] Profit = 6000 crore
3 Incremental profit 1000 crore
4 5% of the year’s profit 300 crore
5 Allocable profit out of current year’s 5% of profit based on distribution in the ratio of 65:35 towards the year’s profit and incremental profit
a. PRP payout from year’s profit 195 crore[i.e.65%  out of 300crore]
b. PRP payout from incremental profit 105  crore[i.e.35%  out of 300crore]:
[105 crore can be fully utilized as incremental profit is 1000 crore.]
6 Full PRP Payout requirement (computed for  all  executives  based  on  Grade-wise ceilings, CPSE’s MOU rating, Team rating &  Individual  performance  rating) —  but without applying kitty factor related to year’s profit or Incremental profit 500 crore
7 PRP payout break-up based on 65:35 distribution out of year’s profit and incremental profit:
a PRP amount required out of year’s profit(i.e.65% of Sl. No. 6) 65% of 500 crore = 325 crore
a1 Cut-off factor(1)(in %age) for year’s PRP payout with reference to Sl. No. 5(a) & 7(a) 195 crore / 325 crore = 60.00%
b PRP amount required out of incremental profit (i.e. 35% of Sl. No. 6) 35% of 500 crore = 175 crore
b1 Cut-off factor(2) (in %age) for incremental PRP payout with reference to Sl. No. 5(b) & 7(b) 105 crore /175 crore = 60.00%
8 Thus,  total  Profit  amount  allocated  for PRP distribution 195 crore + 105 crore = 300 crore[i.e.5%   of  Core  /business operating profit]
9 Kitty factor for respective Grade(in %age) [65% x Grade PRP ceiling (%) xCut-off factor(1)3 Plus (+) [35%x Grade PRP ceiling x Cut-off factor(2)] = Kitty factor
PRP Payout to Individual Executives 
Example — 1 : For Grade E-1 
Sl Parameter Amount (Rs.)/ %age payout
A CPSE’s MOU rating
[Weightage = 50%]
75%
(Very Good)
B Team’s rating[Weightage = 30%] 100%(Excellent)
C Individual’s performance rating[Weightage = 20%] 60%(Good/Average)
D Grade ceiling (E1)(Max. of 40% of BP) 40% of BP
E Cut-off factor (1) 60.0%
F Cut-off factor (2) 60.0%
G Kitty Factor for Grade E1 i.e. [65% x D (Grade PRP ceiling) x E (Cut-off factor(1))] Plus(+) [35% x D (Grade PRP ceiling) x F(Cut-off factor(2))] [65% x 40% x 60.00%] + :35% x 40% x 60.00%] = 15.60% + 8.40% = 24.00%
E Net PRP
i Factor-X[Company’s performance component] Wtg.(50%) x A x G
i.e.
50% x 75% x 24.0% = 9.00%
ii Factor-Y[Team’s performance component] Wtg.(30%) x B x G
i.e.
30% x 100% x 24.00% = 7.20%
iii Factor-Z[Individual’s performance component] Wtg.(20%) x C x G
i.e
20% x 60% x 24.00% = 2.88%
H PRP payout distribution Factor X + Factor Y + Factor Z =19.08% of Basic Pay
Performance Related Pay (PRP): Examples for calculating Kitty factor/Allocable profit 
  • PRP Kitty Distribution : within 5% of profit accruing from core business activities (hereinafter, for brevity, referred to as Profit).
  • Ratio of relevant year’s profit : incremental profit = 65 : 35

Example — 2:

Sl. Parameters Amount (Rs.)/ %age
1 FY 2016-17 PBT – 7000 crore
2 FY 2017-18 [for   which   PRP   is   to   be distributed] PBT – 6000 crore
3 Incremental profit Nil
4 5% of the year’s profit 300 crore
5 Allocable profit out of current year’s 5% of profit based on distribution in the ratio of 65:35 towards the year’s profit and incremental profit:
a. PRP payout from year’s profit 195 crore [i.e. 65% out of 300 crore]
b. PRP payout from incremental profit 105 crore [i.e. 35% out of 300 crore]:[Nil amount to be allocated as profit is Nil.]
6 Full PRP Payout requirement (computed for all executives   based   on   Grade-wise   ceilings, CPSE’s MOU rating, Team rating & Individual performance rating) — but without applying kitty factor related to year’s profit or Incremental profit 500 crore
7 PRP payout break-up based on 65:35 distribution out of year’s profit and incremental profit:
a PRP amount required out of year’s profit (i.e. 65% of Si. No. 6) 65% of 500 crore = 325 crore
a1 Cut-off factor(1) (in %age)  for  year’s  PRP payout with reference to Sl. No. 5(a) & 7(a) 195 crore / 325 crore = 60.00%
b PRP amount required out of incremental profit (i.e.35% of Sl. No. 6) 35% of 500 crore = 175 crore
b 1 Cut-off factor(2) (in %age) for incremental PRP payout with reference to Sl. No. 5(b) & 7(b) Nil / 175 crore = 0.00%
8 Thus, total Profit amount allocated for PRPdistribution 195 crore + 0 crore = 195 crore[i.e. 3.25% of Core business/operating profit]
9 Kitty factor for respective Grade (in %age) [65% x Grade PRP ceiling (%) x Cut-off factor(1)] Plus (+) [35% x Grade PRP ceiling x Cut-off factor(2)]= Kitty factor
PRP Payout to Individual Executives 
Example — 2 : For Grade E-1 
Sl Parameter Amount (Rs.)/ %age payout
A CPSE’s MOU rating 75%
[Weightage = 50%] (Very Good)
B Team’s rating 100%
[Weightage = 30%] (Excellent)
C Individual’s performance rating 60%
[Weightage = 20%] (Good/Average)
D Grade ceiling (El) 40% of BP
(Max. of 40% of BP)
E Cut-off factor (1) 60.0%
F Cut-off factor (2) 0.0%
G Kitty Factor for Grade E1i.e. [65% x D (Grade PRP ceiling) x E (Cut-off factor( 1))] Plus (+)[35% x D (Grade   PRP   ceiling)   x   F (Cut-off factor(2))] [65% x 40% x 60.00%] + [35% x 40% x 0.00%]= 15.60% + 0.00%
= 15.60%
E Net PRP
i Factor-X[Company’s performance component] Wtg.(50%) x A x G
i.e.
50% x 75% x 15.60% = 5.85%
ii Factor-Y[Team’s performance component] Wtg.(30%) x B x G
i.e.
30% x 100% x 15.60% = 4.68%
iii Factor-Z[Individual’s performance component] Wtg.(20%) x C x G
i.e.
20% x 60% x 15.60% = 1.87%
H PRP payout distribution Factor X + Factor Y + Factor Z = 12.40% of Basic Pay

Source: http://www.circular.gconnect.in/gc-pdf/om2003-08-201720reg203rd20pay20revision20guidelines0001-pdf

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