7th CPC News: Performance-linked pay system may be introduced

The government last week cleared the setting up of the 7th Central Pay Commission for its employees. The move may be prudent politically but it will add to the problems of the next government which will also be burdened with the impact of the Food Bill on financial and the Land Bill on investment.

The CPC recommendations, which will be implemented from January 2016 have to be handled properly—implementation of the 6th CPC recommendations threw fiscal deficit out of gear for two years, FY09 and FY 10. Though there will be no arrear burden this time as 7th CPC recommendations can be implemented from the due date itself—CPC is constituted every 10 years and 6th CPC recommendations were implemented from 2008 instead of 2006—the new pay structure itself will add to the government woes, especially at a time when the government is expected to be considerably cash-strapped for an extended period of time. The 12th five-year-plan average growth rate is unlikely to surpass even 6%.

A close look at the composition of the central government staff and pay structure clearly indicates there is not much that the government can do (or be willing to do) as far as curtailing the expenditure on this account is concerned. But what the CPC can do certainly is target hikes better to reward performers. A transparent and effective performance-linked pay system devised carefully, rather than the current token one, can be a catalyst for improving the government functioning.

The 6th pay commission recommended variable increments for Group A, where annual increments in the band will vary depending upon the performance. Eighty percent or more employees in the grade are now allowed normal increment at the rate of 2.5% with the high performers (not exceeding 20%) during the year being allowed increment at the higher rate of 3.5%. The government advised to extend the scheme of variable increments in other pay bands also. This system needs to be scaled up now to the next level.

Then, it had also suggested the introduction of performance related incentive scheme (PRIS) in the government under which employees would be given pecuniary remuneration over and above the pay, replacing the ad hoc bonus scheme.

The cabinet secretariat has developed result framework document (RFDs) and the ministries and departments have engaged themselves into this exercise which is being monitored now on a regular basis. According to the plan, at the end of the financial year, all ministries/departments will list out their achievements in a report against the agreed results formalised at the beginning of the year. This report will be finalised by May 1, and then will be placed before the Cabinet by June 1. This means the government will have a fair idea of a ministry or a department’s performance for each financial year. So, why not embed this also, along with an improved individual performance-linked system, in the overall pay structure?

But this is not going to be easy to implement. Talk to any number of government officials and they will give numerous reasons why a performance-linked system can’t be implemented and how this will bring in subjectivity. But, the issue is how will you improve performance then? The larger problem is that the model adopted by the central government is replicated by the states and efficiencies and inefficiencies both get percolated down the line. If the performance has to be linked in any meaningful way to pay, it has to begin earnestly from the centre.

According to the latest analysis of government wage bill by the finance ministry, the total expenditure on pay and allowances (excluding productivity linked bonus/adhoc bonus, honorarium, encashment of earned leave and travelling allowance) for regular central government civilian employees including employees of the Union Territories was Rs 95,291crore in FY12 as compared to R88,651 crore in FY11.

Five major ministries cover 91% of the total manpower—of the total strength of 30.84 lakh—with railways at 42.33%, home affairs at 26.92%, defence (civil) at 11.95%, posts at 6.84% and revenue at 3.2%. All other ministries/departments’ had only 8.76% of the total. Almost 84% of the total expenditure is incurred by the five major ministries. Then, the percentage expenditure on pay was 51.93%. It was 28.52% on dearness allowance and 5.88% on house rent allowance (HRA) and 13.67% on other allowances.The 7th pay commission can break away from the past by suggesting ways to remodel the way government works instead of sticking to formulating formulas for hiking pay packages.