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Performance Related Pay & Example- 3rd Pay Revision CPSE

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

Performance Related Pay โ€“ 3rd Pay Revision of of Board Level and Below Board
Level Executive & N.U. Supervisors of CPSE โ€“ Annexure โ€“ 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 yearโ€™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 yearโ€™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 : CPSEโ€™s performance component:- 
(a) Weightage = 50% of PRP payout 
(b) Based on CPSEโ€™s MOU rating: 
MOU rating %age eligibility of PRP
Excellent 100%
Very Good 75%
Good 50%
Fair 25%
Poor Nil
Part-2 : Teamโ€™s performance component:- * 

(a) Weightage = 30% of PRP payout 

(b) Based on Team rating (i.e. linked to Plant / Unitโ€™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 Companyโ€™s performance component. 
(c) The Team rating shall be linked to individual Plant / Unitโ€™s productivity measures and operational / physical performance, as primarily derived from CPSEsโ€™ MOU parameters and as identified by CPSE depending on the nature of industry / business under the following suggested performance areas:- 
  • โ€˜Achievement Areasโ€™, 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 
  • โ€˜Control Areasโ€™ 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 industryโ€™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 : Individualโ€™s performance component:- 
(a) Weightage = 20% of PRP payout 

(b) Based on Individual performance rating (i.e. as per the CPSEโ€™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 executiveโ€™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 yearโ€™s profit, incremental profit and the full PRP payout requirement (computed for all executives based on Grade-wise ceilings, CPSEโ€™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 yearโ€™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. yearโ€™s 5% of profit bifurcated into the ratio of 65:35 towards yearโ€™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 (CPSEโ€™s MOU rating) Multiplied with Kitty factor 
(b) Factor-Y (% of BP)
Weightage of 30% Multiplied with Part-2 (Teamโ€™s performance)  Multiplied with Kitty factor. 
(c) Factor-Z (% of BP)
Weightage of 20% Multiplied with Part-3 (Individualโ€™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 yearโ€™s profit : incremental profit = 65 : 35 
Example โ€” 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 yearโ€™s profit 300 crore
5 Allocable profit out of current yearโ€™s 5% of profit based on
distribution in the ratio of 65:35 towards the yearโ€™s profit and incremental profit
a. PRP payout from yearโ€™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, CPSEโ€™s MOU rating, Team rating &  Individual  performance  rating) โ€”  but without applying kitty factor related to yearโ€™s profit or Incremental profit 500 crore
7 PRP payout break-up based on 65:35 distribution out of yearโ€™s profit and incremental profit:
a PRP amount required out of yearโ€™s profit(i.e.65% of Sl. No. 6) 65% of 500 crore = 325 crore
a1 Cut-off factor(1)(in %age) for yearโ€™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 โ€” 1 : For Grade E-1 
Sl Parameter Amount (Rs.)/ %age payout
A CPSEโ€™s MOU rating
[Weightage = 50%]
75%
(Very Good)
B Teamโ€™s rating[Weightage = 30%] 100%(Excellent)
C Individualโ€™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[Companyโ€™s performance component] Wtg.(50%) x A x G
i.e.
50% x 75% x 24.0% = 9.00%
ii Factor-Y[Teamโ€™s performance component] Wtg.(30%) x B x G
i.e.
30% x 100% x 24.00% = 7.20%
iii Factor-Z[Individualโ€™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 yearโ€™s profit : incremental profit = 65 : 35 
Example โ€” 2: 

Sl. Parameters Amount (Rs.)/ %age
1 FY 2016-17 PBT โ€“ 7000 crore
2 FY 2017-18 [for   which   PRP   is   to   be distributed] PBT โ€“ 6000 crore
3 Incremental profit Nil
4 5% of the yearโ€™s profit 300 crore
5 Allocable profit out of current yearโ€™s 5% of profit based on
distribution in the ratio of 65:35 towards the yearโ€™s profit and incremental profit:
a. PRP payout from yearโ€™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, CPSEโ€™s MOU rating, Team rating & Individual performance rating) โ€” but without applying kitty factor related to yearโ€™s profit or Incremental profit 500 crore
7 PRP payout break-up based on 65:35 distribution out of yearโ€™s profit and incremental profit:
a PRP amount required out of yearโ€™s profit (i.e. 65% of Si. No. 6) 65% of 500 crore = 325 crore
a1 Cut-off factor(1) (in %age)  for  yearโ€™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 โ€” 2 : For Grade E-1 

Sl Parameter Amount (Rs.)/ %age payout
A CPSEโ€™s MOU rating 75%
[Weightage = 50%] (Very Good)
B Teamโ€™s rating 100%
[Weightage = 30%] (Excellent)
C Individualโ€™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[Companyโ€™s performance component] Wtg.(50%) x A x G
i.e.
50% x 75% x 15.60% = 5.85%
ii Factor-Y[Teamโ€™s performance component] Wtg.(30%) x B x G
i.e.
30% x 100% x 15.60% = 4.68%
iii Factor-Z[Individualโ€™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

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