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'Link PSU pay to performance'

Last updated on: June 02, 2008 10:54 IST
The second central public sector units (PSU) pay revision committee report has suggested a new classification of state-owned companies linking salaries and remuneration to productivity and performance.

To this end, the report suggests categorising the 216 state-owned companies into five slots linked to their performance (see table). As many as 11 central public sector firms like Indian Oil, ONGC, NTPC and Bharat Sanchar Nigam Ltd are to be slotted in the top category of high-performing companies. 

The recommendation is a crucial component of the second central PSU pay revision committee report, submitted to the government last Friday.

If implemented the proposal would do away with the 1997 classification of state-owned companies that allotted the status of navratnas (literally, crown jewels) on nine companies based on their profitability among other parameters. There are now 16 firms in that category. The other classification is mini-ratnas for smaller firms (currently 54).

PAY FOR PERFORMANCE
(PSU pay panel categorisation)

Category

Number
of
CPSUs*

Total
Income
(Rs cr)

% of total
aggregate
CPSU income

Manpower

% of
total CPSU
manpower

A +

11

5,63,467

68.13

659,454

40.85

A

39

2,21,924

26.84

740,479

45.88

B

53

33,964

4.10

153,751

9.53

C

49

6,719

0.81

52,308

3.24

D

64

995

0.12

7,997

0.50

Total

216

8,27,069

100.00

1,613,989

100.00

CPSUs= Central public sector units

A navratna or mini-ratna classification is given to a well-performing firm and allows greater functional and financial autonomy. The new structure continues with this but crucially links the status to salaries and remuneration and performance. In effect, for the staff, the new status does not just mean more freedom from political masters (at least on paper), but a fatter pay packet.

Three companies that are not part of the navratna list have now been put in the proposed top slot. These are the Food Corporation of India, Bharat Sanchar and Coal India. Navratnas dropped from the new classification include MTNL, NMDC, HAL, PowerGrid, Power Finance Corporation, REC, Nalco and Bharat Electronics.

The proposed A + category accounts for as much 68.13 per cent of the total income of Rs 8,27,069 crore of central PSUs in 2006-07. These firms also account for nearly 41 per cent of the 1.61 million public sector employees in the country.

"These A+ companies have a very high net worth and need to be treated differently. Hence this new category," said S M Dewan, director general, Standing Conference of Public Enterprises.

Factors like total income, manpower size and geographical spread have been taken into account for the new classification, with the firms being marked on a scale of 0 to 100. Indian Oil and ONGC, which have made it to the Fortune-500 list, top scored with 99 points.

At present there are four categories of central PSUs - A, B, C and D - a system that was started in 1967 to provide relativity between compensation structures of board-level executives.

The PSU pay panel report says this classification is not efficient, as a result of which there are wide differences in size and other attributes of the companies within a category.

For example, Indian Oil, which had an income of Rs 2,18,934 crore (Rs 2189.34 billion) in 2006-07 was put in the same category as Mumbai Rail Vikas Corporation Ltd, which had an income of Rs 17 crore in the same year.

Moreover, it was felt that in the present system, if a PSU performs well, it is promoted to the next high level, but a poorly performing company retains its position.

The second category, A, has 39 firms, mostly large profitable undertakings like Air India, Eastern Coal Fields Ltd and ITI Ltd. Category B ( 53) and C (49) companies in the new classification are small companies including some sick companies.

Category D companies (64) are essentially very small or nascent, like the recently formed India Infrastructure Finance Company Ltd, or the older Fertiliser Corporation of India Ltd and National Film Development Corporation Ltd.

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BS Reporters in New Delhi
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