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DETERMINATION OF SALARIES IN CPSEs

DETERMINATION OF SALARIES IN CPSEs. 2 ND PAY REVISION COMMITTEE. BASIC FACTS RELATING TO CENTRAL PUBLIC SECTOR UNDERTAKINGS. DEPARTMENT OF PUBLIC ENTERPRISES (DPE) HAPPENS TO BE THE NODAL AGENCY FOR POLICY RELATED TO WAGE SETTLEMENT IN CPSEs

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DETERMINATION OF SALARIES IN CPSEs

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  1. DETERMINATION OF SALARIES IN CPSEs 2ND PAY REVISION COMMITTEE

  2. BASIC FACTS RELATING TO CENTRAL PUBLIC SECTOR UNDERTAKINGS • DEPARTMENT OF PUBLIC ENTERPRISES (DPE) HAPPENS TO BE THE NODAL AGENCY FOR POLICY RELATED TO WAGE SETTLEMENT IN CPSEs • CATEGORISATION OF CPSE: A, B, C, D AND NON-CATEGORISED. • CATEGORISATION BASED ON QUANTITATIVE AND QUALITATIVE FACTORS • QUANTITATIVE FACTORS: • Investment, Capital Employed, Net Sales, PBT, Number of Employees • QUALITATIVE FACTORS: • National Importance, Level of Technology, Prospects for Expansion and Diversification, Strategic Importance of the Corporation.

  3. BASIC FACTS RELATING TO CPSE • NUMBER OF CPSEs AS ON 31-03-2007: • 248 (57 SCHEDULE A, 75 SCHEDULE B, 50 SCHEDULE C, 6 SCHEDULE D AND THE REMAINING NON-CATEGORISED). • OTHER CATEGORISATIONS ON THE BASIS OF POWER VESTED IN BOARD OF DIRECTORS OF THE COMPANY AND OTHERS ON THE BASIS OF PROFIT OR LOSS MAKING • Category No. of CPSEs (As on 30.5.2008) • Navratna 16 • Miniratna, Category I 41 • Miniratna, Category II 13 • Profit making 156 • Loss making 59 • Listed Companies 45 • Non-listed Companies 202

  4. BASIC FACTS RELATING TO CPSE • TOTAL EMPLOYMENT IN CPSE=16.5 LAKH • 22% OF THIS (ROUGHLY 3.65 LAKH) ARE EXECUTIVES AND THE REST, 78% OR 13 LAKH ARE UNIONISED WORKERS. • DA PATTERN: MOST CPSEs FOLLOW IDA PATTERN AND FEW (69 to be exact) CDA PATTERN • AROUND 86% OF THE WORKERS AND EXECUTIVES ARE COVERED UNDER IDA AND THE REST CDA PATTERN.

  5. MECHANISM OF SALARY DETERMINATION IN CPSE • The pay revision for board members, executives and non-unionized supervisors under the IDA pattern is done based on recommendations of Committees set up for the purpose by the Government. The periodicity of such revision was 5 years before 1997 and has thereafter been modified to 10 years. The latest Pay Revision Committee was set up vide Resolution dated 30th September, 2006 which submitted its report in 2009. • In respect of workmen following IDA pattern scales of pay, the managements of Central PSEs have the freedom to negotiate revision of pay scales with the workmen. Previously it was done through Wage Boards.

  6. MECHANISM OF SALARY DETERMINATION IN CPSE • In respect of workmen following IDA pattern of scales of pay Government has allowed the PSUs to opt for either a 10 year periodicity of pay revision with 100% neutralization of DA or a 5 year periodicity on the basis of graded neutralization. The Central PSEs opting for 5 year wage negotiation for workers were allowed wage negotiation for a period of 5 years with effect from 1.1.2002. • In the case of employees (not workmen) under CDA pattern of pay scales, pay revision is carried out only as and when similar changes are effected for Central Government employees through Central Pay Commission.

  7. CURRENT POSITION ON WAGE NEGOTIATION • For Profit making CPSEs: • The Central Government, in November, 2006, conveyed their decision that the next round of wage negotiations (which falls due on a general basis from 1.1.2007) with the workers of Central PSEs may be undertaken with the trade unions/associations by the respective managements of these enterprises. According to the guidelines issued, there would be freedom to negotiate keeping in view the generation of resources/profits by the concerned enterprises. • No budgetary support for the wage increase is to be provided by the Government and resources for meeting the increased obligations must be internally generated and must come from improved performance in terms of productivity and profitability and not from the Government. • The validity period of wage settlement would be 10 years with 100% DA neutralization w.e.f. 1.1.2007 and the revision would be subject to the condition that there is no increase in labour cost per physical unit of output except in rare cases.

  8. CURRENT POSITION ON WAGE NEGOTIATION • For loss incurring CPSEs: • Central PSEs which have incurred a loss during all the 3 financial years preceding the proposed wage negotiation have also been allowed to enter into negotiations provided they give an estimate to their Ministry as to how resources would be generated by them to meet the extra expenditure arising out of implementation. In sick PSUs, no revision is to be allowed until BIFR approves the revival plan for these enterprises.

  9. RECOMMENDATIONS OF THE 2ND PAY REVIEW COMMITTEE • CHAIRMAN: JUSTICE M J RAO, RETD JUDGE, SCI • Members: Dr Nitish SenGupta (Former Member Secretary Planning Commission), Shri P C Parakh (Former Secretary, Dept of Coal) and Shri R S S L N Bhaskaradu (Former Director, MUL and Chairman Public Enterprises Selection Board) • Ex officio Member: Secretary, DPE, GoI.

  10. RECOMMENDATIONS • RELATIVITY: COMPENSATION PACKAGES FOR EXECUTIVES OF CPSE TO BE INDEPENDENT OF CENTRAL GOVERNMENT SERVANTS BUT TO BE PROGRESSIVELY ALIGNED WITH THEIR COUNTERPART IN THE PRIVATE SECTOR. • CATEGORISATION OF CPSE: 5 INSTEAD OF 4: A+, A, B, C , AND D • COMPONENTS OF PAY PACKAGE: • A: FIXED PAY • BASIC PAY • RISK PAY

  11. RECOMMENDATIONS • FIVE SETS OF SCALES OF PAY CORRESPONDING TO FIVE CATEGORIES OF CPSEs Public Sector Pay Review Committee Report 2009\Chapter_6_Recommendations_Final.pdf • 13 SCALES FOR A+ AND A CATEGORY (E0-E9, DIRECTOR, CMD), 12 SCALES FOR B CATEGORY, 11 SCALES FOR C CATEGORY AND 9 SCALES FOR D CATEGORY • B: FITMENT Public Sector Pay Review Committee Report 2009\Chapter_6_Recommendations_Final.pdf • INCREMENT: ANNUAL INCREMENTS 2%-4% DEPENDING UPON PERFORMANCE APPRAISAL AND CAPACITY TO PAY. MAXIMUM 3 STAGNATION INCREMENTS FOR EVERY 2 YEARS AT 2% OF BASIC PAY SUBJECT TO PERFORMANCE RATING ‘GOOD’ • DA: AICPI 2001=100, WHICH IS 126.33 AS ON 1.1.2007

  12. RECOMMENDATIONS (HRA)

  13. RECOMMENDATIONS • CCA: ABOLISHED • OTHER ALLOWANCES AND PERKS: SUBJECT TO A MAXIMUM OF 50% OF BASIC PAY WITHOUT THE ELEMENT OF RISK PAY: WHERE CPSEs HAVE CREATED INFRASTRUCTURE SUCH AS HOSPITALS, COLLEGES, SCHOOLS, CLUBS ETC. THESE FACILITIES SHOULD BE MONETIZED AT REPLACEMENT COST FOR THE PURPOSE OF COMPUTING THE PERKS AND ALLOWANCES. • THE FOLLOWING ALLOWANCES WILL BE OUTSIDE THE PURVIEW OF 50% LIMIT. • NORTH EAST ALLOWANCE LIMITED TO 12.5% OF BASIC PAY. • ALLOWANCE FOR UNDERGROUND MINES LIMITED TO 15% OF BASIC PAY. • SPECIAL ALLOWANCE FOR SERVING IN THE DIFFICULT AND FAR FLUNG AREAS AS APPROVED BY CONCERNED MINISTRIES IN CONSULTATION WITH DPE FROM TIME TO TIME UP TO 10% OF BASIC PAY. • NON-PRACTICING ALLOWANCE FOR MEDICAL OFFICERS LIMITED TO 25% OF BASIC PAY. • CAFETARIA APPROACH: CHOOSE FROM A SET OF PERKS AND ALLOWANCES

  14. RECOMMENDATIONS RELATING TO PERFORMANCE RELATED PAY (PRP) • PRP TO BECOME MAJOR COMPONENT OF EXECUTIVE COMPENSATION • PRP TO BE LINKED WITH COMPANY AND INDIVIDUAL PERFORMANCE (IDENTIFY KEY RESULT AREAS) • 10 TO 25% OF PRP TO BE IN THE FORM OF ESOP. • PERCENTAGE CEILING ON PRP, TO BE EXPRESSED AS PERCENTAGE OF PAY, TO BE PROGRESSIVELY INCREASED FROM JUNIOR TO SENIOR LEVEL EXECUTIVES WITH SPECIFIC REFERENCE TO CATEGORY OF CPSE AS BELOW:

  15. PRP AS PERCENTAGE OF SALARY

  16. STOCK OPTIONS IN CPSE • STOCK OPTIONS • PARTICIPATION IN OWNERSHIP • SHARES IN COMPANY WHERE EMPLOYEE WORKS • SHARES IN OTHER COMPANIES • DIVIDEND BENEFITS • APPRECIATION OF EMPLOYEE OWNED CAPITAL • EMPLOYEE STOCK OPTION PLANS (ESOPs) • MOST COMMONLY USED FORM FOR EMPLOYEE OWNERSHIP • CAME INTO BEING AS A RESULT OF TIGHTENING LABOR MARKET FOR KNPWLEDGE WORKERS • THROUGH ISSUE OF FRESH EQUITY RESULTING IN DILUTION OF STAKE HOLDER SHARES AND AN ALTERATION IN THE COMPANY EQUITY STRUCTURE • THROUGH THE FORMATION OF A TRUST , WHICH BUYS COMPANY EQUITY FROM THE OPEN MARKET FOR OFFERING OPTIONS TO THE EMPLOYEES AS PER THE COMPANY POLICY. • EMPLOYEE STOCK PURCHASE PLAN (ESPP) • STOCK INDEXED PLAN • STOCK APPRECIATION RIGHTS (SARs) • PHANTOM STOCKS

  17. ESPP Under an employee stock purchase plan, stock is transferred to employees, usually at a discount to the market price. Under this scheme, full rights may be conditional and predicated on the occurrence of certain events e.g. continued employment and/ or achievement of certain business measures. During the restricted period, the employee enjoys full share-holder rights, except for the right to sell or transfer the shares.

  18. STOCK INDEXED PLAN • DOES NOT INVOLVE ACTUAL PURCHASE AND ACQUISITION OF SHARES. • EXPENSES NCURRED UNDER THE PLAN ARE TREATED AS TAX-DEDUCTIBLE COMPENSATION EXPENSE. • THREE MOST IMPORTANT FEATURES OF THIS PROGRAM ARE • THEY ONLY REWARD MANAGERS WHO OUTPERFORM THE MARKET • BECAUSE THE STRIKE PRICE IS NOT FIXED AND TENDS TO RISE EVERY YEAR, AN INDEXED PLAN WILL TRANSFER LESS VALUETHAN A CONVENTIONAL STOCK PLAN • INDEXED PLAN HAVE LOWER STRIKE PRICES AND HIGHER VALUES EVEN IN BAD TIMES MAKING IT EASIER TO RETAIN VALUABLE EMPLOYEES JUST WHEN THEY ARE NEEDED MOST.

  19. STOCK INDEXED PLAN STOCK APPRECIATION RIGHTS (SARs) • SARs provide employees with cash payments equal to the appreciation of the company’s stock over a specified duration. Thus, unlike other options, SARs provide employees with equity upside without exposure to any downside. Also, options, SARs result in periodic payments of cash to the employees over the SARs life. These are subject to same accounting treatment as index options and, therefore, are avoided by managers. • PHANTOM STOCKS • Phantom stock is simply a promise to pay a bonus in the form of the equivalent of either the value of company shares or the increase in that value over a period of time. Phantom stock is a form of long-term deferred compensation using the company stock as the measuring device for calculating the value of the deferred compensation. It simulates the company stocks in everything except that does not represent true ownership. The company simply credits these phantom shares on its books and as the value of the company stock rises and falls, so does the value of the phantom stock.

  20. THANKS

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