In what could set off alarm bells in PSUs, performance-linked pay in about half a dozen Central government units may be cut for not meeting department of investment and public asset management (DIPAM) guidelines on buyback and dividend in 2016-17, a government official told FE. “These PSUs have neither taken exemption, nor complied with the capital restructuring guidelines. So, their MoU (memorandum of understanding) performance rating will be reduced,” the official aware of the development said without naming the companies.
Currently, performance-related pay can be as high as 200% for CMDs while it is 40% for the lowest grade officers if the rating of the PSU performance is excellent as per the MoU signed earlier. A downgrade would bring down MoU rating from excellent to very good and very good to good, resulting in reduction from 100% eligibility to 80% and 60%, respectively.
On May 27, 2016, the Centre had issued a capital restructuring order mandating every central PSU with a net worth above Rs2,000 crore and cash and bank balance of over Rs1,000 crore to exercise the option to buy back a portion of their shares with effect from 2016-17. The move paid off as seven PSUs bought back shares worth Rs18,963 crore or 41% of the total disinvestment receipt of Rs46,247 crore in FY17. The new guidelines on dividend, mandating every CPSE would pay a minimum annual dividend of 30% of profit after tax or 5% of the net worth, has also yielded good results. CPSEs are likely to have met the 2016-17 revised dividend target of Rs77,000 crore, more than double of Rs30,616 crore in 2015-16. As per the capital management guidelines, some PSUs also issued bonus shares.
Share buybacks, which became a key vehicle of disinvestment of government shares in FY17, are likely to be replicated this year as well to meet the ambitious disinvestment target of Rs72,500 crore. According to DIPAM criteria, nearly 20 Central PSUs qualify for buyback, including ONGC, BHEL, Oil India, Mazagon Dock, Ircon International, NTPC, Airports Authority of India and SJVN. However, companies with significant capex plans can seek exemption from buyback compliance. Last week, the department of public enterprises (DPE) held meetings with nearly two dozen PSUs to assess their surplus cash position and whether these units complied with DIPAM guidelines. As on March 31, 2016, Central PSUs had cash surplus of Rs2.4 lakh crore.