Now, pay panel makes PSU execs richer

Written by Economy Bureau | New Delhi , May 30 | Updated: Jun 1 2008, 03:13am hrs
Executives in public sector undertakings (PSUs) would soon be taking home a fatter pay packet as the second pay revision committee for PSU executives has recommended a significant hike in the pay package, a higher weightage to performance-related pay (40-200%) as well as the introduction of employee stock option schemes (Esops). On the other hand, to bring in more accountability in PSUs functioning, units that are not making cash profits would automatically be referred to the Board for Reconstruction of Public Sector Enterprises (BRPSE).

The recommendations, submitted by the second pay revision committee to minister for heavy industries and public enterprises Santosh Mohan Dev, are expected to benefit around 2.5 lakh executives working with 247 PSUs. The seventh round of pay revision negotiations for the remaining 13.5 lakh workers are still in progress between the respective trade unions and managements.

The committee headed by Justice M Jagannadha Rao was set up in November, 2006 and was given 18 months to submit its report. The effective date of implementation for these pay proposals was January 1, 2007. PSU executives would now take home a salary of anything over Rs 3,40,000 per month as the committee has raised the range of basic pay of CMDs from Rs 55,000 to 1,00,000 depending upon the category. Over and above this, they would be eligible for allowances that would be 50% of the basic and an annual increment which could be anywhere between 2-4% of the basic pay.

The directors basic pay would now range from Rs 50,000 to Rs 80,000 per month. All these executive level officers would now be entitled for a risk pay which would range from Rs 1100-Rs 25,000 depending upon the performance of the PSU. The decision to formulate Esops would rest with the board of directors of the companies.

The increased pay would be linked with the performance of the PSUs. The better the PSU performs fatter would be the pay packet for the officers. The proposed hike would be not bleed the government exchequer as the PSUs would foot the bill.

This (performance-linked increment) is definitely going to work. It has worked for many sick PSUs, Dev said while releasing the pay committee's report. He added this was aimed at containing the outflow of professionals from the public sector to private sector mostly for more money.

The report has been submitted to Prime Minister Manmohan Singh, UPA chairperson Sonia Gandhi, finance minister P Chidambaram and Planning Commission deputy chairman Montek Singh Ahluwalia. Dev expressed hope that the report would be cleared by this December-end. The compensation package has been decided independent of what has been proposed for the government employees by the Sixth Pay Commission. The revision is an attempt to progressively align the pay of PSU executives with those of their private sector counterparts.

The committee has introduced a few new things like the grouping the PSUs in to five categories A+, A, B, C and D based on the total income, size of manpower and geographical spread or location of the PSU. These would be the deciding factors for the pay packet.

The other firsts in the report are introduction of the annual increment replacing the fixed increment, risk pay that would be paid only if the PSU was making cash profits, the variable pay or performance linked payment would range from 40-200% of basic pay and introduction of north-east allowance (12.5%), difficult area allowance (15%), under ground mines allowance (10%) and non-practicing allowance for doctors in PSUs (25%) which would be given outside the ceiling of 50% of basic pay.

In order to incentivise the turnaround of chronically ailing PSUS, CMDs and directors of PSUs who turn around sick units into profit-making entities would be allowed to continue to the age of 60 years. There would be no changes in the retirement age of other executives. Retirement benefits would be 30% of the basic pay which would include central provident fund, pension, gratuity and post retirement medical benefits. The benefits announced would also be extended to enterprises recommended for revival.

The committee has also recommended that all PSUs making cash profits that cant be fully eroded by implementing these recommendations should pay the Basic Pay, HRA and linked statutory contributions to its executives as per the new norms. However, Risk pay and other allowances will be paid based on the financial position of the PSUs.

For the purpose of deciding whether a PSU can afford the hikes, the committee has proposed that implementing these recommendations should not lead to a dip of over 20% in a PSUs profit from its 2007-08 level. Companies which are unable to make the pay the hiked salary upfront should implement it in stages.