Performance Pays

Written by Arun S | Updated: Mar 31 2008, 04:03am hrs
France had adopted it as early as in 1946, followed by Japan in 1950, while Canada did it in 1964 and the US in 1978. Even as India is still debating the introduction of Performance Related Incentives (PRI) as recommended by the Sixth Pay Commission to civil servants, an Indian Institute of Management, Ahmedabad study has shown that many other governments across the world have already shown the way. But in India, the story is quite different. The pros and cons of the incentives are yet to be sorted out. And here, despite earlier Central Pay Commissions and several expert committees mooting PRIs, there is hardly any motivation for civil servants in the departments and ministries to perform better as there is little reward or recognition attached to it.

In India, bureaucrats are given salaries, allowances and raises only as per their service duration and increases in salaries are guaranteed whether one performs exceptionally well or even under-performs. Besides, if a government employee takes risks and the results go awry, he can even be penalised.

The exception to the rule have been public sector units like NTPC, IOC, Bharat Heavy Electricals Limited, Shipping Corporation of India and the Indian Railways, which have implemented PRI schemes, the study said.

Many feel the recommendation for a PRI scheme is in a way an open acknowledgement that it is the only way the government can attract and retain talent. And this is at a time when the private sector is paying astronomical salaries and bonuses.

The Pay Commission said the PRI scheme should be budget neutral, meaning that there would be no additional budgetary allocation for the payment of the incentives. The recommendation is that the entire PRI amount should be generated by the respective ministries and departments themselves, thereby bringing in greater functional autonomy which calls for innovation, value addition of services, use of IT as well as empowering and consultative styles of working.

The PRI scheme, to be funded by 50% of the savings of the departments concerned, would replace existing annual bonus, honorarium and over-time allowances and would be implemented on a voluntary basis. The primary areas that the Commission feels would benefit from these incentive schemes are the social and developmental sectors, especially in the fields of food security, elementary education, primary healthcare and rural/urban development. The hope is that the introduction of the PRI sceme will make these departments more professional, cost-efficient, citizen-friendly and delivery-oriented.

Agreeing to this line of thinking, Nishchae Suri, principal, Hewitt Associates, said: The introduction of the scheme would also help improve the employer brand image for the central government. But he added that though it is important that the level of bonus payout should be tied strongly to performance levels, most pay plans that have been introduced for civil servants have met with some scepticism about the reliability of how staff performance is evaluated.

A senior government official explained on condition of anonymity that in a system where there is corruption all around, there will be lack of intellectual ability to objectively judge people on the actual performance. They usually go by other considerations. Also, while target-setting for employees, the bosses can impose unrealistic levels for those subordinates with whom they do not get along and fix easy benchmarks for their favourites. Therefore, realistic and objective target-setting is important, or else the scheme will turn out to be inoperative, the official said.

Another official added that it will be very difficult to generate extra money for secretarial departments to pay for PRI schemes. Also, in such departments, it is very difficult to assess performance. In contrast, judging performance in departments dealing with infrastructure projects, and income tax collection would be easy to tabulate. In these departments it is easy to set clear and measurable targets and generate extra money to fund the PRI scheme, the official said.

Experts also said an objective evaluation process calls for transparency of information regarding performance of officials. Giving clarity of roles and empowering the official with decision rights, along with performance-related rewards would also contribute to better performance and improve risk-taking abilities. Also, team rewards and individual performance will have to be recognised in a balanced manner. As Anil Sachdev, chairman and MD, Right Grow Talent, said: Senior officials may take all the credit when things go well and might shift the blame to the juniors when their plans fare badly. Besides, some officers may take rash decisions that may give them good rewards in the short-term, but damage the organisation in the long-term. Greed should not get the better of goodness, Sachdev said, citing the sub prime crisis in the US, where some leaders took good short-term decisions to win bonuses, causing serious harm to the financial system in the long run.

Agreeing to this point of view, Suri said: Introduction of a performance plan is required which focuses on achieving results over a period of time, typically three to five years. This will ensure long-term focus, motivation to maintain and improve performance standards and retention of employees.

The Commission has said that higher performance would be judged by improved delivery to the end user by an external, independent agency. As citizens become more aware of their rights, they will demand better performance from government functionaries. It is high time that the government dumped non-performers and awarded huge bonuses to the best, said Sachdev.

In what form the PRI scheme takes off is still open for debate. What would be interesting to see then would be how the babus measure up.