Academic journal article Indian Journal of Industrial Relations

Performance Related Pay in Central Public Sector Enterprises in India

Academic journal article Indian Journal of Industrial Relations

Performance Related Pay in Central Public Sector Enterprises in India

Article excerpt

Introduction

The public sector enterprises in India have always been considered as 'model employers'. The brightest of candidates dreamt of working for a public sector enterprise. However, with the opening of economy, the situation has taken a u-turn, the public sector enterprises are in a war for talent with its private counterparts. It is not only losing its talent pool to the private sector but fresh talents are more attracted to join private sector or MNCs were there is tremendous career progression along with attractive pay packages. With increase in opportunities, CPSEs are also finding it difficult to retain talented employees. As a result, public sector is under severe pressure in terms of attracting and retaining talent.

Pay has been considered an important reward to motivate the behavior of employees from the very inception of management science (Taylor, 1911) .The linkage between perceptions, pay and performance has been studied and established (Adams, 1963; Vroom, 1964; Lawler, 1971). Compensation serves to attract, retain and motivate high-potential employees. Meanwhile, the fulfillment of above goals is subject to constraints such as the maintenance of equity, cost control and legal requirements (e.g. wage and salary legislation).

"Compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of an employment relationship" (Milkovich & Newman, 2005). The phrase "financial returns" refers to an individual's base salary, as well as shortand long-term incentives. "Tangible services and benefits" are such things as insurance, paid vacation and sick days, pension plans, and employee discounts. (Milkovich & Newman, 2005) have used the term compensation and pay interchangeably in their book on compensation management and hence the term pay and compensation is used interchangeable in literature.

Linking pay with performance which is commonly referred as performance related pay has been followed worldwide in all sectors for attracting, motivating and retaining talent. Performance related pay links the compensation of the employees to their performance and their contribution to the organizational goals. Therefore, periodic performance reviews play a vital role and provide the basis for performance related pay. It is because of this reason that the CPSEs have to first develop a transparent and robust Performance Management System before the implementation of PRP in their respective organizations.

CPSEs in India, so far have been following a system wherein the entire compensation was guaranteed, irrespective of the performance of the company or the individual. The second pay revision for CPSEs was accepted by the cabinet on 26th Nov, 2008 to be implemented with retrospect from 1st Jan, 2007.The pay revision had recommended for the implementation of PRP for the first time in the history of public sector enterprises. Since PRP of an individual is based on performance against Key Result Areas (KRAs), all CPSEs should develop a robust and transparent Performance Management System.

Challenges before CPSEs

Intense Competition for Business & Talent: It is widely acknowledged that the public sector enterprises today are required to function in an intensely competitive environment dictated by market forces unleashed especially in the post liberalization phase of the country. The competition faced by the CPSEs from Indian private sector companies and the Multi-National Corporations (MNCs) operating in and outside the country, extends to both business and talent. In sharp contrast to the formative years of the public sector, barring very few exceptions, no Indian CPSE enjoys a product / service monopoly status or a captive consumption facility from its parent ministry / department. In such a situation, the CPSEs have to be as innovative, as ef ficient and as nimble footed the private sector companies and MNCs to successfully compete and win in the market place. …

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