PRESENTATION ON

PERFORMANCE RELATED PAY (PRP) AND PERFORMANCE MANAGEMENT SYSTEM (PMS)

INDIAN RARE EARTHS LIMITED, MUMBAI

Overview of IREL
Mini Ratna Category-I CPSE under the administrative ministry of Department of Atomic Energy IREL is engaged in mining of beach sand minerals and production of rare earths

Established 18.08.1950
MoU signing - 1991-92
CORPORATE OFFICE, MUMBAI EST. 1950 MINERAL SEPARATION PLANT, OSCOM, 1983

Equity - Rs.86.37 crore Net worth Rs. 486 crore Total Manpower 2210
(Executives-581, Non Executives 1629)

RARE EARTHS DIVISION, ALUVA, 1952 MINERAL SEPARATION PLANT, CHAVARA, 1965 CORPORATE RESEARCH CENTRE, KOLLAM, 2002

MINERAL SEPARATION PLANT, MK, 1965

All operating units are ISO 9001, ISO 14001 and OHSAS 18001 certified

Vision & Mission of IREL

VISION
To be a significant contributor of strategic materials to Department of Atomic Energy To become a leading supplier of heavy minerals

MISSION
Sustainable contribution to nuclear power and energy security of the country through rare earth products and other strategic materials Develop value added products of heavy minerals in an environmentally and socially responsible manner

Products of IREL
MINERAL Use
Paints, Titanium Metal and Screws / Tools Camera Bodies, Welding, Industrial Appl.

Ilmenite (50-60% TiO2) Leucoxene (75-82% TiO2) Rutile (> 92% TiO2) Zircon (64-66% ZrO2) Monazite (58% RE2O3, 9% ThO2 & 27% P2O5) Sillimanite (56-58% Al2O3) Garnet (43% FeO, 21% Al2O3, 36% SiO2) NGADU, Rare Earths

Tio2 coated tiles used in Hospitals Aerospace Applications

Oxygen Sensors, Optical Glasses, Automotive Industry , GEM Stones, Structural Ceramics and Thermal Barrier coating

Uranium, Thorium and Rare Earths

Blast Furnace, Spark Plug, Refractory , Ceramics Abrasive Blasting, Water Jet Cutting, Ship Building & Repair, Stone washing Nuclear Applications
4

GUIDELINES ON PMS & PRP

PRP IS GOVERNED BY DPEs OMs DATED 26.11.2008, 09.02.2009 , 02.04.2009 & 06.07.2011 REGARDING REVISION OF SCALES OF PAY OF EXECUTIVES W.E.F. 01.01.2007

THE PRP HAS BEEN DIRECTLY LINKED WITH THE PHYSICAL AND FINANCIAL PERFORMANCE OF THE COMPANY AND PERFORMANCE OF THE EXECUTIVES

PRE-REQUISITES ON PERFORMANCE RELATED PAY

DPE IREL
IREL has a Professional Board with Independent Directors

Board

The Company should have Professional Boards with Independent Directors.

Remuneration Committee headed by an Independent Director to be constituted. No PRP unless the Independent Directors are on the Boards. Remuneration Remuneration Committee will decide the annual bonus/variable Committee pay pool and policy for its distribution within the prescribed limits. Robust & Transparent PMS

Remuneration Committee, headed by an Independent Director is in place.

In IREL PMS is in place w.e.f. 01.04.2010. The MOU is being signed as per schedule every year
6

PRP Factors effecting

MOU Rating Each CPSE is to sign an MOU with the Parent Ministry

REMUNERATION COMMITTEE IN IREL

2007-08 & 2008-09 2009-10 2010-11

100% executives, maximum 5% of distributable profit

P.R. Balasubramanian, Independent Director & Chairman of the PRP Committee Dr. R. N. Patra, The then Director (Technical) Shri S. Gopal Krishnan, Director (Fin)/ In-charge(HRM)

90% executives, maximum 5% of PBT

P.R. Balasubramanian, Independent Director & Chairman of the PRP Committee Shri R.N. Jayaraj, Independent Director

Dr. D. Chandrashekharam, Independent Director & Chairman of the PRP Committee Shri R.N. Jayaraj, Independent Director

Dr. S.D. Awale Independent Director

Shri N.J. N. Vazifdar, Independent Director

MOU RATING - PERFORMANCE RELATED PAY

DPE MOU Rating PRP (as % of Basic Pay) 100% 80% 60% MOU Rating

IREL PRP (as % of Basic Pay) 100% 80% 60% 40% Nil

Excellent Very Good Good

Excellent Very Good Good Fair Poor

Fair
Poor

40%
Nil

MOU Ratings of IREL during the years: 2007-08 Very Good 2008-09 Fair 2009-10 Fair 2010-11 Good 2011-12 (Provisional) Very Good

GRADE OF EXECUTIVE - PERFORMANCE RELATED PAY

DPE
Grade Percentage of Annual Basic Grade

IREL- Schedule B Company

Designation Percentage of Annual Basic

E0 to E-1
E-2 to E-3 E-4 to E-5 E-6 to E-7

40%
40% 50% 60% E-0 to E-3 E-4 to E-5 E-6 to E-7 E-8

Dy. Officer to Dy. Manager Mgr - SM DGM - GM CGM Directors CMD

40% 50% 60% 70% 150% 200%

E-8 to E-9 Directors(A&B)

CMD(A&B)

70 % 150%
200%

PROFITS OF THE ORGANISATION - PERFORMANCE RELATED PAY

DPE % of PRP 60% of PRP 40% of PRP Maximum limit as % of Profit Before Tax (PBT) 3% of PBT 10% of Incremental Profit % of PRP IREL Maximum limit as % of Profit Before Tax (PBT) 3% of PBT

60% of PRP

40% of PRP
Total PRP

10% of Incremental Profit

5% of PBT

Total PRP

5% of PBT

Bell Curve Approach to be adopted Not more than 15% as Outstanding and 10% as below Par

Bell Curve Approach being followed IREL

The PRP based on PMS is being implemented from 2009-10. Due to absence of robust and transparent PMS in place, PRP for the year 2007-08 and 2008-09 was paid on the basis of Distributable Profit
10

DPE

CPSE to develop transparent and robust PMS and adopt Bell Curve approach . CPSE who do not have PMS will put a PMS by 31.03.2009. For the period 01.01.2007 and till a PMs is in place not latter than 31.03.2009, the existing guidelines of DPE on PRP will apply , which is limited to 5% of the Distributable

PERFORMANCE RELATED PAY - CALCULATION

Based on PMS, computation of PRP payable to executives is being done as per the methodology laid down in DPE OM dated 02.02.2009.

Sl.No
A A1 B C D E F G

Factor
PRP for Current Profit (0.6) PRP for Incremental Profit (0.4) Annual Basic Pay MOU rating
40%

TOTAL PRP-Maximum 5% of PBT

3% Max of current PBT

60%

Grade of the employee Executive Performance Rating Ratio of share of PBT from current year profit available for PRP / amount required for current year PRP Ratio of share of PBT from incremental profit available for PRP / amount required for incremental PRP

2% Max of PBT restricted to 10% of incremental Profit

PRP for current profit PRP for incremental profit

Bx A x C x D x E x F B x A1 x C x D x E x G
11

HIGHLIGHTS FOR FINANCIAL YEAR 2007-08 TO 2011-12 (Rs. Lakhs) 2007-08 2008-09 2009-10 2010-11 2011-12 (Prov.)

PBT
PAT

22876.78
15557.49

8288.05
5676.80

4781.54
2307.44

5243.75
3189.37

24984.11
17044.92

STATUS OF PAYMENT OF PRP IN IREL

2007-08 2008-09 2009-10 -

Rs 702.87 lakhs linked to Distributable Profit paid Rs 262.55 lakhs linked to Distributable Profit paid
Calculation in progress to distribute Rs 143.44 lakhs as recommended by Remuneration Committee. Calculation in progress to distribute Rs 203.53 lakhs as recommended by Remuneration Committee.
12

2010-11 -

PRP AMOUNPRP AMOUNT AVAILABLE FOR 2009-10 Amount in Amount in T AVAILABLE FOR 2009-10

Lakhs- 2009-10 Lakhs 2010-11 PBT for the year

4781.54

5243.75 157.31

Share of PBT from current 143.44 years profit available for PRP (Max. 3% of PBT) Incremental Profit

NIL

462.25 46.23

Share of PBT available from NIL incremental profit (Max. 2% of PBT subject to a limit of 10% of incremental profit) Amount available for PRP

143.44

203.54

5% of PBT

239.08

262.19

13

FEATURES OF EXISTING PERFORMANCE MANAGEMENT SYSTEM(PMS) IN IREL

PMS provides the Performance Rating of the Executives which depends on factors with weightage as mentioned below:
Grade/Scale Key Result Area (KRA)* E-0 to E-3 E-4 to E-8 0.8 0.5 Weightage Performance Factor ** Not Applicable 0.3 Attendance *** 0.2 0.2 1.0 1.0 Total

* KRA Score from the Performance Appraisal Report is taken into account ** Performance score from the Performance Appraisal Report is taken into
account

*** Attendance score is calculated on the basis of actual working days

14

FEATURES OF PERFORMANCE MANAGEMENT SYSTEM IN IREL

Executives having KRA rating of POOR (5 out of 10) and who do not submit PAR within the next stipulated period are not eligible for PRP. Final Executive Performance Rating, a combination of KRA Score, Performance Score and Attendance, is given multiplying factor in terms of percentage in the DPE prescribed PRP formula as under subject to Bell Curve stipulations :
Excellent Very Good Good Average Fair Poor 9-10 (100%) 8-8.99(80%) 6-7.99(60%) 5-5.99(40%) 4-4.99(30%) 3.99 and below (0% - No PRP)

15

METHODOLOGY TO ENSURE THAT NOT MORE THAN 15% OF EXECUTIVES ARE EXCELLENT / OUTSTANDING : The executives to be grouped into two Clusters, Unit wise
Cluster Grade

A B

E-0 to E-3 (Dy. Officer to Dy. Manager) E-4 to E-8 (Manager to CGM)

If the number of executives having Excellent is less than 15% of the cluster size, then the DPEs stipulation of not more than 15% of executives should be graded as Excellent / Outstanding is complied If number of executives in each cluster in respect of the Unit is more than 15% of the cluster size, then the top 15% executives in each cluster will only be eligible for payment of PRP with Excellent Performance Rating ( entitled for payment of PRP with multiply factor of 100%). The rest of the executives, who have secured Excellent will be grouped with Very Good Performance Rating and will be entitled for payment of PRP with multiplying factor of 80%. .
16

METHODOLOGY TO ENSURE THAT 10% OF EXECUTIVES ARE TO BE GRADED AS BELOW PAR :

In case, the number of Exclusions( poor performers ) in each cluster, Unit wise, is 10% or more of the cluster size then, the DPEs stipulations of 10% of executives to be graded as below par is complied with and in such eventuality, it calls for no interference.

In case, the number of Exclusions is less than 10% of the cluster size, then the executives falling in bottom 10% of the cluster, including the Exclusions will be categorized and graded as below par. Such executives falling in the below 10% in each cluster, Unit wise will be categorized as Ineligible Executives for PRP, which basically would consist of Exclusions plus Executives not eligible for PRP 17 for below par stipulations.

EXISTING PERFORMANCE APPRAISAL SYSTEM IN IREL

Different sets of Appraisal Forms for below Board level executives: Performance Appraisal Form for GMs (E-7) & CGMs (E8),as per DPE guidelines vide DO. No. 5(1) / 2000-GM dated April 05, 2010 has been adopted by IREL w.e.f. 2010-11 onwards. For Executives in Dy. Officers(E-0) to DGMs(E-6) Performance Appraisal is done on financial yearly basis , which basically involves: KRA setting, half yearly review, annual review by Reporting Officer. Final Assessment of KRA by Reporting and Reviewing Officer. Assessment of managerial skills comprising of Performance Factor and Potential Factor. Self appraisal, training needs and future career option. Determination of the final overall grade and score by Reporting Officer and Reviewing Officer. Reviewing and acceptance by the Accepting Authority.
18

EXISTING PERFORMANCE MANAGEMENT SYSTEM IN IREL

The allocation of weights in respect of KRAs, Performance Factor, Potential Factor
Level Dy. Officers to Managers Senior Managers and upto DGMs KRAs 0.3 0.3 Performance Factors 0.4 0.3 Potential Factors 0.3 0.4 Total 1.00 1.00

Performance Appraisal Report is having linkage with Performance Related Pay(PRP), Promotion and Training and Development etc. of the Executives.

IREL has assigned the task of reviewing the existing Performance Management System(PMS) to M/s. Deloitte Pvt. Ltd, who are in the process of submitting its report. The same will be examined by IREL and implemented 19 appropriately from 2012-13.

DIFFICULTIES IN IMPLEMENTING PRP

Job security

in PSU acts as a hindrance in the executive acceptance of the PRP payment guidelines, where minimum 10% of the executives are to be kept outside of PRP payment.

Adoption of suitable mechanism to weed out consistent non-performers in PSU may address the above issue.
20

21