PROPOSED GUIDELINES FOR PERFORMANCE-RELATED INCENTIVE SCHEME (PRIS) DRAFT FOR DISCUSSION ONLY

Transcription

1 Preliminary Draft for Discussion: Not to be used for any other purpose PROPOSED GUIDELINES FOR PERFORMANCE-RELATED INCENTIVE SCHEME (PRIS) DRAFT FOR DISCUSSION ONLY

2 TABLE OF CONTENTS 1 Why Performance-Related Incentive Scheme (PRIS)?. 2 2 What is Performance-Related Incentive? What is the rationale for PRIS? 2 4 Who is eligible for PRIS?. 3 5 How is the departmental performance measured for PRIS?. 4 6 How is the total amount of incentive to be distributed calculated? How is the incentive to be distributed among employees? 8 8 What are the financial implications of PRIS?. 9 9 How the budget savings are to be arrived at? How PRIS shall be implemented? What is the time table for implementing PRIS for ? 11 Annex I: Checklist of Eligibility Criteria for PRIS 12 Guidelines for Performance-Related Incentive Scheme (PRIS) Page 1 of 12

3 GUIDELINES FOR PERFORMANCE-RELATED INCENTIVE SCHEME (PRIS) 1. Why Performance-Related Incentive Scheme (PRIS)? The Sixth Pay Commission in paragraph of its report recommended introduction of a new performance based pecuniary benefit, over and above the regular salary, for the Central Government employees. The Government of India accepted the recommendations and decided that the detailed guidelines will be issued by the nodal ministry. Performance- Related Incentive will be payable taking into account the performance of the organization and employee during the period under consideration. It is based on the principle of differential reward for differential performance. 2. What is Performance-Related Incentive? A Performance-Related Incentive (PRI) is defined as the variable part of pay which is awarded each year (or on any other periodic basis) depending on performance. PRI schemes are applied at the individual employee level and at the team/group level. The definition of PRI excludes: Any automatic pay increases by, for example, grade promotion or service-based increments (not linked to performance); Various types of allowances which are attached to certain posts or certain working conditions (for example, over time allowances, allowances for working in particular geographical areas) 3. What is the rationale for PRIS? There are three constituents of an effective Performance Improvement System, viz. Performance Information System, Performance Evaluation System and Performance Incentive System. All three constituents are to be appropriately addressed to achieve sustainable performance improvement of an organisation. These Guidelines, however, deal only with the performance incentive system. The accountability for performance and incentivising the same must go together and all the levels of the government from top to bottom are to be integrated in the process. 4. Who is eligible for PRIS? Guidelines for Performance-Related Incentive Scheme (PRIS) Page 2 of 12

4 i. To qualify for financial incentives, the department will have to get a performance rating of more than 70% on its Results-Framework Document (RFD). Thus, to receive the maximum bonus, the department must not only reduce costs compared to previous year but also achieve excellence in the delivery of services and other performance commitments. ii. No incentive would be paid if the composite score is 70% or less. Thus cutting costs that affect quality and effectiveness of delivery of services would not be a viable strategy for departments. iii. The Department should implement a bio-metric access control system in its offices to ensure punctuality and availability of officials. To be eligible for incentive payment for the year , departments should have installed the bio-metric access control system by February 15, iv. A department gets eligible for payment of incentives for its employees only after it has prepared RFD for two full years. Hence, earliest period for which incentive could be paid to Government employees would be for the year v. The incentive scheme would be required to cover all employees of a department. While the incentives paid to Secretaries, Special Secretaries and Additional Secretaries would depend entirely on departmental performance reflected in the RFD, the incentives paid to the Joint Secretaries / Heads of Divisions would depend on weighted average of their division s performance and departmental performance. Incentives for officials below the Joint Secretary level would depend mainly on their individual performance. Secretary becomes eligible for payment of incentives when all others in the department get covered under the scheme. vi. The incentive scheme for categories of employees below the level of Joint Secretaries is to be framed by divisions / departments concerned so as to have flexibility to build the specific requirements of a department. The scheme will have to be approved at the beginning of the year for which the payments will be made. vii. As the amount payable under PRIS is based on annual performance of the department and cost reduction, the employees who are not posted in the department for full year and are either transferred out or transferred in are to be paid on proportionate basis for the period of their stay in the department, subject to the condition that their period of stay should be for a minimum of 3 months in that department. Further, the employee should have attended office for 100 % of the net working days 1 during the year or during the period of his stay in the department. viii. It is expected that departments will ensure that the average score of APARs of all officers reporting directly to the Secretary of the department would be exactly the same as the departmental Composite Score for the RFD of that year. 1 Net working days = 365 days {(weekends) + (annual entitled leave days)} Annual entitled leave days = earned leave + casual leave + Gazetted Holidays+ 2Restricted Holidays+ medical leave+ other annual entitlements. (In case of less than a year stay of an official in the department, proportion of annual entitlement of leave shall be taken into account). Guidelines for Performance-Related Incentive Scheme (PRIS) Page 3 of 12

5 ix. The present guidelines are for those departments that have not yet implemented Performance-Related Incentives as recommended by the Sixth Pay Commission. x. The departments already having their own Performance- Related Incentive Scheme will have the choice to adopt this scheme in place of the existing scheme(s) How is the departmental performance measured for PRIS? Performance for the Government is not measured in terms of profit, but in terms of achieving societal goals and desired outcomes, such as, reduction of crime, enhancing the quality of life, reducing infant mortality etc. Performance is effective service delivery and responsiveness to stakeholders. In the Governmental context, performance can be defined as the ability of the Government to acquire resources and to put these resources to their most efficient use (input-output relationship) and to achieve the desired outputs and outcome goals (output-outcome relationship). It is the shift from inputs-process emphasis (efficiency) to results, social goals and outcomes (effectiveness). Performance can, in the final analysis, only be viewed in terms of the final deliverables to the user/stakeholder. The proposed performance measurement methodology for PRIS is consistent with the methodology adopted for Results-Framework Document (RFD) already in place. The proposed methodology for the performance measurement consists of six steps as follows: Step 1: Select Key Departmental Objectives Objectives represent the developmental requirements to be achieved by the department in a particular sector by a selected set of policies and programmes over a specific period of time (short-medium-long). For example, objectives of the Ministry of Health & Family Welfare could include: (a) reducing the rate of infant mortality for children below five years; and (b) reducing the rate of maternity death by (30%) by the end of the development plan. Objectives could be of two types: (a) Outcome Objectives address ends to be achieved, and (b) Process Objectives specify the means to achieve the objectives. As far as possible, the department should focus on Outcome Objectives. Objectives should be directly related to attainment and support of the relevant national objectives stated in the Five Year Plan, National Flagship Schemes, and sector and departmental strategies. Objectives should be linked and derived from the Departmental Vision and Mission statements. Step 2: Assign Relative Weights to Objectives Objectives in the Performance Measurement System should be ranked in a descending order of priority according to the degree of significance and specific weights should be attached to these objective. All weights must add to 100. Step 3: Specify Means for Achieving Departmental Objectives For each objective, the department must specify the required actions (policies, programmes, schemes and projects) to achieve the objective. Step 4: Specify Success Indicators 2 Annex I contains a checklist of eligibility criteria summarizing the points made above. Guidelines for Performance-Related Incentive Scheme (PRIS) Page 4 of 12

6 For each of the means specified in Step 3, Ministry/Department must specify one or more success indicators or Key Performance Indicators (KPIs). A success indicator provides means to evaluate progress in achieving the policy, programme, scheme and project. Sometimes more than one success indicator may be required to tell the entire story. Success indicators are important management tools for driving improvements in departmental performance. They should represent the main business of the organization and should also aid accountability. A good set of targets should help the parent ministry, department, and the general public judge how well the department is being run, and how well it is implementing the Five Year Plan objectives. The weight assigned to a particular objective should be spread across the relevant success indicators. Step 5: Specify Targets for Success Indicators The next step is to choose a target for each success indicator. In setting targets Ministry/Department should consider the best mix of volume, quality, customer service, efficiency and financial performance targets given their priorities. A good set of targets can balance the pursuit of improved service delivery with the need to provide value for money. Targets are tools for driving performance improvements. Target levels should, therefore, contain an element of stretch and ambition. However, they must also be achievable. It is possible that targets for radical improvement may generate a level of discomfort associated with change, but excessively demanding or unrealistic targets may have a longer-term demoralizing effect. The target should be presented as the following five-point scale Excellent Very Good Good Fair Poor 100 % 90% 80% 70 % 60 % It is expected that budgetary targets would be placed at 90%. For any performance below 60%, the department would get a score of 0%. Steps 1-5 mentioned above can be presented in a tabular form as represented in Table 1. Table 1: Structure of a Performance Measurement System (at the beginning of the year) Step 1 Step 2 Step 3 Step 4 Step 5 Target / Criteria Value Objective Weight Actions Success Excellent Very Unit Weight Good Indicator Objective 1 Objective 2 Objective 3 Action 1 Action 2 Action 3 Action 1 Action 2 Action 3 Action 1 Action 2 Action 3 Good Fair Poor 100% 90% 80% 70% 60% Guidelines for Performance-Related Incentive Scheme (PRIS) Page 5 of 12

7 Step 6: Performance Evaluation The sixth and final step is taken at the end of the year, when we look at the achievements of the government department, compare them with the targets, and determine the composite score. Table 2 provides an example from the health sector. Step 1 Step 2 Step 3 Objective Weight Action Criteria / Success Indicators Better Rural Health 30% Improve Access to Primary Health Care Table 2: Hypothetical Example from the Health sector Step 4 Step 5 Step % Increase in number of primary health care centers % Increase in number of people with access to a primary health center within 20 KMs Number of hospitals with ISO 9000 certification by December 31, 2011 Unit Weight Target / Criteria Values Excellent Very Good Good Fair Poor 100% 90% 80% 70% 60% Achievement Raw Score Weighted Raw Score % % 37.5% % % 27% % % 20% Composite Score = 84.5% Guidelines for Performance-Related Incentive Scheme (PRIS) Page 6 of 12

8 The Raw Score for Achievement in Table 2 is obtained by comparing the achievement to the agreed target values. The Weighted Raw Score for Achievement is obtained by multiplying the Raw Score with the relative weights. Finally, the Composite Score is calculated by adding up all the weighted achievements. The composite score shows the degree to which the government department in question was able to meet its objective. The fact that it got a score of 84.5 % in the hypothetical example given above, implies that the department s performance vis-à-vis this objective was rated as Very Good. The methodology outlined above is transcendental in its application. Various departments will have diverse set of objectives and corresponding success indicators. Yet, at the end of the year every department will be able to compute its Composite Score for the past year. This Composite Score will reflect the degree to which the department was able to achieve the promised results. 6. How is the total amount of incentive to be distributed calculated? The Performance Related Incentive to be distributed has to come from total savings in non plan expenditure during the year. A Ministry/Department will get a total incentive decided as per the following formula: Total Incentive Payment =.15 X Composite Score X C C 0 1 Where: This scheme has the following implications: C 0 = Budgeted non-plan Expenditure C 1 = Actual non-plan Expenditure a. The maximum incentive payment can be only 15% of the Budget savings. This will be given to the department only if they achieve a composite score of 100% (Excellent). Thus, to receive the maximum incentive, the department must not only reduce costs compared to previous year but also achieve excellence in the delivery of services and other performance commitments. b. No incentive would be paid if the composite score is 70% or less. Thus cutting costs that affects quality and effectiveness of delivery of services would not be a viable strategy for departments. c. The amount of incentive calculated using this formula set the upper limit for the distribution. Guidelines for Performance-Related Incentive Scheme (PRIS) Page 7 of 12

9 7. How is the incentive to be distributed among employees? For the purpose of distribution of the incentive the employees can be categorized in three categories: a. Head of the Department (Secretary) b. Head of the Division (Joint Secretary) c. Others 7.1 Performance related Incentives for Head of the Department (Secretary) The Secretary will get an incentive that is totally correlated with the performance of the department under her /his management. As depicted in Table 3, in Phase 1 the HOD will get a maximum of 20 % of his / her basic salary if the Composite Score at the end of the year is 100%. There will be no payment to the HOD if the value of the Composite Score is 70% or less. Table 3: Incentive Payment for the Head of the Department (Secretary) Value of the Composite Score Incentive Payment (% of the Basic Salary) Phase 1 Phase 2 Phase years 4-6 years 6-9 years 100% 20% 30% 40% 90% 10% 15% 20% 80 % 5% 10% 15% 70% 0% 0% 0% Special Secretary and Additional Secretaries will get the same percentage amount as the Secretary. Incentive payment for a composite score between the points mentioned in the table above will be paid on the basis of interpolation. 7.2 Performance Related Incentives for the Head of the Division (Joint Secretary) The performance related incentive for heads of the divisions within a Ministry/Department will depend on two factors: a. 30 % on Departmental performance as measured by the Composite Score for the Departmental Performance Measurement System, and b. 70 % on Divisional performance as measured by the Composite Score for the Divisional Performance Measurement System. The Weighted Composite Score will be calculated as follows: Weighted Composite Score Departmental Composite Score =.30 X +.70 X Divisional Composite Score Guidelines for Performance-Related Incentive Scheme (PRIS) Page 8 of 12

10 The distribution of incentive payments to Heads of Divisions (Joint Secretaries) would depend on a similar payment schedule as the Heads of the Department (Secretaries). The difference would be that the relevant composite score in the case of heads of divisions would be based on the weighted score of departmental and individual performance. Table 4 summarizes the incentive payout for heads of divisions. Table 4: Incentive Payment for the Head of the Division(Joint Secretary) Value of the Weighted Composite Score Incentive Payment (% of the Basic Salary) Phase 1 Phase 2 Phase years 4-6 years 6-9 years 100% 20% 30% 40% 90% 10% 15% 20% 80% 5% 10% 15% 70% 0% 0% 0% 7.3 Performance Related Incentives for Others Given the diversity of departments and their mandates, divisional heads will have the flexibility to devise appropriate performance-related incentive keeping the following broad guidelines in mind: a. The weight of departmental composite score should be in the range of 5%-15%. The lower level employees should be closer to 5%. b. The maximum level of PRI should not exceed the percentage of basic salary as indicated in Table 4. c. The performance related incentive scheme should be approved by the Secretary at the beginning of the year. d. Each division will have the flexibility to adopt a different PRI scheme. 8. What are the financial implications of PRIS? The performance related incentive scheme is budget neutral. The payments will come out of budgetary savings. In fact as only 15% of the savings are utilized, the scheme shall result into deficit reduction. The maximum amount of PRI payable is depicted in Tables 3 and 4 in Section 7 above. However, if the amount calculated is more than the cost savings available for distribution that year, payments to all employees will be reduced proportionally to match the total amount paid with the cost savings achieved. Guidelines for Performance-Related Incentive Scheme (PRIS) Page 9 of 12

11 9. How the budget savings are arrived at? The following process shall be followed by the eligible Ministries / Departments for calculation of savings out of which a maximum of 15% shall be available for distribution as performance-related incentive: i. The first year for which the incentives become payable shall be ii. Based on the trend of expenditure for three years i.e , & and their requirements for , ministries / departments shall be provided budget (B.E.) under Non-Plan category for It is expected that ministries shall make efforts to save on the budget of non-plan expenditure for and arrive at reduced Non-Plan Budget at (Revised Estimate) R.E. stage in The figures of these proposed savings for the year shall be worked out after due consultation with proposed Expenditure Research Unit and concerned Financial Advisors and shall be finalized during the budget discussions in October / November iii. Departments / Ministries have to achieve the savings as indicated in R.E. for iv. A provision for 15% of this amount, i.e. (B.E. R.E.), for Non-Plan expenditure shall be made in the budget for under the salary head of account for Performance Related Incentive (PRI). At the end of the year, if the department qualifies for PRI, both by meeting Performance and Cost Reduction criteria, the incentives may be paid to employees by August / September However, incentives should be disbursed only after the finalization of expenditure / savings figures as well as RFD Composite Score for the year v. Same process may be applicable and repeated in subsequent years. vi. Financial Advisors with support of proposed Expenditure Research Unit have to ensure that the Savings qualifying for incentive payments are efforted savings and not the savings due to non approval of proposals for expenditure or slow progress in implementation of schemes. The amount available for incentive distribution in shall be 15 % of the amount actually saved during A few examples of cost reduction / savings may be such as use of travel vouchers / competitive prices instead of full fare travel tickets, paper less office through e-office implementation, pooling of secretarial staff, pooling of staff cars, doing away with honorarium and bonuses once performance related incentives are implemented and rationalization of the functions, activities and structure of Ministries / Departments. 10. How PRIS shall be implemented? PRI scheme is to be introduced on a voluntary basis. Departments to become eligible only after preparing RFDs for two years Guidelines for Performance-Related Incentive Scheme (PRIS) Page 10 of 12

12 Only if RFD for a department is declared satisfactory by High Power Committee (HPC) on Government Performance, then it becomes eligible for PRI. Further, the composite scores of the departments/ Ministries are also to be approved by HPC. Secretaries become eligible only after a PRI scheme for all employees is in place. HPC on Government Performance to approve distribution of incentives An Expenditure Research Unit shall be created and managed jointly by the Department of Expenditure (DOE), Controller General of Accounts (CGA) and Performance Management Division (PMD), Cabinet Secretariat. It shall do analysis and benchmarking of government expenditure and suggest areas of cost reduction / cost optimization and savings on continuous basis. Integrated Financial Advisors (IFAs) to be the focal point for certifying cost reductions The nodal department / ministry for PRIS shall be Department of Expenditure, Ministry of Finance. As far as savings are concerned, the department as a whole is proposed to be taken as a unit and the RFD process should include all divisions / wings of the department appropriately and properly indicate success indicators so that performance of different divisions of the department are properly demonstrated. It is expected that departments will ensure that the average score of APARs of all officers reporting directly to the Secretary of the department would be exactly the same as the departmental Composite Score for the RFD of that year. Guidelines for Performance-Related Incentive Scheme (PRIS) Page 11 of 12

13 Annex I C H E C K L I S T O F E L I G I B I L I T Y C R I T E R I A F O R PRI S To be eligible for performance related incentives under these Guidelines, an organization must be able to answer all questions as YES. Criterion 1 Has your organization prepared RFD for the past two years (i.e., FY & FY )? 2 Was the Composite Score for your organization greater than 70%? Yes or No 3 Did HPC approve the quality of your organization s RFD as satisfactory? 4 Did you implement an effective bio-metric access control system by February 15, 2012? 5 Were Divisional RFDs approved by Secretary by April 5, 2012? 6 Were Performance-Related Incentive Schemes for officers below the level of Joint Secretaries in various divisions approved by the Secretary by April 5, 2012? 7 Did you save some non-plan expenditure compared to the budgeted amount for the year ? 8 Is the average score for the annual performance appraisal reports for all officers reporting directly to the Secretary of the department equal to the Composite Score for RFD ? Guidelines for Performance-Related Incentive Scheme (PRIS) Page 12 of 12