Cement Corporation of India Ltd.

Presentation on Performance Related Pay in CCI

31st August, 2012

Background of the Company

Established in 1965 under Department of Heavy Industry for manufacture and sale of cement specially in remote/deficit areas. 11 plants set up across the country during 1970 to 1990 with a capacity of 42.48 lakh MT. Company incurred losses resulted into vicious loss making circle. Accumulated losses was Rs.2153 crore and negative net worth of Rs.(-) 1723.58 crore as on 31.3.2005. Declared sick and referred to BIFR in the year 1996. Revival plan approved in March, 2006 envisaging sale of 7 Nonoperating Units and expansion/modernisation of 3 Operating Units. The ailing company has turned the corner and became profitable from the year 2006-07. Consistently earning profit since 2006-07.
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Organisational Profile
Basic details
Established : 18th January, 1965

Manufacturing & Marketing

Number of Plants Manpower (as on 31.3.2012) Authorised Share Capital Paid up Share Capital

:
: : : :

Cement (5 Grades)
10 (3 Optg.+7 NonOptg.) 907 (Exe.122+Sup.140) Rs.900 crore Rs.811.41 crore

Net worth (as on 31.3.2012)

Accumulated loss (as on 31.3.2012)

:
:

(-) Rs.172.60 crore

Rs.968.34 crore
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Location of CCI Plants

Charkhi Dadri

Delhi G U

Optng. Plants IN GREEN CAP. 14.46 LMT (37%)

Nayagaon Adilabad Kurkunta

Akaltara Mandhar

Non-Optg Plants IN PINK CAP. 24.52 LMT (63%)

Total: 38.98 LMT (100%)

Vision and Mission of the Corporation

VISION To emerge as one of the leading cement companies committed to contribute to the economy and to enhance value for the stakeholders. MISSION To augment the wealth creation for the Company, deliver superior product and sustain market value.

Introduction of Performance Related Pay (PRP)

Background Second Pay Revision Committees recommendations for CPSEs and approval of Government of India made significant HR interventions to drive performance based culture in CPSEs. The salient features are as under: Introduction of cost to company (CTC concept); Performance Management System (PMS) based on key result areas; Differentiation of individual level performance through Bell Curve approach in PMS; Introduction of PRP directly linked to profits of CPSEs/ Unit in the performance of the employee. PMS to attain organisational, team and individual goal. PMS must be robust and transparent.
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DPE Guidelines on PRP

PRP to be directly linked to the profit of CPSE/Unit and performance of the employee. Percentage of PRP ceiling progressively increasing from junior to senior level from 40% to 200% from executive including Board level. Performance of the Company to be based on MOU rating 100% Excellent, 80% Very Good, 60% Good, 40% Fair. No PRP for Poor rated Company irrespective of profit. Robust and transparent PMS with Bell Curve approach, grading employees not more than 10% to 15% as Outstanding/Excellent and 10% as Below Par. Each CPSE to have professional Board with independent Directors. Remuneration Committee headed by independent Director to decide annual bonus/variable pay pool and policy for its distribution.
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Funding of PRP
PRP based on physical and financial performance and will come out of profit. 60% of PRP with a ceiling of 3% of profit before tax for the year. 40% of PRP from 10% of incremental profit.

Incremental profit to be reckoned from 2008-09.

Total ceiling of PRP 5% of profit for the year.

Implementation of PRP in CCI

Financial performance vis a vis divisible profit for PRP
(Rs.Crore)
Year Profit before Tax Divisible profit for PRP

Employees covered

3% of PBT

10% of incremental (limited to 2% of PBT)

1.05 0.02 -

Total

Executive

Nonexecutive

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

40.89 52.55 52.75 27.13

1.23 1.58 1.58 0.81

1.23 2.63 1.60 0.81*

95 98 95 *

231 222 228 *

2011-12

19.43

0.58

0.58*

* PRP for the year 2010-11 and 2011-12 has not yet been distributed.

Existence of MOU System

CCI has signed MOU with Ministry of Heavy Industries & Public Enterprises and MOU ratings are as under:2007-08 2008-09 2009-10 : : : Very Good Very Good Very Good

MOU system has also been introduced at the Unit level at the beginning of financial year. MOU is entered between each of the Unit with Corporate Office and the performance of the Unit is abjudged by its MOU rating. CCI is having 7 Non-operating Units which are closed and are under sale. MOU has also been entered with these Units based on different parameters like expeditious sale of Unit, generation of financial resources, economy in expenditure etc. Performance of these Non-operating Units are evaluated through their respective MOUs in terms of parameters stipulated above and their PRP is linked with the MOU rating and the rating of individual employee. 9

Remuneration Committee
Company is having two independent Directors. The Remuneration Committee consisting of following Directors is headed by an independent Director:1. Shri V.K. Agarwal, Independent Director Chairman 2. Shri Pankaj Agarwal, Independent Director Member 3. Shri S.K. Goyal, Director (Cost), DHI Member

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Performance Management System

Having robust and transparent PMS since 1995.Based on the financial year. Assessment based on tasks and targets set for each year in quantifiable terms and key performance areas (KPAs) identified for each appraisee. Self assessment of performance against targets by appraisee. Target setting mutually finalised by Reporting Officer and appraisee through performance review and planning session. Provision for mid term review. Performance assessment of management/leadership traits, skill, potential factor. Moderation by higher level Committee.to maintain bell Curve.
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Distribution under Bell Curve approach

Excellent Very Good Good Average Below average : : : : : 10% 20% 40% 20% 10%

Final assessment on weightage basis Reporting Officer I Reporting Officer II Reviewing Officer Total : : : : 40% 35% _25% 100%

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Key issues and challenges

PMS in CPSEs largely seen as tool of promoting employees and not as a means of reward or differentiate performance. Pay Revision Committee recommendations pose not only an HR system design challenge, but a deep rooted changed management task. Forced rating under Bell implementation challenge. Curve approach poses significant

Resistance by reporting officers for placing individual for lowest and highest groups.
Lowering of resentment. rating under moderation system may generate

Culture of transparency and communication to be evolved at all level for acceptance of change.
Key to successful implementation of PRP is a changed management initiative that aims to bring a fundamental shift in mindset of employees. 13