Changing matrix: CPSE staff’s pay to depend on M-cap too, greater role for asset sales

The staff of central public sector enterprises (CPSEs) – which are around 250 in number now – may lose on their performance-related pay (PRP), if the firms fail to meet the market capitalisation goals. M-cap performance will be added to the set of parameters governing PRP in the customary memorandum of understandings (MoUs) being signed between the government as the owner and individual CPSEs starting 2021-22 financial year, according to official sources.

Similarly, another PRP criterion – performance related to asset monetisation – which was introduced in the MoUs of some PSUs in FY21, will likely be further beefed up, by assigning more weight to it (just 3 marks out of 100 now) in the relevant index.

Both the moves are expected to aid the government’s non-debt receipts – while M-cap improvement will boost disinvestment receipts, the asset monetisation drive is a relatively new channel of resource mobilisation, with great potential to boost government receipts in the short to medium term.

With listed CPSEs losing about Rs 4.9 lakh crore in market value between March 31, 2019, and September 30, 2020, the government is working on an action plan to restore and boost the M-cap of these entities.

The department of investment and public asset management (Dipam) and department of public enterprises (DPE) are working on revising PRP guidelines on these lines, the sources added.

What this means is that a slippage in the performance on the two parameters could result in a firm’s performance rating downgrade and consequent reduction in variable pay of its staff.

Currently, PRP can be as high as 150% of basic pay for CMDs while it is 40% for the lowest grade officers, if the rating of the PSU performance is ‘excellent’ (a score above 90%), which ensures 100% PRP eligibility. A downgrade would bring down the MoU rating from ‘excellent’ to ‘very good’ and from ‘very good’ to ‘good’, resulting in a reduction from 100% eligibility of performance-linked pay for excellent rating to 80% and 60%, respectively. Less than 50% score means staff will be denied PRP.

The combined salary bill of CPSEs stood at Rs 1.53 lakh crore in FY19; these firms employ over 15.1 lakh people.

The market capitalisation of listed CPSEs (about 58 of them) stood at Rs 8.8 lakh crore on September 30, 2020, down 36% from Rs 13.71 lakh crore on March 31, 2019. During the same period, the BSE M-cap rose 1.3%. In fact, the M-cap of all the listed CPSEs was 42% lower than that of Reliance Industries (Rs 15.2 lakh crore) alone as on September 30, 2020.

CPSE heavyweight ONGC’s stock (the CPSE in terms of highest M-cap), has lost 57% value between March 29, 2019, and August 24, 2020. Similarly, NTPC has lost 37% and PowerGrid 18% during the period.

So, a recovery in the valuation of CPSEs would help the Centre maximise revenue from strategic disinvestment/minority stake sales in these companies. There could be a separate mechanism for unlisted CPSEs, most of which are very small firms. The move is aimed at encouraging the top management to improve corporate governance and make investor outreach to gain their trust.

After the new asset monetisation policy was announced in the interim budget for FY20, the Niti Aayog had submitted a report to the government for immediate asset monetisation worth Rs 1 lakh crore by various CPSEs. Asset monetisation was included as a minor parameter with it only carrying 3 marks broken into three parts with 1 mark each (preparation, approval from Dipam and achieving set goals). The weight for asset monetisation is likely to be enhanced.

The assets to be monetised by CPSEs include land and buildings, brown-field operational assets such as pipelines (like that of GAIL), roads (NHAI) and mobile towers (MTNL/BSNL). It would also include financial assets like equity shares, debt securities and other hybrid instruments that are in the possession of the CPSEs.

The NHAI has plans to monetise highway bundles of 6,000 km by 2024 to raise up to Rs 60,000 crore, at an annual average of Rs 15,000 crore. GAIL has also plans to lease out its pipeline network of over 11,400 km long. ONGC has decided to monetise non-core assets such as golf courses in Ahmedabad and Vadodara.

While the Centre would retain 100% of the proceeds from monetisation of non-core assets of units identified for strategic sale and enemy properties, it could share a large chunk of the proceeds with CPSEs in case operational assets are monetised.