PRESENTATION ON

PERFORMANCE RELATED PAY (PRP) AND PERFORMANCE MANAGEMENT

SYSTEM (PMS)

INDIAN RARE EARTHS LIMITED, MUMBAI

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Mini Ratna Category-I CPSE under the administrative ministry of Department of Atomic Energy Mini Ratna Category-I CPSE under the administrative ministry of Department of Atomic Energy

Equity - Rs.86.37 croreEquity - Rs.86.37 crore

MoU signing - 1991-92MoU signing - 1991-92

IREL is engaged in mining of beach sand minerals and production of rare earths IREL is engaged in mining of beach sand minerals and production of rare earths

CORPORATE OFFICE,

MUMBAI EST. 1950

RARE EARTHS DIVISION, ALUVA,

1952

MINERAL SEPARATION

PLANT, CHAVARA,

1965 CORPORATE RESEARCH

CENTRE, KOLLAM, 2002

MINERAL SEPARATION PLANT, MK,

1965

MINERAL SEPARATION

PLANT, OSCOM,

1983

Overview of IREL

Net worth Rs. 486 croreNet worth Rs. 486 crore

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

Total Manpower – 2210 (Executives-581, Non Executives – 1629)

Total Manpower – 2210 (Executives-581, Non Executives – 1629)

Established – 18.08.1950Established – 18.08.1950

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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

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Products of IREL MINERAL Use

Ilmenite(50-60% TiO2)

Paints, Titanium Metal and Screws / Tools

Leucoxene (75-82% TiO2)

Camera Bodies, Welding, Industrial Appl.

Rutile (> 92% TiO2)

Tio2 coated tiles used in HospitalsAerospace Applications

Zircon(64-66% ZrO2)

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

Monazite(58% RE2O3, 9% ThO2 & 27% P2O5)

Uranium, Thorium and Rare Earths

Sillimanite (56-58% Al2O3)

Blast Furnace, Spark Plug, Refractory , Ceramics

Garnet (43% FeO, 21% Al2O3, 36% SiO2)

Abrasive Blasting, Water Jet Cutting, Ship Building & Repair, Stone washing

NGADU, Rare Earths Nuclear Applications

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PRP IS GOVERNED BY DPE’s 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

GUIDELINES ON PMS & PRP

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Board

• Remuneration Committee headed by an Independent Director to be constituted.

• No PRP unless the Independent Directors are on the Boards. • Remuneration Committee will decide the annual bonus/variable

pay pool and policy for its distribution within the prescribed limits.

• Remuneration Committee headed by an Independent Director to be constituted.

• No PRP unless the Independent Directors are on the Boards. • Remuneration Committee will decide the annual bonus/variable

pay pool and policy for its distribution within the prescribed limits.

•Robust & Transparent PMS

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

IREL has a Professional Board with Independent Directors

IREL has a Professional Board with Independent Directors

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

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

• In IREL PMS is in place w.e.f. 01.04.2010.

• The MOU is being signed as per schedule every year

DPEDPE IRELIREL

PRE-REQUISITES ON PERFORMANCE RELATED PAY

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REMUNERATION COMMITTEE IN IREL 2007-08 & 2008-09 2009-10 2010-11

100% executives, maximum 5% of distributable profit

90% executives, maximum 5% of PBT

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)

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

Shri R.N. Jayaraj, Independent Director

Dr. S.D. AwaleIndependent Director

Dr. D. Chandrashekharam, Independent Director & Chairman of the PRP Committee

Shri R.N. Jayaraj, Independent Director

Shri N.J. N. Vazifdar, Independent Director

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DPE

MOU Rating PRP (as % of Basic Pay)

Excellent 100%

Very Good 80%

Good 60%

Fair 40%

Poor Nil

IREL

MOU Rating PRP (as % of Basic Pay)

Excellent 100%

Very Good 80%

Good 60%

Fair 40%

Poor Nil

MOU RATING - PERFORMANCE RELATED PAY

MOU Ratings of IREL during the years:

2007-08 2008-09 2009-10 2010-11 2011-12(Provisional)

Very Good Fair Fair Good Very Good

DPE

Grade Percentage of Annual Basic

E0 to E-1 40%

E-2 to E-3 40%

E-4 to E-5 50%

E-6 to E-7 60%

E-8 to E-9 70 %

Directors(A&B) 150%

CMD(A&B) 200%

IREL- Schedule ‘B’ Company

Grade Designation Percentage of Annual Basic

E-0 to E-3 Dy. Officer to Dy. Manager 40%

E-4 to E-5 Mgr - SM 50%

E-6 to E-7 DGM - GM 60%

E-8 CGM 70%

Directors 150%

CMD 200%

GRADE OF EXECUTIVE - PERFORMANCE RELATED PAY

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DPE

% of PRP Maximum limit as % of Profit Before Tax (PBT)

60% of PRP 3% of PBT

40% of PRP 10% of Incremental Profit

Total PRP 5% of PBT

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

IREL

% of PRP Maximum limit as % of Profit Before Tax (PBT)

60% of PRP 3% of PBT

40% of PRP 10% of Incremental Profit

Total PRP 5% of PBT

‘Bell Curve Approach’ being followed

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

DPE IREL

PROFITS OF THE ORGANISATION - PERFORMANCE RELATED PAY

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Sl.No Factor

A PRP for Current Profit (0.6)

A1 PRP for Incremental Profit (0.4)

B Annual Basic Pay

C MOU rating

D Grade of the employee

E Executive Performance Rating

F Ratio of share of PBT from current year profit available for PRP / amount required for current year PRP

G Ratio of share of PBT from incremental profit available for PRP / amount required for incremental PRP

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.

PRP for current profit B x A x C x D x E x F

PRP for incremental profit B x A1 x C x D x E x G

PERFORMANCE RELATED PAY - CALCULATION

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STATUS OF PAYMENT OF PRP IN IREL2007-08 - Rs 702.87 lakhs linked to Distributable Profit paid2008-09 - Rs 262.55 lakhs linked to Distributable Profit paid

2009-10 - Calculation in progress to distribute Rs 143.44 lakhs as recommended by Remuneration Committee.

2010-11 - Calculation in progress to distribute Rs 203.53 lakhs as recommended by Remuneration Committee.

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HIGHLIGHTS FOR FINANCIAL YEAR 2007-08 TO 2011-12 (Rs. Lakhs)

2007-08 2008-09 2009-10 2010-11 2011-12 (Prov.)

PBT 22876.78 8288.05 4781.54 5243.75 24984.11

PAT 15557.49 5676.80 2307.44 3189.37 17044.92

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

Lakhs- 2009-10Amount in Lakhs – 2010-11

PBT for the year 4781.54 5243.75 Share of PBT from current year’s profit available for PRP (Max. 3% of PBT)

143.44 157.31

Incremental Profit NIL 462.25

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

NIL 46.23

Amount available for PRP 143.44 203.54

5% of PBT 239.08 262.1913

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:

•

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Grade/Scale Weightage Total

Key Result Area (KRA)*

Performance Factor **

Attendance ***

E-0 to E-3 0.8 Not Applicable 0.2 1.0

E-4 to E-8 0.5 0.3 0.2 1.0

* 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

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 :

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Excellent 9-10 (100%)

Very Good 8-8.99(80%)

Good 6-7.99(60%)

Average 5-5.99(40%)

Fair 4-4.99(30%)

Poor 3.99 and below (0% - No PRP)

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

If the number of executives having ‘Excellent’ is less than 15% of the cluster size, then the DPE’s 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%. .

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Cluster Grade

A E-0 to E-3 (Dy. Officer to Dy. Manager)

B E-4 to E-8 (Manager to CGM)

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 DPE’s 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’ for below par stipulations’.

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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.

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EXISTING PERFORMANCE MANAGEMENT SYSTEM IN IREL

• The allocation of weights in respect of KRAs, Performance Factor, Potential Factor

• 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 appropriately from 2012-13. 19

Level KRAs Performance Factors

Potential Factors

Total

Dy. Officers to Managers

0.3 0.4 0.3 1.00

Senior Managers and upto DGMs

0.3 0.3 0.4 1.00

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.

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