COORDINATING COMMITTEE OF FEDERATIONS/ ASSOCIATIONSIN THE DEPARTMENT OF REVENUE

Manishinath Bhavan, A-2/95, Rajouri Garden, New Delhi 110027

Presents

A Concept Paper onFeasibility of Performance Related

Pay (PRP) in the Revenue Department

Before Before

The Study Group on The Study Group on Performance Related Pay Performance Related Pay

appointed by the Sixth CPCappointed by the Sixth CPC

“An officer who accomplishes a task as ordered or better shall

be honoured with promotion and

rewards”[Verse 2.9.9] – Kautilya Arthashastra

Pay was, is and always will be related to performance of individuals or the team.

From the time of Kautilya to present day Management Gurus, this is one aspect that remains almost static and unique.

However, the present genre of ‘Performance Related Pay’ (PRP) are encouraged by the business theories of Frederick Winslow Taylor (1856-1915).

And it relates to the move by the Private Sector companies in the 1970s to introduce Performance Related Pay in a much focused manner.

Background:

•It was soon followed in the 80s by the Public Sectors in the OECD countries.•Governments of Canada, Denmark, Netherlands, New Zealand, Spain, Sweden, the United Kingdom and the United States were first to introduce PRP in one form or another. •A second round of PRP initiatives was launched in the 1990s by the respective Governments of Australia, Finland, Ireland and Italy.

Contd….

Most recently counties such as Germany, Korea, and Switzerland as well as some of the East European countries like the Czech Republic, Hungary, Poland and Slovak Republic has begun to put PRP mechanisms in place.

In 2004 France has also started experimenting with PRP for top level bureaucrats in 6 pilot ministries.

Presently, more than 2/3rd of OECD countries have introduced PRP for at least part of their Civil Services.

Contd..

However, the application of PRP varies widely both in aptitude and magnitude.

Denmark, Finland, Korea, New Zealand, Switzerland and the United Kingdom have an extended and formalised PRP Policy

However, in Finland top Managers are excluded.

Elsewhere in Canada, Ireland, Italy and Norway, PRP is applied only at Management level.

Ireland, Norway and France have restricted PRP applications to only a few Pilot ministries.

Contd…..

In most countries PRP is paid in the form of negotiated Group/ Individual Bonuses or Merit Increments within a Centralised Budget;

Denmark has more advanced system of localised decision making within a Budget grant.

And Spain pays Productivity Bonus.

Terms of reference set by the Sixth CPC:1. The study should examine the correct basis of pay increases

and their relation, if any, to performance and productivity of the employees; and examine possibilities of evolving a direct correlation between PRP and delivery of services to citizens/ organization/ other departments, as the case may be.

2. The study should evolve measurable, quantifiable criteria for judging performance and productivity of different grades of employees in various government organizations* depending on the nature of their work and the relationship with their users/clients.

3. The study should, inter alia, examine international best practices in this regard.

4. The study should develop a model suited to Indian conditions, which is transparent, measurable, fosters accountability and is linked to deliverables.

5. The study should devise means by which PRP can be introduced in the Government. Specifically it should consider the following:

Should PRP be applied to all jobs and all sectors, or higher managerial positions /percentage of jobs or sectors to begin with.

Should PRP be individual based or group based. Should specific percentages be prescribed for restricting number

of posts to which PRP is given.

Performance Related Pay in Governments Governments are

encouraged to introduce Performance Related Pay broadly for following reasons:

The main and open argument is that it can foster individual motivation, by recognizing effort and achievement and rewarding it in a concrete way.

But there are other economic and political reasons also. These are;

To attract more dynamic and risk-taking people from the private sector.

Concerns about the wage bill. Governments see PRP as a way of containing salary costs by reducing automatic progression through salary levels, or on the contrary as a way of lifting an overall salary ceiling, with non-pensionable financial rewards.

To compensate for the loss of security entailed in introducing fixed-term contracts.

To refute any idea that civil service employees are unaccountable and overpaid, by showing that their level of performance is monitored.

To weaken Trade Union influence in bargaining as representative of staff.

Recognising Efforts: Outline of the 'expectancy' framework (Marsden; 2004)

Performance appraisal is the heart of PRP system.

The main PRP steps are:1. Setting objectives

2. Appraisal results

3. Linking achievements to pay.

The OECD (2005) Book says:

“The performance appraisal process is at the heart of the whole system. It is recommended that performance appraisal be based on goal setting rather than on standard criteria for a job. Performance rating should not be too detailed and should avoid rigidity. The objectives set for an individual’s performance appraisal should act as a basis for ongoing dialogue throughout the year between the manager and the employee. Detailed feedback on the appraisal undertaken at the end of the year should be provided. Transparency in the whole process is the key factor in ensuring its success, which ultimately relies more on an effective measurement of performance than on the distribution of payment.”

- Performance-related Pay Policies for Government Employees – © OECD 2005

All Governments have faced the basic problem of setting quantifiable objectives for the individuals and often even for the Departments.

It is found to be very difficult to gauge the results of a Government action in most of the fields, especially which are purely administrative.

The New Zealand Government had to revert back to old system after a jumbled experiment to introduce PRP in the Police Department.

The work environment is affected with deteriorating inter-employee relationship.

In absence of point-to-point quantification of objectives, the fairness of the Appraisal system solely depends on the neutrality of the appraising officer.

Empirical evidences from Great Britain (Marsden; 2004) shows that over the years employees perceive that PRP is just a tool to boost favouritism.

• Over or under-reporting distort the linkage between performance and pay: * Due to budget constraints when there exists a quota (declared or not) on good assessment, a high incentive amount causes jealousy/ divisiveness among employees, * Also brews unwillingness to cooperate with the administration. * On the other hand, the intention to motivate employees suffers if the incentive amounts are too low.

Government Initiatives in India

For the Central Government departments, there already exists a detailed set of instruction on Performance Appraisal.

However, to improve upon that several empowered committees have worked.

Surinder Nath (2003) and PC Hota (2004) Committees are recent majors among such Committees.

Even presently, the 2nd Administrative Reform Commission is working on the subject.

Performance Appraisal - Present Provisions.

[BROCHURE ON PREPARATION & MAINTENANCE OF CONFIDENTIAL REPORTS]

1. At the beginning of a year, each officer, in consultation with his reporting officer/ reviewing officer to prepare a Work Plan for the year setting the key tasks and the specific deliverables in quantitative/qualitative terms.

2. The officer’s performance would be subjected to a mid-year review with reference to the Work Plan and his performance report for the year would be written by the Reporting/ Reviewing officer in terms of his achievement as per the Work Plan.

3. Introduction of numerical grading (1-10 scale) for assessment of attributes and achievements of an officer.

4. Association of Union Public Service Commission in empanelment of officers of the All India Service and the Central Services under the Central Staffing Scheme/promotions to high-level posts in different services.

5. Increasing domain knowledge of officers of the All-India Service & the Central Services and linkage of upgradation of domain knowledge of an officer with his promotional opportunities.

6. The introduction of a system of Referral Board to consider representation against mala fide remarks in Annual Performance Report by the Reporting and Reviewing Officer/Accepting Authority.

7. The Hota Committee supported all suggestions of Surinder Nath Committee except the suggestion for deletion of the Accepting Authority who used to record his remarks as the final Authority after the Reporting and Reviewing Officers had recorded their remarks.

Surinder Nath Committee (2003) [and Hota Committee (2004)] Reports on Performance Appraisal:

Performance Related Pay –The Problem Areas:1. The proposal for performance-

based pay can be taken only as a type of grading.

2. The performers and non-performers fall into different grades during the period of assessment.

3. In other words it is an extension of the ACR system to transform grading into money.

That brings us to how the ACR system presently works.

Good grades in ACR are acquired by hard work and integrity in some of the cases.

Exemplary grades are mostly obtained by virtue of proximity to higher officials who write/ review the ACR.

Impact is not completely negative since, as long as the ACR of an employee (other than Group ‘A’) does not contain adverse remarks, his promotional prospects are not adversely affected (prompted by various judicial diktats amended as a result of widespread discriminatory practices to reward favourites through promotion by superceding).

Adverse remarks have to be communicated to the individual concerned and given an opportunity to give his side, after which alone the merit of the remark will be adjudged.

In the case of Group “A’ Officers, the grades awarded decide their promotions.

Hence, flattery and nepotism has been the bane of the ACR system.

As a result, the Government that could boast of a silver frame in the form of bureaucracy has presently been reduced to a bunch of pal-bearing community.

Those few elements who dare the system will be either sidelined, forced to quit or victimized and thrown out.

The real problem afflicting governance starts from this point.

In a corruption prone department, more corrupt official alone can manage to get into the good books of more God-fathers.

Others remain in the sidelines as long as they do not pose any serious threat to this cozy arrangement.

In the light of the above experiment with ACRs, the performance-related pay for individuals is only bound to increase the servitude and slavish tendency among the entire government organization.

If the performance assessment could be done in respect of the departments as a whole, the concerned departments should be allowed to decide their own policy to achieve the targets.

Otherwise, if policy is framed elsewhere, without any relevance to the ground realities, assessment cannot have any objective meaning.

If an organization is to make profit, it should be allowed to formulate its own tariffs and methods.

This apart, in case of the enforcement organizations, if public opinion is taken as a yardstick, it could most probably lead to a situation that proper enforcement may not be relished and those who are beneficiaries of a discriminatory or kid-gloved treatment alone may have something nice to say about the department.

Last but not the least, if the measures of punishing those who do not perform as envisaged today by the rules in force cannot be put to proper use, there is absolutely no guarantee that the proposed measures of encouraging those who actually perform will also reach the right persons and achieve the desired objectives.

Hence, primarily it has to be studied as to how objectivity can be increased in Governance.

Existing relationship between Performance and Pay in the Central Government:

The necessity to assess the performance of every person, every group and every department in the Government Sector is always important to ensure that the functions of each are according to the desired objective and achieve the desired results.

Based on such assessments, to reprimand those who do not deliver has been the approved practice in Government service until now.

Similarly, the practices of rewarding good performances are exemplified through payment of:

1. Production Linked Bonuses (Railways – Group based)

2. Rewards (Revenue Department – Individual based).

3. Honourarium (General and localised)4. Even increment hikes are given to employees

for superior performances (Sportsmen – individual based) in their field.

These payments are subject to Budget availability and limited to a Ceiling amount.

Bonus, Reward and Merit Increment are the common PRP methods followed in the Governments internationally in favour of performance, while reprimands follow non-performance.

“The design of PRP is a trade-off between various options which have to take into account the background culture of each organisation/ country. There is no “best” solution. When designing new schemes, management should consider what will prove acceptable to large numbers of the staff in its organisations. Management should seriously consider team/ unit PRP systems for employees, which can be introduced in a less disruptive way and appear to be able to produce more positive results than strictly individualised PRP.”

- Performance-related Pay Policies for Government Employees – © OECD 2005

Proposal:

1. Performance Related Team Incentive may be limited to team performance only.

2. Such incentive should be derived through detailed and transparent negotiations with the Staff-side.

3. Bonus may be extended to all Government Departments.

We further propose; Recognition of each Government

Department as a ‘Team’; with each ‘team’ being given a specific work area and performance targets would be set for the ‘team’.

Decision of the team would be taken through group discussions instead of file movements.

Where a team is in work, within the smaller teams (section/ offices) as well as the larger teams (office/ department), hierarchical set-up might be done away with.

We feel such flexibility in the organization and its setup will also enable to break the famous ‘Red Tape’ syndromes in Government offices.

The proposed system calls for proper pay and allowances with perks to each employee, but the necessity to bolster their personal esteem by giving various names and hierarchical positions will cease.

Hence, fundamentally for having a team like working atmosphere in the Government, decent allowances and increments should be ensured first.

Revenue mobilization linked incentive scheme.

As one of the prime vigilance organisations in the country, Revenue Department, in every sphere of work demands disciplined team efforts.

Be it Taxpayer facilitation, Scrutiny/ Audit, Investigation/ Assessment or Vigilance/ Intelligence, every formations require high level of consorted efforts.

Individualism has no place in garnering revenue.

The revenue and other physical targets are fixed arbitrarily without any consultation with the employees organisations.

Other Ministries issue policy directives which impede the process of achieving the Targets.

Realisation of targets are often assumed to be achieved due to growth of the economy.

Any additional increase in the rate of growth in the revenue mobilization should be credited to the additional efforts on part of the tax officials.

At present there is no scheme to pay them any incentive to recognize their achievement of stiff targets.

It is proposed that an incentive scheme based on team performances may be evolved after consultation and agreement with the respective employees Associations.

Thank You