To ensure that central public sector enterprises (CPSEs) make use of the greater autonomy given to them by the Cabinet recently to take decisions of disinvest their subsidiaries and sell stakes in joint ventures, the government will link achievements in this regard to performance-related pay for the top brass and other employees of these companies. The guidelines for capital management will also be suitably revised to ensure that values for shareholders are maximised.
On May 18, the Union Cabinet empowered the boards of the CPSEs to privatise, disinvest or close their subsidiaries and sell stakes in joint ventures. The move will give a fillip to the government’s efforts to unlock capital, which are either stuck or sub-optimally employed in state assets, and put these into more productive use. Prior to the latest decision, CPSEs had the freedom to create subsidiaries and JVs, but they lacked powers to sell/exit them.
There are about 380 CPSEs including subsidiaries, but these have a very large number of joint ventures.
“They (CPSEs) have to improve the value of the companies by exiting from many of their investments, non-core businesses and units which may have become a drag on their resources,” a senior finance ministry official told FE.
Performance evaluation through memorandum of understanding (MoU) guidelines by the department of public enterprises (DPE) and capital management guidelines of the department of investment and public asset management (Dipam) will be redone. Each CPSE signs annual MoU with respective administrative ministries to improve the top-line, bottom-line and returns perspective to boost investors’ appetite for CPSEs, most of which will be privatised by the government in coming years as per the extant policy.
Staff CPSEs will lose on their PRP, if they fail to meet goals on rationalisation of subsidiaries/JVs along with market capitalisation improvement goals, return on capital employed, asset turnover ratio, among other parameters specified in annual MoUs.
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 MoU rating from ‘excellent’ to ‘very good’ and from ‘very good’ to ‘good,’ resulting in reduction from 100% eligibility of performance-linked pay for excellent rating to 80% and 60%, respectively. Less than 50% score means staff may be denied PRP.
“There will be a monitoring process through their MoUs, capital management guidelines and by administrative ministries through their nominees on the boards of CPSEs,” the official said.
Many large profit-making CPSEs like Coal India, ONGC and NTPC have valuable subsidiaries or JV partnerships. The Cabinet decision will enable them to monetise parts of these assets without having to secure the approval of the Cabinet or go through the process involving the administrative ministries and/or Dipam. Disinvestment of stakes in joint ventures or privatization of subsidiaries in non-core areas and those not doing well, would generate generate resources for fresh investments as well as higher dividends to shareholders.
Earlier, Dipam had advised the CPSEs to strive to pay higher dividends, taking into account relevant factors like profitability, capex requirements, cash/reserves and net worth, after observing that many CPSEs usually consider only paying a minimum dividend as per guidelines. According to Dipam guidelines, CPSEs would pay a minimum annual dividend of 30% of profit after tax or 5% of net worth, whichever is higher.