Seventh CPC

Recommendations of VIIth CPC:Suggestions for Performance linked Incentive Schemes

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The  VII CPC has examined the status of performance related incentive schemes presently in practise on basis of recommendations of the VIth CPC in Chapter 15 of the report and made certain important suggestions.

Tracing the evolution of such incentives it has referred to the report of 2nd Administrative Reforms Commission which had visualised such incentives as a prerequisite for an effective governance system. The issue was taken up by Vth and VIth CPC as a tool for providing incentive for effective Administration.The Scheme formulated by VI CPC covered organisations as well as individuals.

The previous Pay Commission had made the implementation of  the Scheme optional for the various units after taking into consideration the difference in functional scope of various units of Government. The implementing Departments had to draw a roadmap of activities and harmonise the same with individual achievements. It had added the condition of Departments having prepared a Results Framework Document (RFD) for two preceding years, and also several additional measures such as developing IT based attendance and performance monitoring systems.

The recommendations had failed to make  major impact in face of difficulties in making requisite budgetary provisions, absence of clear performance evaluation parameters and aberrations such as high achievers caught in mediocre environments. The Commission has also noted the failure of earlier schemes of Performance Linked Bonus (PLB) conceived for Govt. Servants due to absence of clear, quantifiable targets and performance evaluation of any individual.

The Commission in it’s report has pointed out that in public services the objectives are not quantifiable in monetary terms like private sector organisations.The task of laying down the parameters for performance evaluation and reward for different services and Government Departments is therefore rather complex. However there are precedents in other countries where such schemes for incentivising good performers through objective criteria have been implemented with success. Some countries have evolved separate set of norms for senior civil servants and junior functionaries.

Considering all factors the CPC has observed that exercise for evolving a system for performance based rewards should be preceded by proper understanding of the system, adequate planning and capacity building at various levels.The vagaries of Govt.functions makes it impossible to devise a common performance based incentive Scheme. The Commission has suggested simple and effective schemes which should have common features for the Department. It has been suggested that the reward system should be an annual feature and should not be linked to savings effected by the employee.

In conclusion the Commission has recommended introduction of Performance Related Pay for all categories of Central Government employees, based on quality RFDs, reformed Annual Performance Appraisal Reports and broad Guidelines.The Performance Related Pay should subsume the existing Bonus schemes. The Commission notes that there could be a time lag in implementing the Performance Related Pay by different Departments.In the interim period the Ministries and Departments can review the existing Bonus Schemes and create linkage  with increased profitability/productivity with definite parameters.

Another important suggestion made by the CPC pertains to weightage to be given for in the APAR to personal attributes of the public servant in comparison to his performance in achievement of results.The Commission feels that it should be in ration of 40:60 instead of current  ratio of 60:40.

It has also strongly pleaded for fixation of definite time frame for drafting, reviewing and finalising  RFDs .It would also be necessary that these timelines get synchronised with the preparation of the APAR ..”so that the targets set under RFD get reflected in individual APARs in a seamless manner.”

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Seventh CPC: How the package for Armed forces was worked out

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While making recommendations for Armed forces the CPC had held consultations with the Ministry of Defence, the Defence Services, the Department of Ex-Servicemen Welfare, the Controller General of Defence Accounts. It has taken note of the demand from The Defence Services, in their Joint Services Memorandum, that the emoluments in the Defence Services should stand a fair comparison with the emoluments in Civil Services, in order to ensure  legitimate share of the available talent pool. The CPC also commissioned a study with the Institute for Defence Studies and Analyses (IDSA) as an independent expert agency dedicated to research and policy in defence and security on “Nature, Quantum and Components of Defence Expenditure and Defence Pensions. The study covered pattern of defence expenditure in India (1995-96 to 2013-14) and other important countries.

Comparing the defence expenditure as a percentage of GDP it was noted that Defence Expenditure as a percentage of GDP has declined from 2.19 percent in 1995- 96 to 1.80 percent in 2012-13. Also as a percentage of Central Government expenditure it has declined from 14.50 percent in 1995-96 to 12.89 percent in 2012-13. However Defence capital expenditure as a percentage of total defence expenditure has shown an increase from around 25 percent in later half of the 1990s to over 40 percent in the recent years.

The report indicated that considering  expenditure on procurement and infrastructure as percentage of defence expenditure India ranks at the first place among the ten countries covered by the study. Unlike some European countries Russia, India (from 27.55 percent in 2007 to 41.12 percent in 2012), and Pakistan witnessed the sharpest increase in share of expenditure on personnel as a percentage of defence expenditure between 2007 and 2012. The hike has been explained by the fact that Indian Armed forces are labour intensive and the increase in pay scales by VIth CPC is the major influencing factor.The Commission has stated that it has tried to strike a balance between capital and revenue expenses for the defence forces.

Besides ensuring pay structure comparable to Civil Services the CPC has also attempted to compensate for the hardships involved in Military Service by recommending continuation of Military Service Pay upto rank of Brigadier and equivalent and other allowances to compensate for risk and hardship borne by defence service personnel.It has also recommended a  defined benefit pension scheme, which entails no contribution as distinct from a defined contribution scheme which entails a monthly contribution by each official as applies to all other Central Government personnel.

The Commission has asserted that the Military Service Pay, which is a compensation for the various aspects of role performed by Armed Forces and has historically provided the edge to the Defence Forces over the civilian scales,  will be admissible to the Defence Forces personnel only. The Commission has reiterated that  the intangible aspects linked to the special conditions of military service set the Armed Forces apart from civilian employees.

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Seventh CPC :Army and MNS Recommendations

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The recommendations for Armed Forces are based on approach similar to that adopted for civilian employees as spelt out in previous posts.The  Pay Bands and Grade pay have been done away and fitment factor of 2.57 has been applied to all categories.The entry pay to a category (except for MNS) is arrived at by calculating minimum of pay band and accounting for subsequent increments earned in the pay band (except for the rank of Brigadier where fitment table notified by the Ministry of Defence through its Special Army Instructions of October 2008.)

Like civilian pay scales the Commission has, for deciding entry pay at various stages, proposed index of rationalisation to account for higher degrees of responsibility and accountability at various levels .While this is  fixed as 2.57 for PB  -1 it rises  steadily climbing to to 2.81 for Service Chiefs .Index of 2.57 applies also to the officers in the rank of Colonel and Brigadier and their equivalent.

The starting pay in existing pay structure is ₹8,460 Sepoy (and equivalent), Under the recommendations the pay of entry level personnel in the defence forces, has been fixed in the Defence Pay Matrix at ₹21,700. Fixation of pay will follow the same principle as that for a regular promotion in the pay matrix.

The Commission has not recommended any increase in the number of MACPs. which is presently pegged at 8, 16 and 24 years .

The Commission has maintained pay parity in civilian and defence personnel at matching levels .Group `A’ entry level is identical at ₹56,100 in the case of both civilian and defence service officers. Similarly the pay of the Major General and Joint Secretary and equivalent officers and those above [viz., Lieutenant General (in HAG, HAG+, Apex) and Chief of each defence service] has been kept identical with their civilian counterparts. Identical pay levels has been devised for JCO/ORs and their civilian counterparts corresponding to the existing pay bands and grade pay.

For defence forces personnel, there are two separate matrices, one for the Service Officers and JCO/ORs and another for the Military Nursing Officers. The Pay Matrix designed for the Defence Forces personnel is more compact than the Civil pay matrix keeping in view the number of levels, age and retirement profile of the service personnel.

Defence Pay Matrix

The Commission has further clarified that the pay structure designed by it for the defence forces personnel has been done keeping in view (a) some of the aspects in their rank structure unique to them and (b) pay structure is not intended to determine the status of the personnel vis-à-vis their counterparts on the civil side.

In the design of the Pay Matrix for Military Nursing Service (MNS) , the Commission has kept in view the approach followed by previous Pay Commissions and traditional relativities between the Armed Forces Officers and Military Nursing Service Officers. In particular the pay scales/grade pay based on the V and VI CPC Reports were kept in view.

While deciding the level of minimum pay fro MNS the following formula has been adopted:Minimum Pay for a Rank in MNS= (Minimum Pay for that Rank in Defence Pay Matrix) x (Grade Pay of the Rank in MNS)/(Grade Pay of that Rank in the Services).The pay Matrix for MNS thus conceived is as below :

Pay MAtrix MNS

Following exceptions have  been made for purposes of rationalising the pay structure:

  1. In the case of Captains, the Commission has moderated the minimum pay level upwards to ₹59,00017, to avoid bunching of minimum pay of MNS Lieutenant and Captain.

  2. In the case of Brigadiers some moderation downwards from the figure arrived at by the formula (₹1,26,800) has been effected to provide suitable differential in the minimum of the pay level between Brigadier and Major General of MNS. Hence the mid-point of the minimum of the pay levels of Colonel and Major General viz., ₹1,19,700 has been taken as the minimum pay for the Brigadier of MNS.

For Military Service Pay the Commission has recommended an MSP for the four categories of Defence forces personnel at ₹15,500 for the Service Officers, ₹10,800 for Nursing Officers, ₹5,200 for JCO/ORs, and ₹3,600 for Non Combatants (Enrolled) in the Air Force per month. MSP will continue to be reckoned as Basic Pay for purposes of Dearness Allowance, as also in the computation of pension but will  not be counted for purposes of House Rent Allowance, Composite Transfer Grant and Annual Increment.

For calculations in individual cases the procedure as outlined in previous post can be followed.The Report of CPC is also included in this blog on the “REPORTS” pages.In case of difficulty in viewing the pay matrix  original can be viewed on page 89 & 91 of the report.

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Seventh CPC: Approach for simplification and rationalisation

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The Seventh CPC like other Pay Commissions had been entrusted with the responsibility of evolving pay structures which were rational and simple.It was expected that the pay packages offered should be able to attract best talent in civil and defence services and also be capable of ensuring  performance related efficiency while taking note of  the existing socio political setup in the country.The pay structure should ensure value addition to services by talent of individual employees.

While discussing the pay structure for civilian employees the report explains the evolution of compression ratio to present level.Compression ratio is the ratio between the lowest pay  and the highest salary drawn by Secretary to Govt. of India in the pay structure.At the time of first CPC the ratio was 1:36.4(min Salary of ₹ 55 against highest of ₹ 2000.) .This came down to 1:11.4 in sixth CPC (min Salary of ₹ 7000 against highest of ₹ 80000).

There were several innovations brought about by  VI CPC which included running pay bands for both Civilians as well as Defence forces as well as  the introduction of the concept of Grade Pay as a level differentiator besides  calculation of the annual increment on percentage basis.Sixth CPC had also recommended abolition of Gr.D category posts by elevation of present incumbents to Gr.C by skill upgradation.It reduced 35 pay scales of Vth CPC to 23 (19 Pay bands +4 fixed pay levels).

However the Seventh CPC was confronted by stakeholders with several inconsistencies in Pay bands and Grade Pay structures and anomalies in Entry pay  recommended by Sixth CPC at various level . This  scenario had lead to demand for a fitment factor which may cover all cases in equitable fashion.

The recommendations of Seventh CPC are for abolishing the system of Pay Bands and Grade Pay and creation of  new functional levels  by merging the grade pay with the pay in the pay band. Commission said that it has ensured that all of the existing levels have been subsumed in the new structure; and no new level has been introduced nor has any existing level been dispensed with.The Seventh CPC has recommended a Pay matrix with distinct Pay Levels. The Level would henceforth be the status determiner as per table given below:

Pay Levels as per Pay Matrix

The Commission  has pointed out that  with this methodology of pay fixation “..any new entrant to a service would wish to be able to make a reasonable and informed assessment of how his/her career path would traverse and how the emoluments will progress alongside. The new pay structure has been devised in the form of a pay matrix to provide complete transparency regarding pay progression.”

In addition to the pay matrix the CPC has also applied concept of rationalisation of entry pay to take care of uneven pattern of  a jumps in the career hierarchy under existing pay scales in the Government of India. This system is based on the premise that with enhancement of levels from Pay Band 1 to 2, 2 to 3 and onwards, the role, responsibility and accountability increases at each step in the hierarchy.

Rationalistion table.png

The  pay matrix as suggested by CPC is intended to  replace  existing system of Pay Bands and Grade Pay.The pay matrix comprises of two dimensions. ” It has a “horizontal range” in which each level corresponds to a ‘functional role in the hierarchy’ and has been assigned the numbers 1, 2, and 3 and so on till 18. The “vertical range” for each level denotes ‘pay progression’ within that level. These indicate the steps of annual financial progression of three percent within each level.”

The Commission has devised the pay matrix by calculating the sum of Basic pay and Grade Pay at various stages and multiplying the sames of  by a multiplication factor of 2.57 . While devising the pay matrix the entry pay has been calculated by adopting different multiplication factors (shown as index in table below) for different pay bands depending on respective functional responsibilities.Pay Matrix is given below.

Pay Matrix

Pay Matrix 2

The following methodology has been suggested for fitment:

“The fitment of each employee in the new pay matrix is proposed to be done by multiplying his/her basic pay on the date of implementation by a factor of 2.57. The figure so arrived at is to be located in the new pay matrix, in the level that corresponds to the employee’s grade pay on the date of implementation, except in cases where the Commission has recommended a change in the existing grade pay. If the identical figure is not available in the given level, the next higher figure closest to it would be the new pay of the concerned employee. “

The CPC report has given some working examples for calculation.Having had a brief insight into Civilian Pay Scales we shall take up Army Pay Scales shortly.

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Seventh CPC Report -arrives at last !

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Hurrah ! The wait is over for all Govt employees . For those who are directly affected as well as those who would reap benefits of the fall out. Whether it’s time for setting up crackers or for waiting till VIIIth Central Pay Commission (CPC)  will be known in coming days.Unlike previous occasions the CPC has ben considerate to the extent of submitting the report on time leaving enough time for Govt to deliberate and accept or reject various recommendations.

The initial signals are that of modest gains except for a few who were persistent about catching up with Indian Administrative Services and creating a level playing field. The Pay Commission has ultimately got convinced to extend the edge enjoyed by IAS in matter of pay fixation at various stages of career to IPS and IFoS.Following are some of the highlights.

The CPC while deciding about pay scales and procedure for fitment has come up with innovative concept of Pay Matrix whereby the lateral spread in the matrix would denote the panorama of job functions and related pay packages . The vertical movement would cover the  pay hikes.The system of Pay Bands and Grade pays introduced by the previous CPC has thus been laid to rest.The  CPC had been confronted with several anomalies by the representationists which prompted the change. Pay matrices have been drawn up for civilians, defence personnel and for military nursing service.

For the Civilian Employees the minimum pay starts from Rs.18000/- (corresponding to existing lowest pay of Rs.7000/-)and with the suggested annual increment rates of 3% the highest salary is pegged to Rs.2.25 Lakhs.A progressive suggestion is for dispensing with the differential pay system between direct recruits and those occupying a post by internal promotion.The strategy for pay fixation has been further simplified with introducing fitment factor of 2.57 which should expectedly take care of pay fixation anomalies which crop up whenever the matter of revision of pay scales comes up.This fitment factor of 2.57 is being proposed to be applied uniformly for all employees.

A similar Pay Matrix for defence personnel starts from Grade Pay of Rs. 2000/- which covers salary of sepoys and equivalents.A somewhat similar system has been conceived for Military Nursing Services.The aspect of performance monitoring and periodic promotions will continue through Modified Assured Career Progression Scheme  as per past intervals of 10/20/30 years with the changed  promotion criteria being benchmarked at” very good”. For military personnel the review is pegged to 8/6/14 years.

All ranks of the Defence forces upto Brigadier and equivalent ranks will continue to be entitled to payment of Military Service Pay (MSP)which is given in recognition of job related challenges and consequential difficulties.MSP would be counted for calculation of DA and Pension but not for House Rent Allowances (HRA) and Annual Increment.For defence personnel the Commission has also recommended rationalisation of compensation to Army Personnel for death or injury under various eventualities.

For  Short Service Commissioned Officers the good news is is that they may be permitted to exit Armed Forces any time between 7 and 10 years of service with a terminal gratuity equivalent of 10.5 months of reckon able emoluments. along with recommendation for a fully funded one year Executive Programme or a M.Tech. programme at a premier Institute.

The Commission has made drastic recommendation in respect of allowances admissible to Employees “with the overall aim of transparency, simplification and nationalization”.The Commission has highlighted the  difficulties related to staff housing and revised the upper limits  for housing loans besides liberalising the process and permitting separate loans to spouses who are in Govt. job. Requisition of private house for Govt. Employees has been recommended wherever the available staff quarters are not sufficient to meet the demand.

The Commission has proposed enhancement in the ceiling of gratuity payable at the time of retirement from the existing ₹10 lakh to ₹20 lakh from 01.01.2016.adding that the ceiling on gratuity may increase by 25 percent whenever DA rises by 50 percent.

Another area covered extensively is that of periodic Cadre Review.The Commission has recommended  that proposals of this nature be examined by Departments initially coopting DoPT and Department of Expenditure under concerned Secretary of the Department.Only after this basic scrutiny the matter can go to Cabinet Secretary in deserving cases.

Most of the allowances that have been retained have  been given a raise that is commensurate with the rise in DA. Allowances that are in the nature of a fixed amount but fully indexed to DA have not been given any raise. Regarding percentage based allowances, it has been stated that since the Basic Pay will rise as a result of the recommendations of the Commission some of the allowances have been proposed to remain untouched.

For House Rent Allowance the Commission has recommended rationalisations to 24 percent, 16 percent and 8 percent of the Basic Pay for Class X, Y and Z cities respectively. A formula has also been suggested for upward hike in HRA pattern as Cost of living index crosse 50% and 100%.Currently, in the case of those drawing either NPA or MSP or both, the amounts of NPA/MSP are included with the Basic Pay and HRA is being paid as a percentage of the total amount. The Commission has recommended that  HRA should be calculated as a percentage of Basic Pay only and that add-ons like NPA, MSP, etc. should not be included while working out HRA.

Amongst the allowances suggested for abolition are Night Duty allowances and Motor Car /Motor Cycle purchase advances. .

The Pay Commission has made several suggestions for improving  Health Coverage for Employees .These suggestions  include Scheme for Health Insurance,and suggestion for extending list  of hospitals from private sector in those areas where coverage is low.The Rates of contribution for Health Insurance are proposed to be increased upto Rs.1500/2500/5000.The higher rates for contribution would result in insurance covers extending to Rs.15/25/50 Lakhs.

For the Pensioners  the Commission has sought to make complete parity of past pensioners with current retirees.Under the recommendations  the pension of  personnel who retired prior to 01.01.2016 (expected date of implementation of the Seventh CPC recommendations) shall first be fixed in the Pay Matrix being recommended by this Commission, on the basis of the Pay Band and Grade Pay at which they retired, at the minimum of the corresponding level in the matrix. This amount shall be raised, to arrive at the notional pay of the retiree, by adding the number of increments he/she had earned in that level while in service, at the rate of three percent. Fifty percent of the total amount so arrived at shall be the revised pension. In the case of the Defence personnel, total amount so arrived at shall be inclusive of MSP.Another  calculation is to be carried by  multiplying the pension fixed under sixth  CPC  by 2.57 to arrive at an alternate value for the revised pension.Pensioners will be given the option of choosing whichever formulation is beneficial for acceptance.

This was what I could grab in the first reading of CPC report.Will be coming up with subject wise write ups in ensuing articles.