NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD.

NBCC BHAWAN,
LODHI ROAD,
NEW DELHI 110 003.

No36(8)/09-Estt./110 Dated : 24.11.2009

NOTIFICATION

As is known, the Executive Compensation Package, besides the element of

fixed pay, also has the important element of Variable Pay or the Performance
Related Pay (PRP) which is linked to performance of the Corporation against
the MOU parameters with the Government as also the performance of
employees conforming to a Bell Curve Approach / Grading. As per the
Government directives based on the 2nd Pay Revision Committee For
The Executives of CPSUs on IDA pay pattern, PRP is admissible only to the
executives who are on IDA pay pattern.

A concept paper on PRP is attached which may please be studied. Comments

are invited on the approach based on which Performance Related Pay is
proposed to be disbursed. Comments may please be mailed to Director
(Finance) at dirf.nbcc@nic.in or GM (P&IR) at pers1.nbcc@nic.in.

The comments should reach by 10th December, 2009.

[R.R. BAISANTRY)
GM (P & IR)
 NATIONAL BUILDINGS CONSTRUCTION CORPORATION LTD.

NBCC BHAWAN,
LODHI ROAD,
NEW DELHI 110 003.

No36(8)/09-Estt./110 Dated : 24.11.2009

CONCEPT PAPER ON PERFORMANCE RELATED PAY-PRP

BACKGROUND

Last revision of pay structure for Board and below Board level executives of
NBCC effective from 1.1.1997 was for a periodicity of 10 years. Government of
India, Ministry of Heavy Industries & Public Enterprises, Department of Public
Enterprises (DPE) vie their Office Memorandum No. 2(70)/08-DPE(WC), dated
26.11.2008 (Annexure-I) notified guidelines for revision of pay structure for
Board and below Board level Executives of CPSEs w.e.f. 1.1.2007, which was on
the recommendations of 2nd Pay Revision Committee. These guidelines covered
aspects of pay scales, fitment benefit, increment rate, DA, HRA, leased
accommodation, perks/allowances superannuation benefits, company car, pay
fixation on deputation and Performance Related Pay (PRP)

Subsequent, DPE vide OM No. 2/70/2008-DPE(WC)-GL-IV/09, dated 9.2.2009

(Annexure-II) clarified that illustration of methodology for implementation of
PRP will be in terms of para 6.2.3 (I)(ix) of the report of the 2nd Pay Revision
Committee (Annexure-III). Thereafter vide DPEs OM No. 2/70/2008-
DPE(WC)-GL-VII/09, dated 2.4.2009 (AnnexureIV), certain modifications in
earlier guidelines were notified with regard to fitment benefit, superannuation
benefits, HRA and effective date of revision of other perks and allowances.

Board of Directors in its 379th meeting held on 15.4.09 approved pay revision of
executives w.e.f. 1.1.2007 and same was forwarded to the Ministry of Urban
Development (MOUD). Subsequently, Presidential Directives were received from
MOUD vide their letter No. O-17031/6/2009-PS dated 12.03.2009 (Annexure-
V).

As per the aforesaid DPE OMs dated 26.11.2008 and 9.2.2009, Performance
Related Pay (PRP) is to be directly linked to profits of the CPSE/unit, its MoU
rating and performance of the individual executives as an evidence from the
Annual Performance Appraisal Reports (APAR). However, each CPSE is required
to constitute a sub committee to Board headed by an Independent Director
which will decide the annual bonus/variable pay pool and policy for its
distribution across the executives and non-unionised supervisors within the
prescribed limits. Also in terms of recommendations enshrined in the Report of
2nd Pay Revision Committee For Executives of CPSEs all CPSEs should
constitute Remuneration Committee headed by Independent Director. NBCC, as
of now. does not have a Independent Director on the Board. For meeting the
requirement of Remuneration Committee, following alternative is suggested:

Constitution & Quorum

1. Director(Projects)
2. Director(Finance)
3. JS&FA, MoUD - Govt. nominee Director
4. General Manager(P/IR) will be the Member Secretary of Committee.

Quorum shall be two functional directors and one govt. nominee director.
Proceedings of the Remuneration Committee meetings shall be put up to the
Board for approval.

SALIENT FEATURES OF THE PROPOSED SCHEME OF PERFORMANCE

RELATED PAY (PRP)

1. The percentage ceiling of PRP progressively increasing from junior to

senior level executives as percentage of Basic Pay, as proposed to be
applied to NBCC based on Government guidelines is detailed as under:
Position Grade/ Pay Scale PRP % of Basic Pay
Project Engg E0 (12,600-32,500)
Sr. Project Engg E1 (16,400-40,500)
40%
Dy Project Manager E2 (20,600-46,500)
Project Manager E3 (24,900-50,500)
Dy General Manager E4 (29,100-54,500)
50%
Addl General Manager E5 (32,900-58,000)
General Manager E6 (36,600-62,000)
60%
Sr General Manager E7 (43,200-66,000)
E8 (51,300-73,000)
Executive Director 70%
E9 (62,000-80,000)
Director B (75,000-100,000) 150%
CMD A (80,000-125,000) 200%

2. PRP is to be linked to the Memorandum of Understanding (MoU) rating

achieved by the CPSE in the respective financial year as under:
 MoU Rating Level of PRP Payment
Excellent 100%
Very Good 80%
Good 60%
Satisfactory 40%
Poor Nil

3. Each CPSE is required to sign the MoU with its parent

Ministry/Department. The MoU rating will form the basis of PRP with all
the Key Result Areas identified in the MoU. No PRP will be eligible for the
CPSEs that do not enter into MoU.

NBCC has been entering into MoU with Government of India since
1992-93. MoU Scores achieved by NBCC during the past Six years is
given at Annexure VI.

4. PRP scheme will Committee from the financial year 2007-08 and will be
subject to profitability of the CPSEs as under :

Overall limit for PRP 5% of Profit BeforeTax (PBT) of a financial

year.
60% of PRP will come from 3% of PBT of the financial year.
40% of PRP will come from 10% of incremental PBT (i.e. increase
in PBT of the financial year vis--vis previous financial year.)

5. There will be no incremental profit for the year 2007-08 as it is the first
year of introduction of the PRP Scheme. As such, amount available for
the same will be 3% of PBT of 2007-08. Since variable Pay component
coming from incremental profit for the first time will be after knowing the
results of CPSEs performance for the year 2008-09, this portion of PRP is
payable from the second year of introduction of PRP scheme viz. 2008-09
payable in 2009-10.

6. Each CPSE would develop a robust and transparent Performance

Management System (PMS). CPSEs would adopt Bell Curve Approach in
grading the officers so that no more than 10% to 15% executives are
Outstanding / Excellent. Similarly, 10% of executives should be graded
as Below Par. CPSEs which already have a PMS and follow Bell Curve
Approach can pay PRP with immediate effect. However, the CPSEs which
do not have a robust and transparent PMS till date may put in place a
robust and transparent PMS by 31.3.2009. For the period 1.1.2007 and
till a PMS is in place not later than 31.3.2009, the executives will be
 governed by the existing guidelines of DPE on PRP, which is limited to 5%
of distributable profit in an enterprise.

7. NBCC does not have a robust and transparent PMS in position strictly
speaking as required under the Government directives for payment of
PRP. NBCC PMS for field level positions provides for rating of performance
as Outstanding, Very Good, Good, Average and Poor, which is based on
band of score corresponding to a performance level. However, this feature
is non-existant in case of office positions / support functions. NBCC PMS
also does not have the feature of appraisal by senior level officers under
functional reporting with respect to Support Functions. Performance
Grading across the Organization, as per Government directives, should
conform to a bell curve. The grading, therefore, will be moderated to
15% Bell Curve Approach with prospective effect. Executives rated as
Satisfactory or Poor are considered Below Par. In terms of the
aforesaid DPE guidelines, new PRP scheme can be NBCC w.e.f. FY 2007-
08, in lieu of the existing PLI scheme, on account of the following
factors/considerations :

i) NBCC is meeting criteria set under DPE Guidelines for introduction of

Performance Related Pay (PRP). NBCC has been entering into
Memorandum of Understanding (MoU) with MoUD for effective target
setting.

ii) It also has a Performance Management System (PMS), though not totally
aligned with the Government stipulations, in place which is a pre-requisite
for payment of PRP.

iii) Thus NBCC within the meaning of para - iii of Annexure III (Para 11) of
DPE guidelines dated 26.11.2008 already have a PMS in position.
Performance Rating for calendar years 2007 & 2008 have already been
accepted. Based on these performance appraisals done for the year
2007-2008, various HR processes viz. Promotion exercise, grant of
promotion increments/ benefits, incentive payments, etc. have been
effected. Therefore, it would be appropriate that the Performance Ratings
for the years 2007 and 2008 are not altered. For these 2 years,
percentage of Outstanding/Excellent and Below Par executives, as
already assessed, will be acted upon, since performance ratings were
already communicated to apprasee-executives prior to DPE guidelines. As
such, Bell Curve Approach will be considered for adoption from
prospective effect, as bought out in the foregoing para.

iv) To make it more robust, the PMS (including Performance Appraisal part
thereof) would be reviewed from time to time. It may include assessment
 of executives against such attributes as (a) Leadership qualities ; (b)
Decision making ability ; (c) Potential for Growth ; (d) Managerial qualities
; (e) Inter-personal relations and team work; Sub-ordinate development
etc. A separate exercise for review of the PMS has already been initiated
for application of the new PMS from the year 2009 onwards.

v) By the very nature of the Companys business, which involves

construction, NBCCs operations across its various work centres/units are
highly integrated and interdependent, with a very strong emphasis on
team-performance. Employees are required to perform similar activities
in groups/teams for meeting the common pre-set performance targets.
Thus the drive to achievement of targets is a shared responsibility and
result of shared efforts. Over the years, not only their individual
performance, but also performance of their respective Divisional /
RBG/SBG/Zonal Heads has reinforced a team spirit among them, together
with a sense of collective ownership for achievement of performance
targets of the Projects and Functional Divisions. To augment the existing
PMS ratings, it is proposed that we may include group performance
criteria which is under practice through each RBG/SBG entering in to an
MoU with management on their group/unit performance. Given this high
degree of interdependence and collective contribution, it would be
appropriate to factor both unit and individual performance in respect of
below Board level executives for the purpose of allowing PRP for FY 2007-
08 and FY 2008-09, with equal weightage to both. For Board level
executives, whose actual performance appraisal rating is not available and
who are responsible for overall working of the entire Company, weighted
average score of all work centres/units, including Corporate Office, will be
taken for this purpose.

Methodology for payment of PRP

In alignment with above factors/considerations, detailed methodology for

implantation of PRP in NBCC for FY 2007-08 and FY 2008-09 is proposed as
under:

a) PRP to executives could be payed as per the following formula:

PRP = PRP (Current Profit) + PRP (incremental profit)

PRP (current profit) = (60% x A x B x C x D x E1)
PRP (incremental profit ) = (40% x A x B x C x D x E2)

Where,

A= Annual Basic Pay drawn by executive during financial year

B= Eligibility level as per NBCCs MoU rating for relevant financial year

C= Grade-wise percentage ceiling for PRP payments

D= Eligibility level as per performance rating of unit and individual executive

E1= Ratio of amount available for PRP (current profit) to amount required not
exceeding 1

E2= Ratio of amount available for PRP (incremental profit) to amount required
not exceeding 1

b) For release of PRP for FY 2007-08, various computation elements will be as

under :

In view of Excellent MoU rating of NBCC for FY 2007-08 (Copy of

Government of India, Department of Public Enterprises Letter dated
09.01.2009 placed at Annexure VII, element `B will be equal to 1 (i.e.
100% eligibility level).

Element `C will range between 40% to 200% of Basic Pay depending on

grade of executives.

Element `D will be worked out as per the following formula for all below
Board level executives.

D1= Eligibility level as per average performance rating of all units during the year
in terms of parameters prescribed under Intra Deptt MoU.

D2= Eligibility level as per accepted performance rating of individual executives

Scale for computing sub-element `D1 (Weight = 50%)

Target achieved Eligibility level for PRP payments

>90 100%
>85 <90 80%
>80 <85 70%
>70 <80 60%
>60 <70 50%
>50 <60 40%
<50 Nil
Scale for computing sub-element `D2 (Weight = 50%)

PA Rating Eligibility level for PRP payment

Outstanding 100%
Very Good 80%
Good 60%
Satisfactory 40%
Poor Nil

For new inductees in respect of whom PADRs cannot be written for want minimum
period for assessment, it is proposed to allow PRP on the basis of Good rating. In
case of other executives, whose PAD rating for calendar year 2007 is not available,
provisional PRP could also be released corresponding to Good rating i.e. at 60% of
eligibility level. On receipt of accepted PAD ratings of such executives, balance
admissible PRP payments will be released to them.

In view of non-availability of actual accepted performance appraisal rating in respect

of Board level incumbents, element D will be derived on the basis of weighted
average score of all work centres/units (including Corporate Office).

In view of adequate kitty available for FY 2007-08, elements `E1 & `E2
may be taken as 1.

c) For release of PRP for FY 2008-09, various computation elements will be as

under:
In view of internal Excellent MoU rating (Score = 1.20) forwarded by
NBCC to Govt. of India for FY 2008-09, element `B is likely to be 1.
Pending receipt of accepted MoU rating for FY 2008-09, PRP may be
allowed @ 100% of eligibility level corresponding to Excellent rating
i.e. element `B may be kept as 1.

Elements `C and `D will be taken in the same manner as in case of

FY 2007-08, as mentioned under Para (b) above.

In view of adequate kitty available for FY 2008-09, elements `E1 &

`E2 may be taken as 1.

d) PRP for FY 2007-08 and 2008-09 may be released in terms of the above after
adjusting PLI payments already disbursed to concerned executives.

e) PRP payments will be allowed in relation to actual Basis Pay drawn by the
executive, including elements considered as Basic Pay during the year.
f) Executives from Government/PSUs on deputation to NBCC and in receipt of
IDA pay structure will be entitled to PRP as above for full/part of the relevant
period of FY 2007-08 and FY 2008-09.

g) NBCC executives on secondment to other may either opt for PRP scheme of
NBCC or of the respective borrowing organization for FY 2007-08 and FY
2008-09.

h) Deputation/Secondment Allowance will not be taken into account while

computing the payment under PRP in respect of eligible NBCC employees on
secondment/deputation to Joint Ventures/PSUs/Government.

i) PRP payments will not be counted for purposes of leave salary, PF, Bonus
and any other benefits.

j) During the period of HPL, deduction on PRP payments will be applicable.

During the period of EOL, suspension and unauthorized absence, no PRP
payments shall be admissible. However, in the event of revocation of
suspension, PRP payments for the period of suspension will be regulated in
terms of decision of Disciplinary Authority.

k) PRP payments will also be payable to such employees who have

subsequently resigned, superannuated, retired or separated from the
company for the relevant period served by them in FY 2007-08 and FY 2008-
09.