The government is waking up to the merits of rewarding performance instead of merely infusing funds into sick state-owned companies. The Department of Public Enterprises has proposed a lumpsum payment of Rs 10 lakh per year or up to 2.5% of profits to chief executives who turn around loss-making PSUs.

As per the proposal, top executives will get between 1% of the profit for Schedule A PSUs and 2.5% of the profit before tax for Schedule D PSUs. PSUs are categorised under Schedules A, B, C and D based on turnover, employee strength, profitability, capital employed, etc.

Chairmen and managing directors of Schedule B PSUs will get 1.5%, and of Schedule C, 2% of profits. The subsidy received from the government will, however, be discounted while calculating their share in profits.

The scheme will require approval of the remuneration committee and PSU board of directors. It will be valid for a 5-year period starting 2007-08. CMDs can chose only option: performance-related pay (PRP) or a lumpsum Rs-10 lakh incentive.

A PSU CMD said, “It will be worth spending a few crores in rewarding top executives especially when the government shelled out Rs 6,000 crore on reviving 13 sick PSUs in just one year, 2006-07.” Fifty-nine PSUs lost a total Rs 8,223 crore in 2006-07.

According to the Public Enterprises Survey 2006-07, among the top 10 loss-making PSUs are Indian Airlines, Air India, Hindustan Cables, Hindustan Photo Films, Fertiliser Corporation of India and Hindustan Fertiliser Corporation. Air India and Indian Airlines have since been merged, and the revival of Hindustan Photo Films is on the cards.