Government is in the process of introducing a performance-linked incentive system for employees

In the coming appraisal season, the corridors of power will be abuzz with words typically discussed in hushed tones around corporate offices every April - variable pay and key result areas. The government is in the process of introducing a performance-linked incentive system for babus in several ministries this year.

A committee under Cabinet Secretary Ajit Seth has given the green signal to the plan to boost the government's efficiency by introducing variable pay for bureaucrats. The incentive would be determined on the basis of a department's performance on pre-determined annual targets. Departments would have to achieve these goals with lower administrative overhead costs, to make the scheme budget-neutral.

An effective mechanism for monitoring and evaluating performance was part of UPA-II's priority agenda as per the President's address to Parliament in June 2009. Government officers are presently paid a bonus on ad-hoc basis with guaranteed increases in salaries, giving them little reason to take any initiative or risks. This could change with the introduction of a variable pay component, which could boost officials' incomes by as much as 40% of basic salary.

"The government has now decided to introduce a performance-related incentive scheme on a pilot basis, which we hope to launch this year," the government's chief performance officer Prajapati Trivedi said in a recent discussion with human resources professionals from India Inc.

"Officers can't be expected to perform better if they are constantly berated... We can have the world's best evaluation systems, but if we don't have an incentive system, I am afraid we can't improve performance," said Trivedi, who serves as Secretary (performance management) in the Cabinet Secretariat.

Such a system was first recommended for civil servants over 25 years ago, when the Fourth Pay Commission suggested variable increments as a means to reward better performance by babus. The Fifth Pay Commission report submitted to the government in 1997 recommended another variable pay strategy - extra increments for the exceptionally meritorious performers with denial of regular increments for under-performers.

In 2008, the Sixth Pay Commission, by contrast, suggested a performance-related incentive system (PRIS) that offers a monetary perk over and above the salary for higher performance. "There is no external motivation for risk-taking and delivering a higher level of performance, because though the risk-taking is punished if things go wrong, it is not financially rewarded if things improve... Over the years, this has led to a culture where (government) employees have become risk averse," it had noted.