Memorandum of Understanding in Public Sector Enterprises PSEs

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Memorandum of Understanding in Public Sector
Enterprises (PSEs)
Welcome Delegates from States to the Second
Conference on SLPEs Department of Public
Enterprises Ministry of Heavy Industries
Public Enterprises Government of India
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MoU is Goal Setting
MoU is a mutually negotiated agreement between
the Management and the Government setting
(annual) performance targets against Goals of PSE
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Evolution of MoU System for CPSEs

• Increasing number (4 in 1987 to 207 in 2009)
• Independent Task force finalize MoU targets
  evaluate performance of CPSEs based on Audited
  data (1988)
• MoU Excellence Awards (1988) Merit Certificates
  (1999)
• Laying of MoU in Parliament (1991)
• 75 weightage in ACR of CEO to MoU rating (1995)
• Balanced Score Card approach (2005)
• Linking of Performance Related Pay to MoU ratings
  (2008)
• Parent PSEs required to sign MoUs with
  Subsidiaries (2009)

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MoU A Win-Win Tool

• For the PSEs Management tool for PSEs in making
  them perform and deliver. Providing greater
  autonomy to these enterprises vis-à-vis
  Governmental control. Ensures a level playing
  field to the PSEs vis-à-vis the private sector.
• For the Government Brings accountability of the
  Management of the enterprise to the Government
  through performance contract facilitates
  monitoring during end of the year.
• For the economy Tool for Policy makers

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Adopting MoUs System for SLPEs

• Designate a nodal department for MoUs Could be
  administrative Departments / a Nodal Department
• Assign a Mandate to the Nodal Department (as by
  Amending Rules of Executive Business)
• Constitute Apex Committee on MoU
• Set up an independent group of Experts to review
  the draft MoU prepared by SLPEs, and evaluate
  performance
• Train staff of Nodal Department and SLPEs
• Finalize forms guidelines on MoU.
• Build a system of rewards MoU awards,
  Performance Related Pay, weightage in ACR of CMDs
  
• Get MoUs and evaluation reports laid in
  Legislative Assemblies

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Steps in Framing a MoU

• Define goals
• Set Monitarable Parameters
• Assign weights to Parameters based in importance
• Set Performance Targets against Parameters

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What are PSEs Goals?

• 1. Shareholders interests
• Higher Profit
• Improve production productivity
• Reduce costs
• Grow Increase market share
• Innovate
• Globalize
• 2. Stakeholder's interests
• Satisfy customers
• Add Quality
• Employees
• Promote HRD
• Safety
• 3. Social objectives
• Employment generation
• R D
• Promote sectoral growth
• Environment conservation

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MoU Parameters Financial

• Absolute parameters
• Turnover
• PBDIT
• Management ratios
• PBDIT / Turnover
• PBDIT / Capital employed
• PBDIT / Total Employment
• Net Profit / Net Worth
• Market Share
• R D / Turnover

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MoU Parameters Non-Financial

• Capital Expenditure
• Project Implementation/ Select Milestones
• R D
• Strategic Planning
• Customer satisfaction
• HRD
• Environmental Conservation
• Corporate Social Responsibility

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Performance Targets their Determination

• Performance Targets are fixed on 5 points scale
  -Excellent, V. Good, Good, Fair, Poor
• Basic targets fixed should be more than expected
  achievement for current year, realistic yet
  challenging
• In respect of CPSEs operating at 100 or less
  capacity, Basic Targets are fixed for Good
  rating.
• In respect of CPSEs operating above 100, Basic
  Targets are fixed for Very Good rating.
• 5 spread between targets, except 10 for very
  good and Excellent

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MoU Evaluation Grading of Score
The grading of the composite/weighted score is
done in the following manner MoU Composite
Score Grading
1.00-1.50 Excellent 1.5
1-2.50 Very Good 2.51-3.50 Good
3.51-4.50 Average 4.51-5.00 Poor
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Measuring Well Helps us Mangage
Well ---------- mou-dpe_at_nic.in dpe.nic.in Thank
You
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