The Druk Holdings and Investment board in its meeting on Tuesday gave the go ahead to DHI to implement its own annual salary increment system which will no longer be linked to the ad-hoc salary hikes in the civil service.
DHI Chairman Dasho Sangay Khandu said, “The board decided that in the future the annual pay increases in DHI will be based on a model that annually accounts for inflation, performance and also the company’s ability to pay.”
Dasho said that with the new system DHI will avoid the current system of following the ad-hoc pay hikes of the civil service.
He said that this system by having an annual and systemic formula based increase would mean that companies can avoid the sudden burden of large salary increases.
An important component of this hike which will be the first of its type is that it will also be related to the individual performance of DHI employees. So a good and performing employee would get a higher annual hike than a non performing one.
DHI hopes that this will promote a merit and performance based culture in DHI owned companies (DOC).
The Ability to Pay Index (API) of the company will also be an important factor in the annual salary increment. This means that the recommended salary increases shall be determined by the financial position and long term commercial and financial viability of each company. The revenue and expenditure indicators of the company will be used to arrive at the real API.
The salary increase will be adjusted to compensate for the erosion of real value of salary by inflation or cost of living.
The annual increment of the DHI will be divided into two parts which added together will make up the final increment.
The first part is the inflation adjusted increment linked to the company’s ability to pay. Currently both the civil service and DHI gives an annual 2.5 percent raise to adjust for inflation which is widely seen as being inadequate. DHI here to get the inflation adjusted increment will use a three year data to get the average inflation rate of three years. It will then minus the 2.5 percent hike from the three years average inflation rate and multiply it into the Ability to Pay Index (API) of the company. Then a 2.5 percent is added to the result to decide the final inflation adjusted increment along with the company’s ability to pay.
The second part of the annual increment is the Performance Indicator (PI) which will be found out by adding up the corporate level performance, department level performance and individual level performance. Essentially PI means the better the performance the higher the annual increment. Here junior employees will get higher marks for individual performance and managers will get higher marks on the department and company’s performance. There is however, a team player component even at the junior employee’s level.
The final annual increment will be decided by adding up the inflation adjusted increment and the performance indicator.
However, the new system does not mean that companies can go very high on raises as they will have to keep the annual increments within the maximum limits of inflation adjusted increment and PI.
The mastermind behind the system is DHI’s Corporate Performance Department Director Damber S. Kharkha who conceptualized and designed the system.
He said that system will be implemented on trial basis by June 2015 and hopefully if all goes well then it will be implemented in all companies by end of 2015. He said that there could be some changes and improvements in the system.
However, the new system also recognizes that not all DHI companies can be motivated only commercially with some having social mandates.
Damber said that for companies with social mandates there would be slightly different scores.
The system came about as the 55th DHI board meeting in September 2014 advised DHI not to peg DHI companies’ future salary raises with civil service pay revisions.