A primary HR tool that is used to affect motivation and performance is compensation (Lawler, 1971). Recently, more emphasis has been on the use of variable compensation schemes, instead of fixed forms of pay in order to increase employee productivity and thus firm performance. As per the pay-scale of the 2nd Pay revision for the Central Public Sector Enterprises (CPSEs) in India, the CPSEs will now have variable pay along with the fixed pay as an integral component of compensation structure. Keeping the 2nd pay revision in mind, the paper tries to explore the prospects of a transparent and robust performance management system in place and as well as to study the concept of performance related pay and its implication with respect to CPSEs in India to establish a performance oriented work culture.