Central Public Sector Enterprises in India have realized the importance of attracting, motivating and retaining talent and hence are bring in massive change in its attitude towards managing people. CPSEs are geared up to establish a performance oriented culture by making their compensation competitive and by integrating performance and compensation management systems in their organizations. The latest 2nd pay revision for CPSEs in India calls for an implementation of the concept of Cost to Company, performance related pay (PRP), Performance management system and cafeteria type benefit plan. The paper attempts to study the steps taken by CPSEs in the context of 2nd pay revision in terms of establish of transparent and robust Performance Management System. It also tries to explore the link of various motivational theories and its implication to PRP. The paper also highlights the determinants of PRP in CPSEs and the challenges before CPSEs.