Is low pay ailing Indian PSUs?

Wed, 8 Sep Pre-Open

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The strike called by Indian public sector banks yesterday was just one of the indications of low employee morale in the sector. In several such instances earlier as well, employees of Indian PSUs have expressed their woes. At times with regard to lower compensation and at others with regard to threat of job losses. Wide gap in PSU- private sector pay scales, threat of job losses due to privatization and fewer incentives has ailed Indian public sector units for long. Indian banks in particular have been a victim of this. The fact that markets value them atleast at 40% discount to private sector peers is reflective of the sentiment.

This is not to suggest that efficiency levels of public sector companies are low. Even if so, they have improved dramatically over the years. Companies like NTPC and SAIL are producing power and steel at cheaper costs than private sector behemoths. The likes of Bank of Baroda and PNB have one of the best interest margins amongst Indian banks. The government banks’ revenue per employee doubled in the past three years. Of course this is because their manpower grew by 2% while balance sheets grew in excess of 20% over this period. In fact these companies have been the poaching ground of talent for their private sector competitors. That said the low compensation levels in PSUs remains an issue when it comes to retaining the best talent and improving profitability.

Here again PSU banks are set to be the biggest victim. Nearly 80% of middle management and 50% of junior officers in these entities will retire over the next 10 years. The vacancies will require immediate replacement of skilled staff. And attracting that in competition with the private sector will be a heady task for the sector.

Performance linked employee compensation has been a bane of contention in the West. Particularly, after bankers mis-sold risky derivative products to hike profits and pocket dollops of bonuses. Hence short term performance has come to be considered as a bad metric for pay rises. Ironically, even after such learning, the conservative RBI governor has advocated improved pay scales for PSU executives. He believes that will help PSU banks in India remain more profitable.

We agree that competitive pay scales are necessary to sustain efficiency and talent in Indian PSUs. However, arm-twisting the government with strikes and an attempt to match the private sector may not be the best way out.