Too many hurdles in way of raising top-level pay at PSBs: Economic Times January 14th 2015

The principle of market economics is that for a similar undifferentiated product, the price should be almost similar. But this does not work when it comes to the labour market, especially when it comes to banks that have different ownership patterns.

Public sector bank (PSB) honchos rightly feel that they deserve better pay packets given that their counterparts in the private sector earn between Rs 4 crore and Rs 6 crore per annum, while they settle for around Rs 20- 25 lakh. Even if their perquisites are added, the difference remains wide, considering the private sector also rewards its management with stock options.

Thomas Piketty, who is still the flavour of the season, would say that in the capitalist world, the management appoints directors who, while representing shareholders, reward the management with extravagant compensations.

In return they are provided a good remuneration with possibly a commission thrown in. If it is in the hands of the board of directors, then for PSBs, the government, as owner, has to take the decision.

But there are issues here. In the order of hierarchy within the government, PSB heads come lower than the RBI, wherein salaries are marked along with civil services positions linked to those of members of Parliament and minsters and so on. Therefore, having a unilateral increase will be difficult, as banks cannot hike the salaries at higher levels but leave those below unchanged.

It is interesting to see how the average pay varies across various bank groups and staff structures. The table shows the average compensation received by employees in various bank categories based on RBI data. Also juxtaposed is the percentage of officers in total staff.

The table comes up with two revelations. First, on the compensation side, the average pay is much higher for PSBs compared with private banks. New private banks pay less than even old private banks. Foreign banks are the highest paymasters, at almost three times the industry average.

Second, on the employment front, public sector banks have a very hierarchical structure with officers being in the minority. As a corollary, it can be said that foreign banks with a very high level of officers have virtually low support staff. This can partly be due to less paper work, given that they would be less focused on the retail side, which requires more branches, staff, and officers handling their own affairs (though there would be outsourced agencies moving coffee cups).

The average pay at banks which have zero support staff shows mixed trends. Deutsche Bank averages Rs 31.4 lakh, while Axis is at Rs 6.13 lakh, Indus Ind at Rs 5.2 lakh, Kotak at Rs 7.64 lakh and Yes Bank at Rs 8.92 lakh. Quite clearly, having less support staff tends to make it possible to compensate officers better.

These statistics raise two conundrums. The first is that if PSBs have to increase their pay packages, then they need to do so across the board, which will not be possible given that there is a large number of support staff. This may not be in the ambit of the new structure, given the lower valueadded work being done. Unions will never agree to such one-sided packages.

Is it possible that just like PSBs have taken in lateral employment for specialists and paid them private sector salaries, the same can be offered for CMD positions? But then it has to be offered across all banks, which will entail changes in compensation to all employees — this won’t work.

The second is that within the new private banks, the inequality is really stark where the difference between the topmost pay and average pay could be as much as 80-90 times compared with PSBs, where the difference is at 2.5-2.7 times. In fact, the public sector does display a very egalitarian structure in contrast.

There is some talk of getting in private sector experts as CEOs of PSBs. This will not be possible unless the pay is increased as the incumbent has to also be prepared for so-called government interference. Interestingly, there have not been too many instances of PSB bankers leading private banks except at the inception stage in the early 1990s.

This is curious as no private or foreign bank has sought to take in a PSB executive as their head. Therefore, movement appears to be doubtful both ways.

Hence, while there is a strong case for increasing the salaries of PSB chiefs, implementation will be a challenge as we would need to take everyone along, which may not be possible.