CEO pay — the other side

As the economy has taken off, it has created a massive flight of personnel from the public sector to the private sector companies. The situation is particularly bleak for the banking and insurance sector enterprises where there is a resignation almost every week. Companies are unwilling to share figures but informally they acknowledge having lost almost 30 per cent of their key personnel in the past few years.

Is there any surprise that 16 central public sector undertakings have vacancies at the top for more than a year, sometimes due to administrative delays, but more often because there are few takers for these companies. Companies such as Container Corporation, RITES, ITDC and HUDCO either don’t have all functional directors in place, and another half a dozen PSUs don’t have chairmen and managing directors. The problem is not that the private sector is paying too much to its employees. It is that salary level for the well performing public sector enterprises is just absurdly low. The five or seven year ritual of pay revision is adding so little to the package that it does not cover inflation.

The latest Economic Survey shows that from 1971-72, the emoluments per capita of public sector employees has risen from Rs 5,920, to only Rs 27,600 in the year 2005-06. Of course the survey says that since the rise has been more than that of the consumer price index, it “shows that the public sector has been rewarding its employees at a far higher rate than justified by consumer price inflation”.

Why is the government so squeamish in accepting this problem?

It is actually quite simple. If it links the pay of the PSU chiefs and board members, with the performance of their companies, the next step is obvious. To protect or even earn that pay, every chief and his board will clamour for more freedom to work and earn rewards. Of course they can also be hauled up for sloppy performance.

In bureaucratic parlance that means the companies will ask for more autonomy to get their act together. This is something that no political master or the tribe below can even countenance.

Far better instead, to ensure that with the low salary, the levels of responsibility are kept diffused. So if investments do not work or worse does not deliver, there would be no clear indication of who should be made accountable. The ministries and the companies can instead point fingers at each other.

Is it any surprise, that the public sector companies are sitting on a cash pile of over Rs 3,59,077 crore, by end March 2007. The Planning Commission has pointed out that most of the top twenty PSUs are zero-debt entities.

Sitting on such a stock pile and perpetuating a low salary-low motivation culture are two sides of the same coin. The figures actually mean more than that. The latest Economic Survey points out that central public sector undertakings have a near monopoly in sectors like the production of coal—85.52 per cent, crude oil — 85.87 per cent, and petroleum refining — 74.51per cent.

So by denying a vigorous earning and punishment culture in these PSUs, the infrastructure sector is also taking a knock. To ensure that this culture changes, the insistence on dishing out the same pay scale for the successful companies like the Navratnas and the others should be given up.

There is also no justification for classifying PSUs into categories on the basis of capital employed and the number of employees, then linking those with the applicable pay scales. The scheme was obviously thought up by some official who had just no idea of how a company functions. But even before the government gets going on things like variable pay, incentives and means to make campus recruitments effective, a mindset that says the chief and the lowest level employee should have a matching pay rise has to be dispensed with. Otherwise chiefs of PSUs will continue to cast envious look on their peon’s pay.

The writer is editor, economic affairs, The Financial Express.