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National Issues/ Economy/ Politics

PSU Banks: Why not link pay to performance?

I am in total agreement with RBI governor Subbarao, when he argues for better compensation to the PSU Bank executives and employees, especially in comparison with the Private sector banks. But, let us review the ‘real’ situation under which the present pay scales in the PSU banks are fixed.

1. firstly, it would be unfair to compare the existing service levels at a PSU Bank with that of a Private sector bank. ‘Job security’ has dulled the enthusiasm, commitment and prompt service objectives of a ‘new employee’, over a period of years in his or her service. Despite having the mettle, the employee is helpless due to slack in public sector banks’ working culture. Many optimists lose their drive and basic instincts to survive & excel; while fighting against the tide of inefficiency, favoritism and corruption of moral values – amply present in the present PSU banking system.

2. Many of the new appointments come under scheduled reservation for OBCs and other privileged classes. This has deterred several deserving candidates to pursue a career in PSU banks. Eventually, the majority in the lot appointed are of mediocre standards.

3. There is no ‘fair’ incentive to the performers and this is very discouraging to the capable and dedicated executives. They have to wait in queue to get promoted to the next level!

4. Stop and remove redundancy in employment; ascertain actual requirements of employees at periodic levels. Do not allow over staffing!

The only solution to maintain higher service levels to meet the requirements of a fast growing Indian economy is to link pay to performance. Some of the steps to incorporate the principles of sustainability, in the wake of global financial crisis, evolved by the financial stability board are:

a) Scrap multi-year guaranteed bonuses
b) Tie up significant portion of variable compensation to performance; introduce stock options to the deserving like done in the private sector, on meeting the eligibility requirements.
c) Ensure accountability: tie up risks to individual employee compensation, in order to prevent bad debts.
d) Create transparency in compensation structure; disclose requirements – while awarding higher compensation to the performers by public notice so as to build trust among others.
e) Limit variable compensation as a percentage of total bank revenue.
f) Compensation committees to be set up and they should be free from political encumbrance; this is critical: especially at higher levels

Yes, sustainability has to be ensured and attrition should be capped; but, an employee looks at the working culture too, besides higher pay – to motivate himself to perform. If, the deserving and capable leave PSU banks to join private sector; it is not money alone as a factor!

Subbarao did not talk about working atmosphere and performance!!


About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.



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