The yawning gap between the compensation of senior management at public sector undertakings (PSUs) and their counterparts in the private sector was the key focus of the Pay Revision Committee (2nd PRC), headed by retired Supreme Court Judge M Jagannadha Rao.
As a part of its strategy to make PSU jobs financially rewarding, the committee of the Union department of public enterprises, recommended enhanced pay scales coupled with increased levels of performance related pay and gratuity. But these measures do not seem to narrow the chasm between public and private sector salaries.
For example the salaries of top executives of the biggest PSU and private companies in the steel sector. Total remuneration of S K Roongta, chairman, SAIL, amounted to Rs 16 lakh in FY09, a compounded growth of 14.7% since FY05. In contrast, the gross remuneration of the managing director of Tata Steel (who has since retired on September 30, ’09), B Muthuraman amounted to Rs 4.03 crore in FY09, a compounded growth of 25.2% since FY05.
A similar divergence in the top management salary scales between PSUs and their private counterparts can be found across sectors. In case of NTPC, the total compensation for its chairman and managing director, R S Sharma amounted to Rs 20.8 lakh in FY09, a compounded growth of 16.1% since FY05.
On the other hand, the gross remuneration for Prasad Menon, MD of Tata Power amounted to Rs 2.39 crore in FY09, a compounded growth of 27.8% in the remuneration since FY05. Explains Arjun Erry, managing partner, Hunt Partners, an executive search firm: “The difference between the public and private sector lies in the risk-reward ratio. In the private sector, top management has to constantly strive to reach higher operational targets, which will involve a certain degree of risk and an employee has to be rewarded suitably. This often is not the case in PSUs.”
The 6th Pay Commission, in its report of March ’08, had highlighted that the high salaries in the private sector are often granted only to a miniscule number of employees who hail from the top-end management schools, and their remuneration, at times, are not reflective of the industry average. This is reflected in the table below.
For instance a typical employee in NTPC takes home a salary of around Rs 12 lakh per year, around 36% higher than his/her counterpart in Tata Power, the country’s largest private sector power utility. The gap is even higher between National Aluminium (NALCO) and its private sector peer, Hindalco. Only in cases like ICICI Bank, it seems a private sector employee makes more money than his/her PSU counterpart, on average.
S Mohan, director, HR, BPCL explains: “For the top jobs in India Inc, remuneration is not the only criterion for motivating employees. PSUs like BPCL provide ample career growth opportunities at senior levels, which can also be a strong motivating factor.” Mr Mohan could be right. While the top management in the private sector earns many times more than their public sector peers, it doesn’t necessarily result into an equally big gap in the financial performance of the two companies.
Recently however there have been various moves by the government to close this gap. “The government has taken cognizance of this issue. It is taking steps to link the pay package of top executives with the growth in the company’s profit,” says S K Roongta of SAIL. But in no circumstance can a government be seen to be paying a PSU CEOs salary that is 250-500 times the per capita income of the country. India’s per capita income was around Rs 38,000 in FY08. This makes Hindalco managing director Mr Debu Bhattacharya-the highest paid CEO in our list-makes 3,865 times richer than a typical Indian.
A strict comparison of salary levels between public and private sector may not be fully objective. No doubt PSUs have attempted to improve the remuneration packages for their employees in a bid to prevent flight of their employees to the private sector, but these government-owned enterprises also have to fulfill certain social objectives.
The PSUs remuneration and human resource policies have to fit into India’s socio-economic reality, which is a country that is still pre-dominantly poor with lot of social and economic inequities. To give equal opportunities and uplift people from certain sections, the government has reserved posts in PSUs for scheduled castes and scheduled tribes. Most PSUs also have mandated to develop broader infrastructure facilities in areas adjoining their facilities. In contrast, in private sector companies, profit maximisation is the key objective.
Employees in public sector enterprises have enjoyed job security, which is often not the case in private sector. Also, there is no denial that they have traditionally enjoyed a range of benefits and perquisites that cannot be easily monetised.
For instance, PSU employees are entitled to accommodation at subsidised rates, which may not be the case for employees in the private sector. But the sum of these perquisites can never equal the 8-9 figure salaries drawn by their private sector peers. The junior and middle management employees are, however, better off in PSUs than those in the private sector because of these fringe benefits and more equal distribution of compensation in PSUs.
Take the case of BHEL, where the average salary per employee was Rs 6.55 lakh in FY 09, as compared to Rs 5.19 lakh for Larsen & Toubro. A similar situation was observed when comparing the average employee salary levels of SAIL and Tata Steel, coupled with NTPC and Tata Power.
Says Subir Raha, former chairman of ONGC: “Growth opportunities for young professionals in a PSU would be difficult to match apart from the remuneration offered (by the private companies).”