Monday, September 1, 2008

Are government salaries really low?

Though the government has formally notified the liberal pay hikes to its staff with uncharacteristic alacrity, one question remain unasked. Are government salaries as low as they are made out to be? By Shivshanker Verma

When the Pay Commission submitted its proposals to the government, it was widely expected that its implementation would be delayed because of the huge financial burden. Public finances are already under strain because of the scary rise in subsidy bills and populist programmes like the jobs guarantee and farm loan waiver schemes.

It was also expected that the government would not risk the expansionary effect of a pay hike when inflation has ben at a 13-year peak.

But the lure of earning the gratitude of millions of government workers ahead of general elections proved too irresistible to the government. Unlike most big government programmes, there was no dilly-dallying with this one.

Within months of receiving Pay  Commission recommendations, the central government heard out all those who had grievances about the proposals and worked hard to please them all. In some cases, the government even exceeded the recommendations of the commission and the period for which the wage arrears were to be paid is quite liberal to say the least.

Now, within a month of the cabinet approval, the pay hikes have been formally notified with surprising alacrity. Sadly, issues like linking government pay to performance and right-sizing the government have been ignored again and are likely to remain unaddressed for many more years.

Are central government employees really underpaid?
How many times have you listened to older government employees talking about their children's starting salaries being much higher than their own at close to their retirement? Though it may have been said with obvious pride, the message clear; that government staff in India are grossly underpaid when compared to their private sector counterparts.

This pereption is further accnetuated with media reports of  campus placement salalries of young MBA graduates every year during the campus recruitment season.

Similar reports of top management leaders in the private sector earning extraoedinarily high salaries make comparisons completely irrelevant. A newspaper report today said there are 596 executives in listed companies who earn more than Rs1 crore per year, of which 219 were new entrants to that exclusive club during the last financial year.

The number would be much higher if we include all the unlisted companies, subsidiaries of foreign companies and banks. These senior executives saw their salaries rise by as much as 36 per cent last year, when the incomes of executives below them rose no more than 10-15 per cent.

The top earner among private sector CEO's, Anil Ambani, took home more than Rs48 crore last year while his elder brother Mukesh Ambani received Rs44 crore. These sums are even larger than the entire wage bills of smaller listed companies and most government departments. 

Government staff will not earn a crore over their entire careers, even after the pay hike. It is no surprise then that most of us believe government jobs pay peanuts.

But, that is a misperception. The pay scales of government employees at the lowest levels are actually far better than those in the private sector. After the latest pay hike, the minimum salary of a central government employee will be Rs10,000 per month. Salaries for comparable functions at most private companies won't exceed Rs5,000 per month, and will be even lower if we consider smaller businesses.

When government staff demand pay hikes, they talk about entry salaries of Rs40,000 and Rs50,000 per month in the private sector. But, only engineering and management graduates recruited by top employers get that kind of money in the private sector. To be eligible for lower scale government jobs, secondary school education is often enough. When that is the case, isn't the comparison to professionals with graduate degrees from the best colleges a misplaced?

In the middle and senior levels, government pay levels do appear lower than those in the private sector. When comparisons are made, mid-career professionals in the private sector are all presumed to be earning anything above Rs20 lakh per annum. In reality, only a small percentage employed by the top companies earn that much.

The vast majority in smaller companies take home much lower salaries. Not all mid-level bureaucrats can be compared to the best paid managers in the private sector, in terms of efficiency, personal initiative, accountability and delivery of results. Some personnel in senior positions in all-India services like the IAS and IPS cadres can be compared, though not all of them, but they are eligible for a lot more perquisites than all government staff, like free housing, car and personal staff.

So, if comparisons are made after excluding the best in the middle levels of both government and private sectors, there would not be much of a difference in the average total compensation including all perks.

At the senior levels, yes there is a wide gap in pay levels. Even after the pay hike, the cabinet secretary will take home Rs90,000 per month when most CEOs of listed companies earn many multiples of that amount. The gap may not narrow significantly even after considering the market price of perks like a big house in the capital that top bureaucrats enjoy. But, the power, prestige and visibility that come with top government jobs  more than compensate for the lower salaries, as inded in most countries. US treasury secretary Henry Paulson may not earn in a year what he earned as CEO of Goldman Sachs.

At the same time, when government-owned enterprises are efficient and competitive, the employees should be paid their due. CEOs of large PSUs earn only a fraction of what their private sector counterparts make, which is unfair. The pay scales of other managers in these companies are also lower than in the private sector, though many of these companies do as well as their private competitors, because salary scales in these companies are benchmarked against comparable government jobs. The government should allow all large PSUs which meet certain performance standards, maybe all navratna companies, to pay market-determined salaries.

When they demand better pay, government staff hardly ever talks about the substantially lower working hours they put in when compared to private sector employees. Working hours of most of those working in the private sector are substantially longer than government bureaucrats. Some of the better known private sector employers may talk about work-life balance and compulsory vacations, but in practice it will be hard to find many who don't spend more time at work than officially required. 

Even if government employees decide to put in as many hours as private sector staff every day, they are usually not required to work more than 190 days a year because of the liberal leave entitlements and large number of holidays. The sixth Pay Commission's proposal to reduce the number of gazetted holidays has already been shot down.

There are two other factors that are often left out when the private-public salary comparisons are made. Government staff enjoy near absolute job security, irrespective of performance, which is hardly the case in the private sector. Then there is assured pension benefit for life for all government staff, the eligibility period for which has now been reduced to 20 years of service. Compensation comparisons should take into account the present values of pension benefits as well.

Given these, government pay levels are nowhere as inadequate as made out to be!.