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Tuesday, April 1, 2008

Is the sixth pay panel award justified?

The Sixth Pay Commission was set up after a gap 12 years and during the intervening period, the compensation packages in the other sectors increased continually resulting in a severe distortion. Consequent to such distortions, the ability of the government to attract and retain competent persons with appropriate skills was getting constrained. It was also causing an adverse impact on motivation levels and performance standards.

Absence of committed and efficient civil governance systems not only affects social welfare and justice, but also economic growth. The government machinery still plays a significant role in the economic activities of the country. Disgruntled and demotivated government employees could be a major hindrance to economic growth.

The central government compensation is usually a base for discussions and negotiations for state government employees and to an extent public sector undertakings. All of them have a very significant role to play in the economic activities of the country. The compensation packages of some of the CEOs of large public sector undertakings are about one-tenth of that of their counterparts in the private sector.

There is a belief that government jobs are coveted not because of compensation packages, but for the soft benefits (both tangible and intangible) that come with it, including the sense of job security, lack of accountability, and the aura of importance (power?). While conceding the point, we need to appreciate that the premium one would be prepared to assign to such benefits cannot go beyond a point. Also, for someone with the required skills, competencies and willingness to work hard, these soft benefits may not be so important. During the last few years, we have been witnessing sectoral migrations, though not yet on a large scale. This leads to the question, how desirable are the soft benefits? I would rather think that efforts should be directed towards eliminating these ‘soft benefits’.

Compensation should be performance linked and performance should be well defined and measurable. Accountability should be enforced and the multilayer decision making system should be replaced by empowerment and delegation. The multiplicity of checks and balances resulting in wastage of time and efforts and, in the process, sacrifice of accountability should be rationalised. The Commission Report has made a mild suggestion regarding performance linkage of increments to begin with.

In some quarters, there is a feeling of qualitative inferiority of government employees vis-a-vis private sector employees. How far is that valid? All of us, in the course of our interactions with government executives, have come across innumerable instances of brilliance of mind and willingness to be of service, notwithstanding systemic rigidities. Their performance, however, is many a time constrained by a multilayer decision making process and multiplicity of checks and balances.

Let us now look at the issue of affordability. The Pay Commission recommendations would not only have implications in terms of compensation packages (including arrears) and benefits of central government employees but would also impact the compensation packages of state government employees and even the employees of public sector undertakings.

All of them taken together would have a serious financial impact on the government finances. A large chunk of government revenue every year is spent on salaries and wages and in turn the socially desirable projects are deprived of corresponding funds. This, of course, is a major cause of concern. Let us hope increased productivity and improved efficiency of delivery of services by the motivated, empowered and accountable government employees would lead to higher economic growth and bring in additional resources to offset such impact.

It is a well known fact that the government service is no longer attractive for a vast majority of Indians today. With a plethora of other attractive career options, a career with the government sector has been a definite “no-no” for a large majority of young and talented Indians. This, coupled with the growing exodus of competent and capable government employees to the private sector witnessed in recent times, is increasingly attributed to uncompetitive remuneration.

It is common sense that the recommendations of the Pay Commission, when implemented, will bridge the gap between government salaries and private sector salaries. However, it is the extent to which the gap will be bridged which remains an area of concern. It is interesting to note at the junior level in the bureaucracy, employees tend to be paid in excess of what is paid to junior officers in the private sector. However, as one goes up the hierarchy, the gap between government and private sector salaries widens with the private sector salaries overtake the salaries of government employees by far. Considering that senior government officials have onerous long-term responsibilities thrust on them by virtue of the positions that they occupy, this situation seems unfair and the Commission’s recommendations to drastically increase the salary levels for the top bureaucrats of the country seems commendable.

Also, to ensure that salaries remain competitive in a market which is witnessing high levels of overall wage inflation, the government would need to take a proactive approach and review salaries every 3 to 4 years rather than go through a big bang revision once in every 10 years. Singapore, for example, believes that its civil servants have to be paid best in class salaries, shoulder to shoulder and possibly ahead of many private sector employees to ensure that the civil service is a viable career option and attracts the best and brightest and this recommendation could rekindle the interest in government service amongst many Indians.

The linkage of performance to remuneration and more specifically to annual increments and for replacement of the ad hoc bonus schemes has been suggested for the first time. Even though the recommendation is fairly conservative, this could well be the baby step that turns into a giant leap — in mobilising a robust performance management system with increased accountability, and in differentiating performance and contribution from amongst employees, thereby creating a healthy performance-oriented culture.

With enhanced performance levels infused through an effective performance management system, general public opinion would hold no grudge on future and even more market-driven increases in the compensation levels of government employees. While this revision may be taken as a first step, further increases in compensation will have the support of the masses only if there is a perceptible change in the overall performance, attitude and service orientation of employees whom they encounter in their daily lives.

For several years government salaries have been kept artificially low on the pretext of the associated power and privileges, extended employment security and provided benefits loosely referred to as ‘perks’, with no established monetary value. The Commission has made a first attempt to quantify ‘cost to government’ for employment of its staff and plug this lacuna. Again, here is a novel concept, introduced to reckon the salary levels in the civil service, which could go on to become the defining feature of how salaries of government employees are established, computed and communicated. This may mean monetisation of several benefits as has been witnessed in many European countries. Conversion to cash will also help the government to dismantle and redeploy the entire mechanism associated with the administration of these benefits.

Find out the arrear calculator based on Sixth Pay Commission report here - http://6pc.in/arcalc/
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