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Pay disparity at banks: Is Rajan correct to stoke the debate?

business Updated: Aug 18, 2016 12:54 IST
Ramsurya Mamidenna
public sector jobs

“Overpaid at the bottom and underpaid at the top”, rued Raghuram Rajan on salaries at state-run banks. Is it a correct assessment of the PSU compensation structure?(Hindustan Times)

Most public sector jobs are seen as a source of joy when you get it. But that enthusiasm gradually morphs into frustration and disappointment when counterparts who started careers simultaneously, are leagues ahead in salaries and responsibilities.

RBI governor Raghuram Rajan touched a familiar chord when at a banking event on Tuesday, he raised the issue of the wide disparity in salaries of public sector bank chiefs and their peers at private banks. To highlight the issue further, the governor rued the fact that even he was underpaid!

But the situation is not without reason. “Overpaid at the bottom and underpaid at the top”, the phrase that Rajan used to describe salaries at state-run banks, is because the heavily politicized banking unions have managed to institutionalise entry-pay scales at larger levels. Negotiations with management have typically always focused on entry level scales as this prompts assured membership of such organisations. Junior staffers starting out at public sector banks have a comparatively higher salary than those at private banks; it is on an average Rs 32,000 a month, compared to an average Rs 20,000 at private banks.

The process to get into a nationalized banks is therefore difficult. Aspirants have to take a nationwide entrance test, compete with lakhs of students across the country and also clear rigorous interviews and training programmes, before bagging the job. Their private bank counterparts however have a relatively easier entry, with most of them joining after graduation from colleges where most of the times it is a simple interview based selection process.

But that is where life for young executives at private banks changes. It is widely seen that young women and men spend only a year or two at private banks as the work pressure is high with strict appraisal systems; promotions are less than 5% of the total hires. It is estimated that almost 70% leave in 2 years. This is true of the cadre that has been recruited from colleges.

It is an intensely competitive environment at private banks where only high achievers and consistent performers make the cut. Compare the situation with that in public sector banks, where work hours are more uniform, thanks to an active employees’ union, and annual salary revisions are a given, not linked to performance.

Within five years, the pay scales start to reverse and at the end of 10-12 years, there is a wide gulf. But understandably, while the focus is on the crores that heads of HDFC Bank or ICICI Bank take home, compared to the lakhs that a SBI or PNB chairman gets, human resource specialists say it is unfair to compare. A private bank unit head has a very demanding KRA with clear and difficult targets. So if the unit is able to generate profits, shareholders reward the head with generous pay hikes and bonus. The flip is also true. Heads are demoted, a rarity in public sector banks.

There is one area though where public sector bank heads are ahead of their private bank counterparts; on perks. Most middle and senior executives at nationalized banks manage to get attractive non-monetary perks that may have been initiated 40-50 years back and may not be relevant today. But sadly, that’s where the supremacy of state-run banks ends.