PSU bank chiefs may find incentives tough

With fatter pay cheques in their pockets after the Sixth Pay Commission’s recommendations, chiefs of public sector banks have reasons to rejoice, but the flip side is that government is out to tighten the criteria for performance-based incentives that form part of their compensation package, reports Mahua Venkatesh.

With fatter pay cheques in their pockets after the Sixth Pay Commission’s recommendations, chiefs of public sector banks have reasons to rejoice, but the flip side is that government is out to tighten the criteria for performance-based incentives that form part of their compensation package.

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Indications are that the chairman-cum-managing directors and executive directors of PSU (public sector undertaking) banks may have to comply with more requirements to be eligible to receive the additional payments.

“We may consider adding a few more areas for assessment of performance of PSU bank chiefs, though at this stage there is nothing concrete on this,” a senior government official who did not wish to be identified told Hindustan Times.

At present, a chairman of a government-owned bank earns about Rs 80,000 per month, which is significantly lower than counterparts in the private sector. Before the implementation of the Sixth Pay Commission recommendations, their pay packets was even lower.

In 2007, the Finance Ministry introduced performance-based incentives for PSU banks chairmen and executive directors in a bid to bring some “parity” in their pay scales with their counterparts in the private sector. That was a boom phase in which private banks were charging ahead, poaching vital talent from state-controlled banks.

Targets for chairpersons and executive directors of the state owned banks are determined at the beginning of a financial year and performance-based incentives are given on the basis of achievement of set goals.

Currently, PSU bank’s top brass are assessed on both quantitative and qualitative parameters. The quantitative factors include growth in assets and credit and reduction in the level of non performing assets (NPA) – loans that fail to earn interest -- while qualitative indicators include leadership parametres and implementation of information technology systems that boost efficiency in banks.

Though most chairmen have been able to meet their targets over the last few years, a senior executive at a mid-sized PSU bank said there has been a sharp rise in high cost deposits in several banks, thanks to the statements of intent outlining the targets for the year that need to be given to the Finance Ministry.