The huge disparity in the compensation packages between public sectors bankers and their private sector counterparts is nothing new. It is now back in the limelight due to the SBI chairman’s comments, but is there much to it?
An innocuous joke by the boss of India’s largest lender has put the spotlight back on an old debate in India’s banking circles — the humble compensation packages of government-run bank officers compared with the salaries of their private sector counterparts.
In a recent conference call with analysts, State Bank of India (SBI) Chairman Rajnish Kumar was asked if his bank would undertake a pay cut for employees. Pat came Kumar’s reply: "Road pe aake rehna padega, pehle hi itni kam milti hai (I'll have to live on road, I already get so less).”
Though this was said in jest, no one could miss the undertones to the relatively lower pay of state-run bankers. HDFC Bank, the private banking giant, offered its CEO a total compensation of Rs 13.7 crore in FY19. Competitor ICICI Bank paid its CEO a total remuneration of Rs 4.9 crore.
As it happens with such comments, it triggered a fresh debate on the issue. Kumar’s comments didn’t go well with many in the banking industry. One former SBI chairman told Moneycontrol that Kumar’s comment was in bad taste and amounted to lowering the dignity of his office. He did not want to be named. A few others sympathised with Kumar, saying he indeed has a point about the lower pay levels in public sector banks.Who's right?
To begin with, take a look at how much the SBI chairman earns. According to the last available data in FY19 annual report, the SBI head earned Rs 29.53 lakh a year.
Is that equitable pay for the head of the country’s largest bank? That depends on which side of the debate you are on.
The salary must be seen in combination with the perks a SBI chairman enjoys. Here are a few: a plush bungalow in Mumbai, dedicated help, two cars with drivers, unlimited petrol and so on.
What about Kumar’s colleagues in SBI? In SBI, managing directors receive around the same amount as Kumar last year. Parveen Kumar Gupta earned Rs 29.86 lakh in FY19, which included arrears worth Rs 1.1 lakh from 2017-18 and Rs 19,344 from 2016-17. Dinesh Kumar Khara, another Managing Director, took home Rs 28.06 lakh, of which Rs 32,226 was arrears from the previous year.
What about other banks? Bank of Baroda MD and CEO PS Jayakumar, who was hired from the private sector in 2015, actually earned more than the SBI chairman last year. According to FY19 annual report, Jayakumar’s salary was Rs 33.45 lakh while Executive Director Mayank Mehta earned Rs 55.24 lakh in FY19.
What about the earnings of other executive directors? Ashok Kumar Garg received Rs 46.3 lakh, Papia Sengupta Rs 29.7 lakh, Shanti Lal Jain Rs 15.15 lakh and Vikramaditya Singh Khichi Rs 14.3 lakh.
Bank of India, another leading lender, paid its CEO Dinabandhu Mohapatra an annual compensation of Rs 29.07 lakh in FY19, while Executive Director Neelam Damodharan earned Rs 25.3 lakh. Atanu Kumar Das (the then executive director) and CG Chaitanya (another Executive Director) received Rs 25.6 lakh and 24.7 lakh, respectively, in 2019.Private banks, the paymasters
These packages are just a fraction of the earnings of private sector bankers.
The total compensation of Adity Puri, HDFC Bank CEO, includes perks worth Rs 2.2 crore. His combined pay excludes stock options worth Rs 42.2 crore exercised during the year, according to the annual report.
Former HDFC Bank deputy managing director Paresh Sukthankar, who was speculated to be Puri’s successor at one point but resigned in November 2018, took home Rs 6.3 crore in FY19, while Kaizad Bharucha, Executive Director, drew Rs 5.8 crore. Look at it this way: the bank paid around Rs 26 crore to its three top executives in FY19.
ICICI Bank paid a combined Rs 4.9 crore to Sandeep Bakshi, MD and CEO, in FY19. This included Rs 2.21 crore as basic salary and Rs 2.24 crore as allowances and perquisites. Vishaka Mulaye, Executive Director, received Rs 5.2 crore while Anup Bagchi, another Executive Director, took home Rs 4.6 crore.
In the case of Kotak Mahindra Bank, Uday Kotak, the promoter, Managing Director and CEO, received an annual compensation of Rs 3.25 crore in FY19, while Dipak Gupta, Joint Managing Director, received Rs 9.57 crore, including perks of Rs 6.3 crore.
Axis Bank CEO Amitabh Chaudhry earned Rs 30 lakh a month in FY19.Do public sector bankers deserve better pay?
A former chairman of a public sector bank said the debate the disparity in pay does not make any sense. "The difference in pay between the private and public sector is not specific to public versus private banks. This is true across all sectors," he said.
Wage disparity between the public and private sector is not limited to banks. The government has not acted to reform the pay structure so far except for a few tweaks. There is another view that pay reform alone doesn’t make sense unless a level playing field is granted to all banks.
"You need to look at this issue with a holistic approach. Public sector banks (PSBs) need to be granted a level-playing field to compete with private banks. Right now, they are asked to run a race with their arms and legs tied. This needs to change first before we discuss compensation," said JN Gupta, founder of SES, a proxy advisory firm.
In August 2016, former RBI governor Raghuram Rajan called attention to the issue when he said salaries of top level employees of the public sector, including RBI, are way short of global standards. "One of the problems, of course, is that the public sector overpays at the bottom but underpays at the top. I also feel underpaid," Rajan had said.Job security a plus pointIf one looks at the lower rung of employees in private banks and public sector banks, the salary difference may not be very high. Public sector bank (PSB) employees enjoy job security unlike the private sector.
Private sector banks reward employees based on performance linked compensation models specific to individual institutions. As against this, traditionally, the salary of a PSB employee is decided through negotiations between the Indian Banks’ Association (IBA) and trade unions once in every five years.
This time, the two are yet to reach a consensus on the revision that was originally due in November 2017. In the 2012 round, IBA had awarded a 15 percent hike to employees. This time (2017-2022), unions are seeking 20 percent while IBA has so far offered 12.25 percent. There is no consensus yet.Is this time for a wage reform in public sector? The jury is still out on the debate.