Pay gap between public and private sector bank chiefs widens

The gap between the remuneration of chief executives of state-run banks and their private counterparts has widened by about Rs 70,000 in the last two years. It was Rs 1.7 lakh (daily remuneration) in FY17.

The average daily pay of a public-sector bank chief was Rs 8,541 in FY19, while a private bank chief executive officer (CEO) earned Rs 2.48 lakh per day in the same period, according to a Mint analysis of annual reports of five public and private bank each.

For instance, India’s largest bank, the State Bank of India (SBI) paid its chairman Rajnish Kumar Rs 8,092 per day in FY19, as compared to Rs 3.74 lakh that HDFC Bank, India’s largest private bank, paid its CEO Aditya Puri in FY19.

However, it is to be noted that public sector bank chiefs also receive government accommodation at prime locations, which are not included as part of the salary, something that private bank heads do not get.

The gap in salaries is evident across banks. The chief executive of Punjab National Bank earned Rs 9,264 per day and that of Bank of Baroda earned Rs 9,165, while the heads of Bank of India and Union Bank of India (UBI) earned Rs 7,965 and Rs 8,219 respectively.

A major component of the remuneration in private banks is through stock options for senior executives. Public sector banks have also been toying with the idea of an employee stock option programmes (ESOPs) to put in place a performance-linked incentive structure.

The idea was mooted by the Banks Board Bureau (BBB), a government body tasked to look into the performance of public sector banks. It also received the Finance Ministry’s nod in March 2017 and some banks such as Allahabad Bank and United Bank of India are implementing this scheme.

In April, the BBB again suggested aligning compensation with the right performance metrics through the introduction of performance-based compensation through ESOPs.

"The pay disparity between PSU and private banks, across ranks, has existed for a long time," said Veinu Nehru Dutta, director, financial services, ABC Consultants.

"Pay disparity within PSU banks have also widened after lateral hiring of some managers from private banks at higher salaries. However, there is a lot of demand for PSU bank chiefs for board-level positions," Dutta said.

Even mid-level employees are sought after, especially in credit and risk management areas, where the PSU banks have greater exposure than their private counterparts, she said.

A recent example is that of former SBI chairperson Arundhati Bhattacharya, who joined Reliance Industries as an independent director.

An April 2018 report by proxy advisory firm IiAS said the median remuneration of CEOs in private banking is aligned with the S&P BSE 500, but the sector has a narrower pay range than the market.