Govt considering pay parity in PSUs with respect to private sector?

The government is considering commissioning a study on pay parity between PSUs and the private sector ahead of the 2027 pay revision, says a report
Govt considering pay parity in PSUs with respect to private sector?
Govt considering pay parity in PSUs with respect to private sector?

New Delhi: The government is considering commissioning a study on pay parity between PSUs and the private sector ahead of the 2027 pay revision to increase the competitiveness of Central Public Sector Enterprises (CPSEs), said a report. The Ministry of Finance is yet to take a final decision on commissioning the study but internal discussions are already underway with consulting firm EY.

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“Such demands have been there, and the government is considering it. The study will focus only on PSUs. The government may decide the course of action on the basis of the report,” a report published by Moneycontrol said quoting officials. The study is likely to be commissioned this financial year itself, the report said.

Pay parity in PSUs vis-à-vis private sector

While pay for low and mid-level employees in PSUs is competitive compared to the private sector, compensations flatten out after a certain level. The chairman and managing director of a PSU earns about Rs 3.70 lakh a month, which is several times less than the monthly salaries of the top management at private sector companies. For instance, State Bank of India (SBI) Chairman Dinesh Kumar Khara took home annual salary of Rs 37 lakh in FY2022-23, while Sashidhar Jagdishan, the CEO of HDFC Bank, took home annual salary of Rs 6.51 crore in FY22.

“Managerial pay in PSUs is often seen as a limiting factor for productivity and efficiency. However, data analysis reveals that PSU pay is competitive with private sector peers, especially at junior and mid management levels. The main flaws identified are the flattening of compensation after a certain level, which discourages talent retention and growth within PSUs. While there are competitive salaries and aggressive performance incentives, reforming high-level pay structures and improving the PRP process is necessary to improve the competitiveness of PSUs,” the report quoted Kunal Sharma, Partner, Singhania & Co, as saying.

In 2022, when the government was looking for a CMD for Oil and Natural Gas Corporation (ONGC), it was keen on seeking out private sector professionals. However, the compensation was a major impediment in attracting talent from the private sector. PSUs have a hard time retaining talent at the top after compensation flattens out.

Govt considering pay parity in PSUs with respect to private sector?
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However, a second government official was quoted by the report as saying that all state-run companies cannot be viewed through the same lens, and the study will have to categorise their performance based on profits and capital expenditure plans.

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