Consensus Eludes Attempt To Make PSU Bank Salaries More Flexible

A proposal to revise the wage and salary structure of public sector bank employees and officers has hit a roadblock, with no consensus emerging on linking a part of the remuneration to performance.

Back in October 2018, the Indian Banks’ Association had proposed a new formula to determine the salary structure of bank employees and officers. While negotiations with trade unions have gone on for the last eight months, there has been little progress in finalising the new formula under the 11th bi-partite wage talks.

As a part of the 10th bipartite negotiations PSBs implemented a 15 percent increase in the wages for bank employees. The 11th bi-partite wage negotiation will determine the salary structure for PSB employees and officers retrospectively, with effect from November 1, 2017.

What Is The New Proposal?

As per the current proposal, bank employees from workmen and clerical staff to bank officers up to the level of ‘Scale Five’ get a hike in the fixed component of their salary, alongside a variable component which will be linked to the performance of the bank, explained Sanjeev Kumar Bandlish, general secretary of the National Confederation of Bank Employees.

The Indian Banks Association had proposed a 10 percent hike in the fixed pay but this has not been accepted by the employee unions yet. As part of the variable component, bank employees could get a 1 percent, 2 percent or 6 percent increase annually based on the banks’ performance. This variable component will be based on a bank’s annual financial results, specifically linked to its operating profit and return on assets.

Amit Vadera, head of the financial services and public sector enterprises vertical at TeamLease Services Ltd, said that private sector banks have a performance-linked salary structure, where the variable salary is bifurcated into individual-performance and bank-performance.

“Even when private banks brought-in this structure they initially started with bonuses that were linked to the banks’ performance and eventually it was extended to specific business units and verticals and then the individuals,” he said.

Unions Oppose Proposed Structure

Trade unions are opposing the new proposed salary structure on two grounds.

The first concern is that only 14 out of 19 PSBs have allowed the Indian Banks’ Association to negotiate salary structures. Five PSBs—State Bank of India, Punjab National Bank, Bank of Baroda, Union Bank of India and Indian Bank—had initially allowed the IBA to negotiate the proposed revision to wages only up to ‘Scale Three’ officers.

The second concern is that junior-level employees will unfairly lose out on variable pay if their employer bank performs poorly.

According to Bandlish of the National Confederation of Bank Employees, variable salaries should not be linked to the banks’ profitability as all employees will be impacted by the bank’s poor performance.

“Even though gross profits for PSBs have improved, given the non-performing assets problems and regulatory requirements for large provisioning, there is no improvement in the net profit. This means that some officers and employees will be negatively affected for mistakes made by others,” said Bandish.

Some union leaders have also expressed concerns over certain scales of bank officers being excluded from these proposals. Until the last round of negotiation, all seven scales under which bank officers are classified were covered by wage negotiations. Should the proposals be limited only till ‘Scale Five’ officers, they will cover 3.76 lakh officers, but leave out around 3,300 officers of rank of deputy general manager and above.

“If there is to be any change in the terms of service conditions, it should have the concurrence of the government because all bank officers are covered under the same service rules, which in turn are governed by the Banking Regulation Act of 1949,” said Soumya Datta, general secretary, All India Bank Officers’ Confederation.

Datta said that talks have hit a “roadblock” and that the AIBOC and the National Organisation of Bank Officers are boycotting any further negotiations.

All four officer unions met with Raj Kiran Rai, managing director of Union Bank of India, who is leading negotiations on Monday. Among other things, they sought an assurance that all banks would join the talks. The four unions include the AIBOC, NOBO, All India Bank Officers Association and Indian National Bank Officers' Congress.

Rai did not respond to messages and calls from BloombergQuint.

Not Opposed To Performance-Linked Incentives

C H Venkatachalam, general secretary of the All India Bank Employees Association told BloombergQuint that for several decades bank employees have been receiving salaries uniformly regardless of the banks’ performance, which should continue under the 11th bipartite agreement.

He, however, said that unions are willing to discuss salary structures beyond a fixed pay hike.“This could include bonusses, incentives or escalations for better performing employees and officers,” he said.

In a similar vein, Bandlish said that the unions are not opposed to senior bank officers being paid a higher amount linked to performance. The 11th bi-partite agreement can include a clause that allows banks to pay their senior officers an amount over and above a uniform salary, according to the banks’ paying capacity, he said.

According to Vadera, a move in the direction of performance-linked salaries is inevitable if some level of parity is to be achieved with the private sector. “Overall this proposal is a positive step, but in the interim there will be friction for certain employees that are not used to the performance-based pay structures,” he said.

According to a senior public sector banker, who spoke on condition of anonymity, a performance-linked salary structure will help reduce the wage burden for some PSBs and help stronger PSBs attract and retain talent in the long-run.

However, this banker cautioned that due to frequent transfers, the possibility of employees gaining or losing due to the actions of another remains a concern. PSBs would also need to rethink the manner in which appraisals are conducted if a variable salary structure is to be adopted, this banker said.