To survive competition, PSB employees need to shift to a merit-based system of rewards

It has taken two years of protracted parleys, punctuated by strike threats, for the Indian Banks’ Association (IBA) and the United Forum of Bank Unions to thrash out their eleventh bipartite wage settlement, which will decide the emoluments of public sector and old private sector bank employees for the five-year period starting November 2017. But despite the high drama, this settlement is unlikely to make much of a difference either to the banks or their employees. While the agreement contemplates a 15 per cent increase (totalling to over ₹7,900 crore) in the aggregate wage bill of the 35 signatory banks, after Dearness Allowance adjustments and the apportionment of this sum based on seniority, most bank employees can expect to take home only single-digit pay increases. This apart, the settlement also ushers in a performance-linked incentive (PLI) system for bank employees and increases banks’ NPS contribution from 12 to 14 per cent. But if PSBs (public sector banks) are not to lose the race with private sector rivals for the creamy layer of customers and lucrative fee-based business in the coming years, they will need to move away from this archaic system of industry-wide negotiated pay increases and move towards a dynamic, merit-based system of rewards that allows banks to structure their wages based on their financial positions and the performance of their employees.

There are three distinct human resource issues plaguing PSBs that need to be addressed to help them survive the current competitive milieu. One, sector insiders have repeatedly flagged the topsy-turvy pay structure at PSBs which leads to junior staff being handed fixed pay increases with little weightage to merit, while top managers earn very poor monetary compensation compared to private sector peers. This results in PSB staff delivering lackadaisical customer service at the branch level, even as their top bosses show little inclination to innovate or take independent lending decisions that further the bank’s commercial interests. Two, with ad-hoc recruitment freezes and uncompetitive salaries, many PSBs face the problem of a missing middle with a severe dearth of managers with adequate skillsets to take good loan appraisal decisions. Three, the draconian promotion and transfer policies of PSBs combined with excessive vigilance oversight actively prevent young managers from acquiring the specialist skills needed to move up the career ladder.

The PLI system proposed in the latest settlement, which will add five to 15 days’ pay to an employee’s annual compensation based on the bank’s operating profit performance, appears inadequate to address this plethora of issues. A dynamic quarterly appraisal system that leads to more frequent pay revisions, transitioning employees across the spectrum to variable pay with well-defined key result areas for each role and customising PLIs so that every employee’s compensation structure is aligned with the bank’s business plans, seems to be the way forward. Proposals such as offering ESOPs to senior PSB employees also need to be taken up.

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