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Musings
   Prasoon S Majumdar
Prasoon S Majumdar
Editor, Economic Affairs - The Sunday Indian
Dean Academics (All India), The Indian Institute of Planning and Management
[07/09/2008]

Omissions in Commission

Pay for performance could have ushered interesting variance

So finally the Sixth Pay Commission seems to come as an financial blessing for the government employees. And why shouldn’t it? This Rs 30,621 crore award is almost 151 per cent higher than the previous one. But unfortunately, like its predecessors, this commission too failed in bringing about radical administrative and extensive governance reforms concerning public corruption, productivity and talent management.

In fact, the overriding argument put forward by many favouring the Commission is that a pay hike will help in retaining talent and improve output, and also the fact that it was high time to make wages more competitive with respect to the private sector. However, it has been proved time and again that higher salaries do not necessarily create conducive conditions for better performance. What’s more, without institutionalising a hire-and-fire policy, it is pointless to hike the salary by 40 per cent. In the race for making the wages of government employees at par with private sector, the Commission has largely ignored the salient features of wage model of the private sector.

In the latter, across different industries, a significant portion of wages and salaries depend on reaching effective output and set targets. That implies that a major part of private sector wages primarily depends on productivity outcomes and comes in the form of incentives, unlike their counterparts in the public sector. And in the jobs or profiles which are directly not based on targets or output, a part of the wages depends on the year-end profitability. So it is needless to state that the Pay Commission should have developed models wherein a sizeable part of the wages should have been linked to performance measures, which are objective, scientific and easily measurable. It is not just to rationalise public sector wages relative to that of private sector, but for redressing a host of other socio-economic inequities. The current model not only increases the fixed cost but also has tremendous bearing upon inflationary pressures.

In behavioural economics, incentives are always perceived to be hard earned, and accordingly, prudence prevails in the course of spending or investing such incomes, whereas fixed incomes are looked upon with much lesser degree of prudence! So a part of the wages linked to performance always helps in easing inflationary pressures! If compared apple to apple, government employees at lower end of the scale receive relatively higher wages in comparison to private sector counterparts. Be it a primary school teacher or a factory worker – they earn around two to three times more than what is earned by an employee in the private sector. Washington-based PayScale indicates that the median salary for central government employees in India with one year of experience stands at Rs 2,12,424 per year, while the same for private sector companies is Rs 2,08,962 (And mind you, this is only for the organised sector!!).

It isn't the first time the government has been bogged down by deadweight of populist pre-poll measures and has taken decisions, which would only make a few comfortable while being detrimental for the economy as a whole in the long run. The state had the opportunity not only to revolutionise the archaic work ethic but also in bringing about some sort of sanity in the prevailing wage structure. Time to grasp the fact that it is gross injustice to taxpayers’ money to address the concerns of a few million at the cost of a billion!!




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