Seventh Pay Commission: What PSU employees can hope for?

Soaring hopes for PSU staff?

WITH hardly few months left for the general elections, the United Progressive Alliance (UPA) government has recently formally constituted the Seventh Central Pay Commission. To be headed by Ashok Kumar Mathur, a retired Supreme Court judge and retired chairman of Armed Forces Tribunal, the commission will revise the salary structure of five million central government employees, including those in defence and railways and about three million pensioners. While the constitution of the commission promises significant increases in pay for government employees during an election year, it could significantly increase the future fiscal burden of the central and state governments. The implementation of the Sixth Pay Commission increased salaries by...
21 percent resulting in an additional annual burden of nearly Rs 18,000 crore for the Union government, besides a pay out of arrears of Rs 30,000 crore. The next set of recommendations is likely to be implemented from January 1, 2016. The announcement also raises hopes for tens of millions of salaried PSU employees. Here it is pertinent to have a look at what the Sixth Pay Commission recommended for the pay hike of the PSU employees.  
The Sixth Pay Commission, headed by justice BN Srikrishna, was constituted on 5 October 2006. It submitted its report on 24 March 2008, but its recommendations were implemented retrospectively from 1 January 2006. The report led to a 6 percentage points increase in dearness allowance for central government employees from 16 percent to 22 percent.
Under the Terms of Reference, the Commission had to take into account, among other factors, the prevailing pay structure and retirement benefits available under the CPSEs. The Fourth Pay Commission was similarly required under its terms of reference to take into account the pay structure under the PSUs. Although comparison with the public sector was not part of the terms of reference of the Fifth Pay Commission, they did collect information from various PSUs for the purpose of making a fair comparison and an assessment of the general climate of wage revisions in the country.
Both the Fourth and Fifth Pay Commissions found that the public sector itself was not a homogenous unit or group for comparison of emoluments. They observed that there were several differences in terms of total benefits and emoluments of employees in the Central Government and PSUs and it was, therefore, difficult to compare the emoluments of Central Government employees and those in PSUs. Fourth Pay Commission concluded that the pay structure of Central government employees cannot be based on a simple comparison of the pay scales of posts at the lowest level in the Public Sector Undertakings. The PSUs were created by Government for specified purposes and had adopted their own pay structure. The nature of work and conditions of service were different.
The Fifth commission making similar observations in regard to the heterogeneity in the pay scales across the public sector, did not concede the principle of parity between the Government and the comparison with the public and private sector.
In the changing paradigm of a competitive environment, the Sixth Pay Commission observed that the issue of comparison with the public sector has necessarily to be examined as the PSUs needed to function in a competitive environment and have the commercial objective as the predominant objective. A comparison of salaries between the public sector and the Government may not be appropriate as it would not be a comparison between similarly placed entities.
The Sixth Pay Commission studied the mechanism by which the salaries of employees of public sector undertakings are determined and the conditions that govern them with the aim of examining if any comparison could be drawn.
The department of public enterprises (DPE) functions as the nodal department on the policy related to wage settlement of unionized employees, non-unionized supervisors, executives and board members. The public enterprises are categorized in 4 schedules viz. A, B, C and D based on quantitative factors like investment, capital employed, net sales, profit before tax, number of employees, etc.; qualitative factors such as national importance, level of technology, prospects for expansion and diversification, etc. as well as on the strategic importance of the corporation. The pay scales of chief executives and full time functional directors in Public Sector Enterprises (PSEs) are determined as per the schedule of the concerned enterprise.
The Commission observed that in a bid to woo more efficient staff to the Group A posts and to technical posts for which a demand exists in the market, the Commission recommended a higher starting salary for Group A posts. It said the Government should have the flexibility to offer a market driven salary to highly qualified scientific and technical personnel whose skills are in demand in the private sector. The higher package will, however, be accompanied with a fixed term contract which could be altered based on performance, it recommended.
The Commission also suggested regarding the appointment to selected posts at higher levels on contractual and tenurial basis where market driven salaries could be paid in order to attract the best possible expertise to the Government. Further, taking into account the fact that a large portion of the salary in the private sector comes from performance related payments, the Commission has recommended introduction of performance related incentives in the Government. This is also expected to bridge the gap vis-à-vis the private sector.
The Central Government had earlier said that in so far as wages for CPSE workers are concerned no budgetary support for the wage increase is to be provided by the Government and resources for meeting the increased obligations must be internally generated and must come from improved performance in terms of productivity and profitability and not from the Government. The validity period of wage settlement would be 10 years with 100 percent DA neutralization w.e.f. 1.1.2007 and the revision would be subject to the condition that there is no increase in labour cost per physical unit of output except in rare cases.
CPSEs which have incurred a loss during all the three financial years preceding the proposed wage negotiation have also been allowed to enter into negotiations provided they give an estimate to their ministry as to how resources would be generated by them to meet the extra expenditure arising out of implementation. In sick PSUs, no revision is to be allowed until BIFR approves the revival plan for these enterprises.
The Sixth Commission called for detailed information on the package of benefits available in the PSUs in the power and the petroleum sector, most of which are profit making, for making a comparison. The examination of inputs received has revealed that while the pay scales of executives and non-unionized supervisory staff are generally comparable across PSUs owing to the fact that salary revision is carried out based on the recommendations of the Committee set up by DPE and not by individual PSUs, considerable variation in the pay scales of workers across PSUs exists due to the practice of separate wage negotiations by individual PSUs. Therefore, even among PSUs, a comparison cannot be made, observed the commission.
The Sixth Pay Commission made certain recommendations on pay scales and allowances keeping in view the concepts which are in existence in PSUs such as percentage based increments, introduction of performance related incentives, interest subsidy on loans, voluntary retirement schemes, etc.