<div>The State Bank of India’s (SBI) move to seek the Centre’s nod to offer three per cent of its profits to its staffers may sound the death knell for the four-decade old Bilateral Wage Settlements. Wages and terms of service in state-run banks have been based on uniformity from the days of The First Bipartite Wage Settlement (October 1966). This “collective bargaining” between unions and the Indian Banks’ Association (IBA) -- a club of predominantly state-run banks – has led to the comical: these bankers fix wages and then crib about poor pay.</div><div> </div><div> </div><div>In a highly competitive banking market, pay is key to get talent in. The P J Nayak Committee to Review Governance of Boards of Banks in India, made mention of the gap between state-run bank bosses and their peers in banks with a different colour of capital.</div><div> </div><div> </div><div>In 2012-13, the average CEO compensation was as follows: For new private sector banks, Rs 3.21 crore (in addition to stock options, whose monetary value is dependent on the bank's stock price); for old private sector banks, Rs 78.63 lakh; and for state-run banks, Rs 18.66 lakh. “It is unsustainable for such differentials to continue without a major adverse impact on the recruitment and retention of talented managers in state-run banks”, said the report.</div><div> </div><div> </div><div><strong>Junk One Size Fits All</strong></div><div>Bank unions may say that Bilateral Wage Settlement is fair; does not discriminate between staffers of different state-run banks. Well, all these banks are not of the same standard nor are their financials. In fact uniform wages have acted as a drain on several of the weak state-run banks.</div><div> </div><div> </div><div>In February this year, the United Forum of Bank Unions wailed that IBA “is not giving any cognisance to the difficulties that are faced by the employees on account of high rate of inflation, which has eroded the salaries of the employees to a great extent and the wage increases considered in other similar public sector undertakings despite their low profits”.</div><div> </div><div> </div><div>It added that bank employees, workmen and officers, have been performing well despite severe stress due to substantial increase in workload in the banks on account of opening of many branches under financial inclusion and so on despite inadequate staff strength. That bank employees never lagged behind in the successful implementation of all government-sponsored programmes, schemes, including the recently implemented Prime Minister’s Jan Dhan Yojna”.</div><div> </div><div> </div><div>Well, ironically, unions clamour for higher pay can only be met by differentiated pay-checks. That’s why bank managements did not indulge unions earlier this year when wage talks were on. Nobody moved despite UBFU’s call for a four-day bank strike from the 25th to 28th February; or threat of an indefinite strike from 16th March onwards.</div><div> </div><div> </div><div><strong>Talent Crunch</strong></div><div>A K Khandelwal, former boss Bank of Baroda, as chairman the Committee on HR Issues of State-run Banks (June 2010), told us of the mess in store: “Over the next five years, 80 per cent of general managers, 65 per cent of deputy general managers and 58 per cent of assistant general managers will be retiring. The pool of experienced executives cannot be replaced merely through promotions.”</div><div> </div><div> </div><div>The Bipartite Wage Settlement process is premised on a crude idea of standardisation. It is fleshed out in Nayak’s report. A great deal of centrally coordinated standardisation (such as in recruitment, employee compensation, technology absorption and vigilance enforcement) could lower costs for banks, and it is argued that the Government is best positioned to provide such coordination.</div><div> </div><div> </div><div>“What the argument misses is that if banks are not to be viewed as utilities, they must be viewed as commercial businesses, the essence of which is differentiation with a view to asserting competitive advantage. Commercial businesses need to work on a whole matrix of talented employee recruitment and incentives, in order to compete successfully in the market place”.</div><div> </div><div> </div><div>It went on to observe that standardisation imposed by the Government is inimical to attaining such differentiation and competitive advantage. Private banks, in contrast, have been free to innovate on all aspects of their business, subject to regulatory constraints. “By imposing a plethora of standardised requirements upon its banks (state-run), without achieving economies of scale, the Government has contributed to their homogenisation and has thereby handed over competitive advantage to the private sector banks. The need to exploit economies of scope (the gains from which could at best be marginal) thus has pernicious unintended consequences”, said the report.</div><div> </div><div> </div><div>One big advantage of a “horses for courses” (differential pay) approach is that corruption can be curbed to a great extent if it also wedded with a strong `Whistle-blower” policy. In private banks, the top brass is suitably incentivised through stock-options – to that extent hanky-panky is on the lower side. If the bank does not perform well, the stock options erode.</div><div> </div><div> </div><div>Treating everybody as equal is the greatest injustice in this world!</div><div> </div><div> </div><div> </div>
BW Reporters
Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.
