New Delhi, Jul 27: State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) are planning to introduce performance-linked salary structure for the senior management — a first-of-its-kind move among public sector banks (PSBs).
PNB Managing Director and Chief Executive Officer Sunil Mehta said: “The bank is seriously thinking of introducing a system of performance-based incentives for officers above the general manager grade. There will be a component of fixed and variable pay. But it will evolve slowly.”
SBI and BoB may also follow a similar model and are working on a compensation framework, sources said. However, the banks would need approval from the government for such a move.
Many private banks already have a component of variable pay in their salary structure. Based on the individual’s and bank’s performance, employees are offered variable pay in the form of cash- or stock-linked instruments along with employee stock option plans.
For PSBs, the pay and allowances of different levels of employees are normally decided through bipartite settlements between the Indian Banks’ Association (IBA), the bank’s management and trade union body United Forum of Bank Unions (UFBU).
Bank unions are up in arms against six PSBs — SBI, PNB, BoB, Indian Bank, United Bank of India and Oriental Bank of Commerce — for restricting the latest wage negotiations up to scale-III officers or up to the senior manager level. They have also opposed a 2 per cent hike for bank employees recommended by the IBA. The unions are demanding a wage hike for officers up to scale-VII, which will include general managers, deputy general managers, assistant general manager and divisional managers — as has been the practice in all the previous wage negotiations.
“There is a misconception that we are not in favour of salary negotiation for such officers. We may rather give such officers more hike under the new framework. You have to compete with the private banks, and, for that, you have to adopt some of their remuneration models for higher level officials,” Mehta said. “They may not be getting adequate rewards under the existing bilateral settlements with the kind of risks the senior management takes.”
However, the banks will take a decision after the bipartite settlement between the bank management and worker unions take place. After a long stalemate, the IBA is set to hold wage settlement talks with the UFBU on July 30. “The IBA will take a final call on the wage settlement and then the banks will decide whether they want to adopt a common framework or do it separately,” said a public sector banker.
Bank union leaders are not in favour of a performance-linked incentive system. “The demand of the trade unions has been one rank, one pay. We are not in the corporate sector, where people are hired for performing a particular job. It will be difficult to evaluate performance in all positions in PSBs,” said Ravinder Gupta, joint general secretary, All India Bank Officers’ Confederation.
Last year, the Banks Board Bureau had sent a set of recommendations to the department of financial services (DFS) in the finance ministry on a compensation system for the senior management across all PSBs to ensure consistency. It had proposed that the compensation should be made up of a fixed component and a variable component — both short and long-term. The short-term variable component may be in the form of performance-linked incentives — restricted to 50 per cent of the fixed component and the long-term component through employee stock options, as per its recommendations.