All work, no pay

The Financial Express
Posted: 2008-06-02 21:06:13+05:30 IST
Updated: Jun 02, 2008 at 2106 hrs IST

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: Government committees take you by surprise sometimes. Below the radar that registers all the chatter about public policy, the Justice Rao committee tasked to evaluate PSU pay has come up with suggestions that almost meet the test of market logic. The Rao committee has suggested, as reported by FE Saturday last, that PSU senior management be paid salaries that reflect market realities and that a version of perform or perish—the principle that guides private sector top management evaluation—be applied as well. Santosh Mohan Dev, the minister for heavy industries who has to shepherd the report, has excellent reasons to implement the recommendations. For one, the Rao committee recognises the absurd pay differentials between PSU executives and the corporate sector. Second, it also acknowledges that the pay gap is at its most absurd at the upper echelons of PSU management. Third, it makes the basic distinction between kinds of PSUs, and argues that corporate performance must have a bearing on personnel compensation.

Since reforms changed the dynamics of India’s private sector and allowed it to enter areas earlier reserved for PSUs, government-funded companies have seen an one-way traffic of experienced personnel leaving for private companies. The government has been lethargic in recognising that if executives operate in the same market place, are called upon to perform similar tasks, and expected to possess similar skills, they will attract market recognition. It says something about the hypocrisy of the political class, especially the current lot in power, that for all their championing of the public sector, they have never explicitly said that PSU senior management needs to be paid better. Hopefully, the Rao committee recommendations will make unnecessary, the lamentable practice of appointing IAS officers as PSU big shots. We have seen, in aviation especially, the results of this socialist state policy. IAS officers are not trained to run commercial organisations and the assumption that the IAS brand means an all-rounder has been severely questioned by reality. If PSUs are to occupy important economic spaces—the fundamental enquiry about the government’s role in economic space seems to be politically unpalatable now—their decision-makers have to paid something approximating market rewards. PSU chiefs needn’t have compensation that can rival Vijay Mallya’s, but they should be less vulnerable to poaching by the likes of Mallya.