There is finally some cheer for the top managements of state-owned banks and insurance companies. The chiefs and executive directors of these firms have seen their annual packages double thanks to the substantial annual performance bonuses for 2006-07. Bonuses for FY08 will be declared later. Each chairman & managing director received a bonus package of Rs 6-8 lakh, almost equivalent to the annual salary. Similarly, PSB EDs bagged annual bonuses of Rs 5-7 lakh each. Public sector general insurance companies don?t have EDs and LIC appoints its own EDs. The government appoints PSB EDs.
The salaries of CMDs at state-owned banks and insurance companies are at par with additional secretaries to the government, and are in the range of Rs 40,000-45,000 pm.
Though the highest bonus is fixed at Rs 8 lakh, very few CMDs qualified for the amount and the average bonus was pegged at Rs 7 lakh.
However, all the chiefs of banks and insurance companies have been eligible for bonus irrespective of the profit and size of their institutions. Interestingly, CMDs of a few medium-sized banks, which are in restructuring mode, received the highest bonuses.
For bonus eligibility, an internal committee?the remuneration panel of the institution?evaluates the performance of top management. The committee uses the ?statement of intent? (a memorandum of understanding between the institution and the finance ministry) to award appropriate grade-based bonuses.
Though a pittance in comparison with the packages of their private sector counterparts, these bonuses are still expected to have a positive impact on the performance of top managements. However, some CMDs say there is scope for improvement in the mechanism to decide bonuses.
?It would be better if, instead of an internal committee, an independent, external professional body evaluates the performance of the top management. That way, it would reflect the real performance,? said a CMD of a PSB who did not wish to be named.
The packages of the top management of the public sector financial institutions will go up further after the Centre implements the recommendations of the Sixth Pay Commission for central government employees. ?Now, the government may even rework the bonus amount for FY08 as it is linked to the salary of CMDs, which will be higher after the pay commission report,? said the delighted chief of a state-owned insurance company.
The finance ministry had introduced the bonus scheme for the top management of state-owned banks and insurers as a kind of incentive, given the mismatch between their salaries and responsibilities. While it is true that state-owned banks have lost 3-5% marketshare to their private sector rivals between 2006 to 2008 and public sector insurers have seen a 5-10% erosion in the same period, analysts point out that the bonuses could provide that extra incentive to get managements to claw back their marketshare in coming years.