It’s hard to fault the government?s decision to hike PSU pay. Even with private sector salary heading south, the pay difference between private and public sectors was huge. The new pay, as much as eight times more than the ridiculously low old pay, plus better job security should make PSU management feel much happier. Critics of the pay hike forget basic realities. The government is a majority owner of 244 Central PSUs employing 16 lakh regular workers. The cumulative investment is Rs 4,21,089 crore and turnover is Rs 9,64,410 crore. At this scale of operation, loss of managerial talent, which was happening on a huge scale, cannot be tolerated. PSUs made the case of pay hike easier by reporting a significant improvement in performance. Return on net worth (net profit to net worth) went up from 17.5% in 2005-06 to 18% in 2006-07 and this has pushed up dividend pay out ratio to 33.3%. Large profits have enabled these firms to build a war chest of Rs 4,16,494 crore as reserves and surplus. Central PSUs accounted for about 8% of the GDP, a substantial proportion.
However, there?s still a case to be made for PSU pay reform. Why not leave the responsibility of fixing executive pay to individual boards within some broad guidelines that the government can issue as the owner? One reason to do it this way is the large disparity in the performance of the Central PSUs, a disparity not entirely captured by the sarkari grade system. The numbers for the latest year show that while 156 units made profits of around Rs 89,773 crore, another 59 incurred losses of Rs 8,223 crore. That loss-making PSUs will have to wait for profits to reappear before pay is hiked is a good thought. But, again, not a fine enough distinction. Also, 44 Central PSUs are listed on stock exchanges, conferring ownership rights to the general public and institutions. Yet, their views are ignored by the government. Such top-down directives can be problematic because of their likely impact on market sentiments?listed Central PSUs contributed to about one fifth of the BSE market capitalisation. Professional working of the management of Central PSUs requires that the role of the government is limited to strategic issues and policies. This, of course, raises questions about why at least 49% of all viable PSUs aren?t disinvested.
