Are Babus Underpaid. Probably Not. Time To Look At Cost-To-Government And Not Just Salary Levels

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The truth behind the gap in salaries between private sector executives, and government and army officers, will be known only when the government moves to compute cost-to-government accounting.

When a private sector employee meets an IAS official or army officer, the conversation often turns to discussing the difficult working conditions of the latter, and how underpaid they are. Some officials envy take-home salaries in the private sector, while private sector employees envy the lifestyles of government servants. This thinking arises because more often than not, government officials compare salaries and not what their perks cost to the government.

This article compares elements of employee cost and qualitative factors for the vice-president (VP) of a private sector company, a joint secretary (IAS) in the government, and an Army Colonel (Col), all with around 20 years of service. The salaries are according to the Seventh Central Pay Commission, or CPC.

Let us look at monthly payouts first.

Under the CPC’s recommendations, the cabinet secretary – the highest ranking IAS official – gets a salary of Rs 2.5 lakh per month while a joint secretary gets Rs 1.82 lakh. According to Keyur Thakore – head-hunter of KTA Associates – the cost-to-company (CTC) of a private sector VP would be between Rs 30 lakh and Rs 100 lakh per annum, plus stock options. This would, of course, vary according to industry and company size, with IT, finance and MNCs tending to pay more than the average.

The CTC for a vice-president includes salary, allowances and bonus. But the IAS salary figure referred to above excludes the cost of perquisites and allowances. A simple comparison of a joint secretary’s salary of Rs 21.84 lakh per annum versus a VP’s – say Rs 70 lakh – would thus be misleading.

A VP gets house rent allowance, but rarely a home, especially in metros, where IAS officials and Colonels may get one. Homes in Lutyens Delhi or Navy Nagar in South Mumbai are expensive and a source of envy. However, it is not as if army men get homes pronto. Sources told this author that big army stations have a waiting list of up to two years. Till then, officers hire civilian houses and claim reimbursements which are invariably less than what the army pays them. Usually by the time a Colonel is allotted a home, it is time to move.

Conversely, a private sector VP takes a loan to buy a home. A Rs 2 crore loan, repayable over 25 years, has a monthly EMI of Rs 1.62 lakh. So a VP must have a take home of at least Rs 3 lakh to pay this EMI. Not easy. So, the VP's spouse usually will have to work. The VP, however, receives a tax break on the housing loan interest, and may get substantial capital appreciation on his property on retirement. (How IAS officials/Colonels buy a house is covered later).

Hardship allowance is rarely a part of a VP’s package. IAS officials get special allowances for postings in J&K, the North-East, and border areas. Colonels get the allowance in a graded way only if posted in the field, high altitudes and uncongenial areas.

Most of the places where IAS officers get special allowances – i.e. Guwahati, Shillong, Jammu, etc – are peace stations, which means, Colonels get no special hardship allowances.

According to this report, the CPC has proposed that an IPS officer posted in Leh (12,000 feet) gets a hardship allowance of approximately Rs 55,000 per month, while a Colonel gets Rs 10,000 under the same scheme. Similarly, the IAS officer gets an allowance of Rs 55,000 monthly in Shillong but a Colonel gets nothing. (Note: allowances recommended by the CPC are yet to be implemented).

Comparing Guwahati or Shillong with Ladakh is like comparing apples with grapes. Also the entire Northeast is not backward, as levels of development vary. Unlike earlier, better roads, satellite TV and smart phones have improved the quality of life now.

If these numbers are correct, it is a clear case of discrimination against the Army. Would this have happened if the CPC had had representatives from the Armed Forces? The first and second CPCs had military members. (Note: the Armed Forces were offered their own pay commission but refused to accept them).

Such apparent discrimination makes it imperative to review the backgrounds of the members of the last three pay commissions. The Seventh CPC was chaired by a judge, and included Vivek Rae (IAS) and Dr Rathin Roy (economist) as members, with a member secretary in Meena Agarwal. The Sixth CPC was headed by a judge, and included Prof Ravindra Dholakia (economist and director, IIM-A), J S Mathur (IAS) and member secretary Sushama Nath. The Fifth CPC was headed by a judge, and included Prof Suresh Tendulkar (Delhi School of Economics) and M K Kaw (IAS).

It thus appears that judges, economists and IAS officers are the sole repositories of knowledge on the subject. Are judges trained in finance and administration? Certainly, having a Colonel on the pay commission panel would have been a fair and reasonable thing to do to balance out the interests of each group.

Deciding the salaries of employees is essentially a human resource exercise with macro-economic implications. Judges and IAS officers cannot be the sole arbiters in deciding who gets what in government service.

Performance Bonus

The performance bonus is part of most VP packages. In government, only Indian Space Research Organisation and Bhabha Atomic Research Centre employees get bonus.

The performance bonus for a VP is determined by a host of factors besides his own performance. As a percentage of cost to company (CTC) bonus ranges from 20 per cent (average performance) to 33 per cent (outstanding performance) or about Rs 15-30 lakh. Huge bonuses are paid out in the financial services sector. It is also where job security is the minimum. Not all VPs receive stock options – which increase the benefits to employees when share prices perform well.

It can be argued that the average salary of a VP is Rs 70 lakh plus stock options, and the performance bonus is much higher than the IAS officer who receives Rs 21.84 lakh as salary at the joint secretary level. But here’s the difference: the VP’s Rs 70 lakh comprises all of the employee’s compensation – i.e. salary, allowances and perquisites, whilst the Rs 21.84 lakh in government service is only salary. Only when allowances and perquisites are added is an apple-to-apple comparison possible.

The question to ask is this: if one accepts the argument that government jobs pay badly, why do they attract top notch talent?

NITI Aayog CEO Amitabh Kant argues that “it is job content and not salary at all that attracts young people to join the government.” What is left unsaid is every government job gives you power.

A Delhi based private sector professional adds, “The other thing I see is the lifestyles of the children of government servants, since today a number of my batch mates are at the secretary level and have kids that are friends with my kids. There is a world of difference. Most civil servants’ kids go abroad straight after school to study, something that I could never afford”. This is not part of official benefits, but it happens.

Perquisites

A VP gets a car, limited fuel and sometimes a driver. An IAS official, especially if posted at the Centre, gets car, driver and effectively unlimited fuel – i.e. for use in official and personal purposes. Ditto when an IAS officer is posted as district collector. A Colonel gets a vehicle only if he is a commanding officer. How many Colonels are commanding officers? Not many.

A VP gets a fixed allowance or/and medical insurance cover while IAS officers and Colonels have their medical expenses taken care of by the government. The IAS is covered under the Central Government Health Scheme and Colonels have access to top-quality military hospitals.

The United Progressive Alliance (UPA) introduced a rule where the cost of medical treatment abroad for IAS officers and spouses (but not Colonels) are borne by the government. With the ever-rising cost of medical treatment, it has become a source of stress for VPs, especially post-retirement.

Club membership fees in most metros could cost between Rs 10 lakh and 50 lakh. Only very senior VPs get corporate memberships. The IAS uses the Civil Services Club and Colonels the one for the army. Facilities in both are invariably very good and reasonably priced. Membership of the United Services Club, Mumbai, is a highly sought after perk that most VPs can’t even dream of.

If a Colonel settles in Pune, for example, after retirement he can use club facilities. However, clubs are mostly in major cities and military cantonments, not in all locations.

Without getting into any controversy, there are different ways in which pensions are paid. A VP can subscribe to a superannuation fund (15 per cent of basic salary) till he retires. From the date of retirement he receives a pension at the rate of about 6.5-7 per cent of the corpus built, say Rs 1 crore. On his death the corpus is paid to his family. This scheme is offered by the Life Insurance Corporation and private insurance companies.

IAS officials are covered under a Defined Benefits Scheme (DBS) where pension is paid based on the number of years of service and last drawn salary. Pension is indexed to dearness allowance to take care of inflation.

The son of a former railway employee says: "Dad receives a monthly pension of Rs 1 lakh today. When he retired in 1984 his monthly salary was Rs 3,750 and pension Rs 2,800." Thus, IAS and army officers receive pensions that far exceed their last drawn salaries.

The DBS is far superior to what the LIC would pay a superannuated VP.

Given the unviable nature of the DBS, the government started the National Pension Scheme (NPS) to cover those who joined service from January 2004. This was a defined contribution scheme, where pensions depend on how much the NPS generates by way of returns year after year. From 1 May 2009, the NPS was thrown open to all citizens on a voluntary basis.

Among other perks, an army Colonel gets a discount on the purchase of a car (the approximate saving on a Creta SX O1.6 model would be around Rs 1.5 lakh), groceries, electronic household goods and liquor purchased from the Canteen Stores Department (CSD). Note, there are category wise limits placed on such purchases. This facility is also available post-retirement and to a widowed spouse. CSD facilities are also available to defence civilians, officers of the ministry of defence and central police organisations.

These purchases reduce a Colonel’s household maintenance costs, thus adding to his lifelong savings. On the other hand, our private sector VP pays market rates for anything he or she buys.

It can be argued that these savings don't count when a VP earns substantially more than an IAS officer or a Colonel. But when the benefits are added, the CTC of government officers is not the same as what is called salary. It is much more.

Admission to private schools often requires VPs to pay donations and high fees, especially in big cities. The children of government servants get admissions as a matter of right to Kendriya Vidyalayas. While frequent transfers do disturb the average government servants’ school-going kids, there is a flip side to the argument. The US-based thirty-something daughter of a retired Colonel says: “Yes, frequent transfers were difficult to deal with. But it gave us fauji kids the ability to adjust to just about any situation and make friends easily. Something that is very useful as one gets older.”

One hears about cooks and helpers being provided at the homes of government and army officers. Are their salaries included in employee costs? This information must be placed in the public domain.

Does the CPC attach a value to each of these perquisites? Table 1 lists the name of the perquisite and indicates who gets what with a yes or no.

Table 1

Nos Perquisite IAS Col
1. Car, Driver and Fuel Yes NA
2. Medical expenses Yes Yes
3. Club Membership No No
4. Purchase of Car at discount NA No
5. Purchase from CSD NA No
6. Entry to Kendriya Vidyalas No No
7. Frequent Transfers Yes Yes

1. Yes means no quantitative limits.
2. NA means not applicable.

Before moving to qualitative parameters, an IAS job has two benefits that merit attention but are impossible to value.

One is the opportunity to impact and change the lives of millions. One's work can leave an imprint whose benefits accrue for generations. This satisfaction can be a source of perpetual happiness. During wars, army men earn a lot of adulation. A VP could shape into a well-recognised business leader, but in a competitive business environment, such opportunities and story arcs are rare.

Benefits from public sector units controlled by the parent ministry: This could take various forms – stay in five-star hotels/guest houses/local travel/right to recommend who to employ, etc. Colonels are bound by rules that are non-existent for VPs.

Qualitative Factors

Qualitative parameters are important because they affect the work environment, quality of life and feeling of well-being. Let us look at some parameters.

Working with politicians: Dealing with politicians has its own challenges. Pressure from interest groups and threats of transfer can be stressful for IAS officers. Similar challenges for Colonels are fewer. The VP has no such challenges.

Actions of the IAS, whether they are posted as district collectors, municipal commissioners, finance secretaries or something else, are subject to media scrutiny. But army Colonels lead an insulated existence, with the exceptions of occasions such as war, natural calamities, insurgencies, etc. The VP has little exposure.

Perform or under-perform there is total job security for IAS officers and Colonels. A VP has to earn his stripes daily. (Note: Under a disciplinary code, Colonels can be court-martialled/dismissed. It is only under National Democratic Alliance – 2 that one hears of IAS with sub-standard performance being given premature retirement.)

Can the spouse pursue a professional career? Rarely for Colonels, but surely possible for the spouses of IAS officers and VPs. A Colonel’s wife has to make a choice – sacrifice her career to move with the husband on every peace posting or follow her career and suffer prolonged separation.

A Colonel has to frequently stay away from his family. This puts additional responsibility on the spouse and deprives children of their father's presence.

Multiple establishments. Since a Colonel spends about half of his tenure away from family, in peace locations or field areas, he has to maintain two establishments, one of himself and another for his family. IAS officers posted in border areas or Naxal-affected zones might be in a similar predicament but their percentage is lower. The average VP is faced with no similar predicament.

Working in high security zones, difficult climatic conditions and the risk of life is highest for Colonels and negligible for the other two. Rarely has one hears of an IAS official being killed by Naxals or militants.

While no amount of money can compensate for risking his life, what a Colonel needs is parity in pay scales and atma-sammaan.

Promotions

There is something called the NFU (Non-functional upgrade). The NFU was recommended by the Sixth Pay Commission in 2008. According to Maj Gen (retd) Mrinal Suman, “NFU implies that whenever any IAS officer of a particular batch is promoted to a specific grade pay in pay bands PB-3 or PB-4, grant of higher pay scale on non-functional basis should be granted to the officers belonging to batches of ‘Organised Central Group A Civil Services’ senior by two years.”

The implications of NFU are simply explained. “On 22 August 2016, the first officer of the 1999 batch of IAS was appointed as joint secretary at the Centre. It resulted in a simultaneous upgradation of all officers of the 1999 batch of the IAS and the 1997 batch of 49 Organised Central Group A Civil Services (along with IPS and IFS) to joint secretary grade on a non-functional basis. How can an official performing the duties of joint secretary be given the pay scale of an additional secretary?"

This means that all of them began to earn the pay of Joint Secretary from 22 August even though they performed functions of a lower level. There is no relation between promotion and career progression.

With job security and assured promotion will you be motivated to work and excel?

With NFU even the most incompetent IAS officer can reach the top scale, which is not the case for Colonels. After 20 years of service a defence forces officer becomes a Colonel if selected. A VP’s progress and pay are invariably merit based.

The opportunities for promotion are high in the IAS because the government structure is so huge. Almost 100 per cent of IAS officers retire at the secretary level or get pay at the highest band, whereas the percentage of defence officers reaching the scale is under 1 per cent because of the pyramid structure. Once he attains the rank of Lt Colonel, an officer’s promotion is based on deep selection which is merit and vacancy driven. The VP can switch jobs to overcome the limitations that arise from a pyramid structure.

IAS officers retire at 60 years, and VPs at 58 to 60. In the army, 50 per cent of officers retire at 54 when family responsibilities are at their peak. Seniors retire at different points, Brigadiers at 56, Major Generals at 58, Lt Generals at 60 and Chief of Army Staff at 62. Some IAS officers get extensions unheard of in the armed forces.

A Colonel retiring at 54 has to start life afresh, find a job and importantly have a home.

All services, including the police, the CRPF and the armed forces have housing societies where land is given at discounted rates. The Army Welfare Housing Organisation buys land from the government and private owners to construct flats for Colonels on a no-profit-no-loss basis. A VP has to buy at market rates. The IAS makes arrangements individually in subgroups.

Post retirement

IAS officers get lucrative government and private sector jobs. VPs too get jobs, though not easily. Colonels get jobs in security or administration.

It is not known whether the CPC attached a value to each qualitative factor enumerated above. Table 2 lists each factor.

Table 2

No Perquisite
1. Dealing with politicians
2. Being under public & media scrutiny
3. Job security.
4. Career for wife
5. Stay away from family
6. Multiple establishments
7. Risk of life
8. Opportunity to accept bribes
9. NFU
10. Opportunities for promotion
11. Retirement age
12. Housing societies post retirement
13. Post retirement jobs

The truth behind the gap in salaries between private sector executives, and government and army officers, will be known only when the government moves to compute cost-to-government accounting. It is only then that one can tabulate the CTC for VP/IAS/Colonel and make a meaningful comparison.

The government might like to ponder over the following suggestions whilst appointing the Eighth Central Pay Commission.

One, the commission must be broad-based. Its members should include a senior human resource professional, chartered accountant and a retired Colonel.

Two, the commission must determine pay increases based on cost-to-government.

Three, the list of districts where hardship allowance is paid must be regularly reviewed. Criteria could be lack of infrastructure, climate conditions, risk of life.

Four, all things being the same, there must be parity between the various services in India.

Five, a review in compensation must be accompanied with a performance review. Rewards must go to out-of-the-box thinkers/performers and non-performers should be weeded out through pre-mature retirement.

Change will have to start from the top, from the cabinet/chief secretary downwards.

A wider public debate on these issues will lead to creative solutions, increase transparency and make the government an even more attractive employer.

The author is an independent columnist and corporate consultant

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