CEO pay: private sector still far ahead of PSUs

One of the many things that came under the scanner after news of the Syndicate Bank scam broke recently is the disparity in the salaries of senior executives in the private and public sectors.

Top executives in public sector undertakings (PSUs) are paid only a fraction of what their private sector counterparts earn. And with private companies going out of their way to reward employees, that difference is only getting wider.

The banking sector perhaps best epitomises this disparity. ICICI Bank CEO and Managing Director Chanda Kochhar’s total pay in 2013-14 was in excess of ₹5 crore, while most of her PSU peers were paid ₹20-30 lakh.

HDFC Bank paid its MD Aditya Puri ₹6 crore. State-owned Bank of Baroda’s Chairman SS Mundra, on the other hand, earned just 4 per cent of that, or about ₹26 lakh.

The country’s largest lender, state-owned State Bank of India, paid its Chairman Arundati Bhattacharya just about ₹9 lakh for the October 2013-March 2014 period, which works out to about ₹18 lakh annually.

This is a tad lower than the compensation paid to her predecessor Pratip Chaudhuri, who earned ₹23 lakh in 2012-13.

Top executives working for manufacturing companies in the public sector fare no better. For instance, NTPC Chairman and Managing Director Arup Choudhury’s total compensation in 2013-14 amounted to about ₹52 lakh.

In contrast, private sector rival Tata Power paid nine times more to its Managing Director and CEO Anil Sardana (₹4.4 crore).

This is despite Tata Power posting a sharp increase in losses, from ₹85 crore in 2012-13 to ₹260 crore in 2013-14.

Likewise, state-owned National Fertilisers’ Chairman Neeru Abrol’s remuneration was about ₹26 lakh. Its private sector peer Chambal Fertiliser, a KK Birla group company, paid out a hefty ₹3 crore to its Managing Director Anil Kapoor.

Tata Chemicals, the fertiliser subsidiary of the Tata Group, paid nearly ₹3.7 crore to Managing Director R Mukundan in 2013-14.

In addition to fat pay packages, many private sector companies also offered stock options to their top executives.

Aditya Puri received 8 lakh options of HDFC Bank last fiscal, while Chanda Kochhar received 2.9 lakh options of ICICI Bank’s stock. Chambal’s Anil Kapoor was given 1.5 lakh stock options.

Despite benefits such as housing, pension and healthcare services offered by state-owned companies, experts agree that the gap in executive pay between the private and public sector needs to be bridged.

“Even if we account for such benefits, the pay differential still remains large. To attract good talent it is pertinent for the Government to align compensation to the market,” says P Thiruvengadam, Senior Director, Deloitte India.

The growing difference can be partly explained by the fact that PSU salaries are subject to scales laid down by the Government. These scales have no connection with the salaries paid for similar skill sets globally.

But despite PSUs not being great paymasters and with operational constraints such as statutory compliances, how have they have managed to retain and motivate executives?

“PSUs offer greater freedom and create a sense of responsibility in their employees, which motivates people to stay back,” says a PSU executive, who did not wish to be named. Adds Aditya Narayan Mishra, human resource service provider Randstad India’s President, General Staffing: “The feel-good factor when one heads the country’s largest organisation and the loyalty that employees develop towards the organisation given their long association keep PSU executives going.”