Mumbai: IDBI Bank Ltd is set to become the first public sector bank in India to introduce a performance-linked wage structure, according to at least half a dozen employees of the bank.
The new wage structure will be in place as early as July, even as the state-run banking industry is close to a new wage pact after one and a half years of negotiations between Indian Banks’ Association, the bankers’ lobby, and trade unions.
Under the new scheme, 70% of the salary of an employee will be fixed, and the rest will be linked to individual performance as well as that of the business vertical the employee belongs to.
Also Read Bank unions, IBA close to deal on wages
IDBI Bank, 52.67% owned by the government, has six business verticals focusing on infrastructure, large corporations, mid-size companies, small and medium enterprises, agriculture and personal banking.
Mint has previewed a copy of the new wage proposal.
Incidentally, the fixed part of the new salary structure will equal an employee’s current salary, according to an IDBI Bank employee. This means any raise in salary will depend on an employee’s performance.
A senior IDBI Bank executive, who did not want to be identified considering the sensitivity of the issue, said performance parameters are being worked out.
Yogesh Agarwal, IDBI Bank chairman and managing director, declined comment.
Most private sector banks link pay and performance. IDBI Bank could open the door for other public sector banks to experiment with wage structures that are currently governed by a five-year, industry-wide wage pact. The last such wage pact ended in October 2007. The new wage pact could give the employees a 17.5% hike.
Although big banks such as Punjab National Bank and Bank of Baroda tried to break away from the wage negotiation process, they could not succeed in their efforts.
Wages are an important part of a bank’s operating costs. The share of wages in the total expenses of public sector banks is 13.7%. For private banks, it is 10.7%.
IDBI Bank’s wage expenses as a percentage of its total expenses are only 5%, mainly because of its low employee base of about 9,000. About 80% employees of the bank are officers.
IDBI Bank currently has 559 branches and 960 automated teller machines, and will open another 150 branches this fiscal. It is also in the process of opening its first overseas branches in Beijing, Singapore and Dubai.
On an asset base of Rs1.72 trillion, it posted a net profit of Rs859 crore in fiscal 2009.
Even though IDBI Bank is a public sector bank, it has not been part of the wage negotiation process and historically, it has been following the Reserve Bank of India wage structure.
Industrial Development Bank of India, its former avatar, was carved out by the Indian central bank in 1964 for project financing. It was converted into a commercial bank in 2004 after the merger of its subsidiary IDBI Bank Ltd, a private bank floated in the mid-1990s, with it. It also took over another old private bank, United Western Bank Ltd, in 2006.
Since the merger of its subsidiary with itself, the harmonization of human resources has become a challenge for the management as the wage offered by the public sector unit was not on a par with that of a private sector employer. Of the 2,500 employees of the private IDBI Bank, 1,800 left after the merger. Under the proposed new structure, all allowances, except dearness and house rent allowances, have been merged with the basic pay and employees are offered cash for some perquisites. Under income-tax rules, some of these perquisites are tax-free, while cash attracts taxes.
Independent human resource consultants and bank analysts welcomed this step by a public sector bank but they are not sure whether the organization will be able to pull it through, working within the public sector structure.
“To evaluate an employee, one has to have the infrastructure which enables goal setting, performance enablement, performance measurement and performance management,” said Manish Sabharwal, chairman of TeamLease Services Pvt. Ltd, a staffing firm.
“IDBI’s effort is worth a try, but the public sector culture gives an overwhelming weight on the status quo. If it is successful, it will open a plethora of possibilities, but I have my doubts (about the plan working),” said Sabharwal.
Bank analysts think this move will help IDBI Bank retain talent. “In every good organization, incentives based on performance are a standard practice. If IDBI Bank succeeds in implementing this, it will be able to attract and retain talent,” said Hatim Brochwala, an analyst with domestic brokerage Khandwala Securities Ltd.
According to another analyst with a Mumbai-based brokerage, the introduction of variable schemes is in sync with IDBI Bank’s way of functioning.
“IDBI Bank works like any other private bank. It is aggressive and technologically advanced and I am not surprised by the move. However, the existing employees should not be affected as the organization has achieved efficiency because of them,” said the analyst who did not want to be named because of his company’s policies.
The trade unions are not amused. According to Rajiv Athalye, general secretary of the All India IDBI Officers Association, the parameters for the evaluation have not been communicated to employees.
“The management has told us to accept the scheme and the parameters for such evaluation will be communicated to us in three to six months,” said Athalye.
The unions are also against the scheme on the ground that it has been drawn before the wage settlement pact between IBA and other bank unions, so it leaves IDBI Bank employees outside the purview of other bank salaries.
“If the wage increase of the banking industry is settling at, say, 17%, the management has to assure us that we will also get a minimum 17% hike. They are not assuring us that. This is not acceptable,” said Athalye.
IDBI Bank has also stopped giving its employees subsidized loans and a flexible repayment system. Under the new rule, employees can avail home loans at the cost of fund of the bank. Earlier, employees could avail loans at a subsidized rate.
Ashwin Ramarathinam contributed to this story.