Pay hike on the basis of Cost to Company Salary Structure

Pay hike on the basis of Cost to Company Salary Structure to Bank Employees – Finance Ministry’s suggestion to IBA

As per media reports, Government suggested Indian Bank Association (IBA) to move towards CTC (Cost to Company) Stucture in the future Bipartite Agreement for wage revision for bank employees

CTC is the typically the total cost that an organisation incurs to hire an employee.

Broadly CTC consists of following components

  • Salary like Basic, DA, HRA and other Allowances
  • Perquisites and Reimbursements given to employees This includes incentives, reimbursement of conveyance, medical benefits, Leave encashment etc.
  • Contributions made by organisation to employee for Provident Fund, Gratuity, Medical Insurance, etc.

Determination of CTC is a professional method adopted by a corporate and employees are appointed with a fixed CTC so that there will be no hidden or variable cost for hiring an employee.

However, pay settlement only based on basic pay and allowances may not reveal in advance the actual cost involved towards overheads.

Business Standard has reported this news as follows

As employees of state-owned banks bargain hard for a steep hike in wages, the finance ministry has asked Indian Banks’ Association (IBA) to consider moving towards a cost-to-company (CTC) structure in the next pay settlement to reflect their actual remuneration including all perks and incentives.

“If public sector banks have to run like a professional company then why not behave like one and move to CTC concept. We have given this suggestion to IBA,” a finance ministry official told Business Standard.

If the proposal goes through, every penny the bank spends on the employees, from concessional rates of interest on loans to the employer’s share in the provident fund, may become part of CTC.

At present, the hike to bank employees is given on gross salary, which primarily includes basic salary, dearness allowance (DA), city compensatory allowance and house rent allowance in some cases.  Besides, there are various allowances for travel, buying furniture, cleaning material, telephone, newspaper, leased house rent (if HRA now availed of) and medical expenses among others.

Typically, a government bank probationary officer gets a salary of about Rs 26,000 per month. The perks and facilities may add anything over Rs 10,000 to the salary. There is no upper limit on it as these perquisites are not fixed by the government. While these vary from bank to bank, the government believes in many cases the total cost incurred by the bank on an employee is double of his basic salary.

A bank employee, however, said there is a significant difference in the perks of small and large-size bank employees and if the wage hike is given over CTC it would further widen the gap in their pay packages. Salaries of State Bank of India employees are already higher than other public sector bank peers.

Some banks also offer allowance for mid-year transfer, deputation, posting in a hilly region or special area, halting, lodging, discomfort, briefcase, entertainment and club membership fees.

IBA is likely to ask for about 25% hike for over 8,00,000 bank employees in the 10th bipartite agreement on wage revision. The hike is due from November, 2012. Though wage settlement negotiations usually go on for about two years as bank unions begin with exorbitantly high expectations, this time the government may settle it by the end of 2013 in the view of general elections in 2014.

Additional burden on banks due to the ninth wage agreement carried out in 2009 was Rs 4,816 crore for a 17.5% wage hike and Rs 5,000 crore for pension. The hike was effective from November 2007.

Report of a committee on HR issues of public sector banks in June 2010 had suggested banks should consider variable pay as a major component of wages and should have the discretion to go in for CTC concept which is a prevalent trend world over.

A report by the Reserve Bank of India had said that after the ninth pay revision the cost per employee in state-run banks went up to Rs 7.16 lakh in 2010-11, against Rs 5.63 lakh in private banks. In the previous years it was either similar or more in private banks.

Source : Business Standard

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