Retention strategy of PSE superior to private sector

There was a time in mid 70s to late 90s that working in a private sector was regarded safe, secure and remunerative and that of Public sector particularly in middle management cadres a job with insufficient compensation and possibly with transfers to rural or semi-urban areas every 3 to 5 years if one aspires a promotion that too after passing a number of departmental examinations. Not that these are things of past and public sector enterprises (PSE) have revamped itself right from the recruitment strategy to retention strategy besides providing good compensation and employee welfare with a good amount of job satisfaction.

Public sector enterprises (PSEs) may have fence-sitters in their senior management rungs, but these enterprises still have enough to keep their flocks together at the junior management level. The Central Public Sector Enterprises (CPSE) salaries are way ahead of the compensation dished out in the private sector to junior management staff, and this is across all verticals.

The salary differential remains reasonably high for the first 6-7 years of service, but things start to change after that. This is due to the fact that the rate of progression of salaries in CPSEs is gradual as the ratio between the entry-level salaries and that of the CEO is to be maintained at about 1:4 in line with the specified norms.

This was highlighted in a presentation made by Standing Conference of Public Enterprises (SCOPE) on its recommendations for salary and benefit review. The recommendations based on a study by the global HR consultancy Mercer proposed a paradigm shift in the approach to the establishment, implementation and review of salary management practices in CPSEs at higher levels.

The study commissioned on behalf of all the CPSEs raises concerns at the growing attrition at the mid and senior ranks and cites uncompetitive salaries as the ‘prime’ reason. While on the one hand, several CPSEs are being held accountable for their business results and operational management through MoUs signed with the government, on the other, they are facing competition on all fronts markets, clients, business, resources and most importantly, talent.

To stem the attrition, based on recommendations of study a strategy is formulated strongly emphasizing the need for greater empowerment of the board of directors on issues related to compensation including an enhanced role for them in determination of the same.

The government was requested by PSEs to limit its role to setting guiding principles for HR management, establishing objectives, targets and ratio to manage employee costs, articulating ground rules and periodic review mechanisms.

Given the autonomy for managerial and operational to the board of individual CPSEs following the MoUs, a strong case has been built for de-linking the salaries of public sector executives from those applicable to employees of government civil services.

The broad strategy is ‘differentiation’ which suggests that the salary levels of various CPSEs be based on their capacity to pay, relevant market benchmarks and, company, team and individual performance. It calls for flexibility for the Boards to enhance the bonus pool from allocable profits of the companies from the exiting 5% based on the individual CPSE performance and establishment of linkages with company, team and individual performance for bonus payouts.

It is also to follow periodicity of salary review be brought down to 3 from the existing 10 years, companies to be given autonomy to introduce employee stock options and retirement benefits that will enhance their ability to attract and retain talent.

Such strategic changes are significantly coming at a time when public sector undertakings are reeling under an assault from private companies in their hunt for talent. It means that for managerial employees of PSEs performance counts and they cannot take job security for granted, but they can expect matching rewards and compensation with that of private sector where they can deliver the goods.

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