Seventh Pay Commission Report : Principles of Pay Determination Chapter 4.1
4.1.1 The Seventh CPC has been set up at a time of many noticeable changes on the governance front. The principal role of the government as the prime facilitator has gained firm ground. E-Governance has made considerable progress, facilitating communication and improving coordination of authorities at different tiers of government. There is a specific emphasis on Minimum Government and Maximum Governance, harping on the concept of a leaner bureaucracy with more skilled people. There is also a definite need to harmonize the functioning of the Central Government with the demands of the emerging global economic scenario. This Commission had to keep all these factors while finalizing the compensation structure for the Central Government employees.
Compensation Structure in a Government Setting
4.1.2 Employee compensation is an important element of government functioning. In general, the level and structure of compensation should aim to achieve four objectives: (i) pay should be sufficient to attract and retain high quality staff; (ii) pay should motivate staff to work hard; (iii) pay policy should induce other human resource management reforms; and (iv) pay should be set at a level to ensure long term fiscal sustainability.
Our Terms of Reference (ToRs)
4.1.3 The ToRs of the Seventh CPC broadly revolve around these objectives. The Commission has been mandated to ‘examine, review, evolve and recommend changes that are desirable and feasible regarding the principles that should govern the emoluments structure including pay, allowances and other facilities/benefits, in cash or kind, having regard to rationalization and simplification therein as well as the specialized needs of various departments.’
4.1.4 In carrying out the above, the remaining terms of reference laid down certain pointers. These include:
- ‘In so far as the defence forces are concerned the historical and traditional parities with due emphasis on aspects unique to defence personnel is required to be kept in mind.’
- ‘The framework in the emoluments structure is required to be linked with the need to attract the most suitable talent to government service, promote efficiency, accountability and responsibility in the work culture, and foster excellence in the public governance system…’
- The recommendations have to be made keeping in view the economic conditions in
the country and need for fiscal prudence’ as also ‘the need to ensure that adequate resources are available for developmental expenditures and welfare measures.’
- Also to be kept in view is ‘the prevailing emoluments structure and retirement benefits available to employees of the Central Public Sector Undertakings’ as also ‘the best global practices and their adaptability and relevance in Indian conditions.’
Challenges before this Commission
4.1.5 The real challenge before this Commission is to provide a pay structure which is competitive yet affordable, attractive yet acceptable, forward looking yet adaptable, simple yet rational, and one which matches with the current socio-economic and political conditions as well as the changing perception of the overall administrative machinery and the public governance system.
4.1.6 One of the peculiarities of the Indian civil structure and the pay structure that has been in vogue is the high degree of emphasis on uniformity and relativity. In interacting with various associations, federations, heads of institutions, what has clearly come across is the prevalence of historical equations across the various cadres in government. Disturbances caused in any of these have an immediate and very vocal effect by way of strident demands in restoring earlier parities. Extensive litigation has come to be the norm. The second issue relates to ease of administration. A simple structure with rules of fixation that are easy to understand and apply would take away the possibility of either inadvertent errors or any element of arbitrariness. This Commission has, therefore set simplicity and complete transparency as a basic guiding principle.
4.1.7 From the employees’ perspective, the upper most aspect is naturally that the emoluments should appropriately reflect the qualifications and the skill sets that each individual brings to this system. Apart from being fair and adequate, what is crucial is that the pay structure should correctly reflect the relative positions in the hierarchy. In its deliberations, the Commission has found that the preponderance of grievances relates to the emoluments drawn by others as opposite to what is received by oneself. Due care, therefore, has been given to the aspect of equity.
4.1.8 Over the years, due to downsizing of bureaucracy, issues relating to diminishing or in some cases non-existent promotional avenues have impacted the employees’ motivational levels. To address this problem, various schemes of assured career progression have been introduced by previous Pay Commissions. It is now one of the major aspirational challenges spurring work efficiency and which needs to be acknowledged by the Pay Commission. The emoluments structure is now expected to provide scope for career advancement by way of financial upgradation at reasonable intervals so as to keep the workforce motivated.
Approach of this Commission
4.1.9 The efforts of the Commission have been to devise a pay structure to address all the above listed issues and concerns. Special emphasis has been laid on designing a pay matrix which is simple, transparent, predictable and easily comprehensible. During their interactions with the Commission, the stakeholders placed many demands, ranging from
common entry pay, rationalization of the existing grade pay structure, common treatment of like cadres, transparent pay structure as also increasing the frequency of the MACP. The new pay matrix incorporates all these features: subsuming the grade pay, the rationalized matrix presents the whole universe of pay levels in one simple chart. The levels have been rationalized too, displaying a logical pay progression. Employees would be able to see their pay level, where they fit in and how they are likely to progress over their career span. The Commission has also recommended simplified procedures for computation of pension.
4.1.10 On the same pattern, the entire structure of Allowances has been reviewed, rationalized and simplified. Inter-departmental and inter-Ministerial disparities regarding payment of various allowances have been sought to be removed as far as possible. An innovative Risk and Hardship Matrix has been proposed. Also, the Commission recommends that each allowance should be put in the public domain as a step towards greater transparency in governance.
4.1.11 The pay matrix addresses the important issue of adequacy of the compensation structure. The Commission observes that the purpose of pay is to compensate the employees for work done, to motivate them to perform well. The purposes also include attracting talent to government service and also retaining them, thus avoiding the need for expensive recruitment and training for replacement.
4.1.12 Ideally speaking, the compensation package should be a well defined function of prescribed educational and other entry level qualifications, job content, roles and responsibilities attached to the position etc. However, this is a difficult task, especially in a government setting, which has hundreds of organizations and plethora of job roles. The Commission has, to the extent possible, while dealing with individual cadres, attempted to bring about uniformity in their qualification and pay structure. This should ameliorate grievances of many ‘common’ cadres across organizations.
4.1.13 The Commission has also analysed the important question of whether wages are sufficient to attract and retain qualified staff. One way to address this question is to compare wages in government sector positions with wages for comparable positions in the private sector. This presumes that if wages in the government sector are too far below private sector wages, the government sector will have difficulty attracting and retaining the sort of staff it requires. In their presentations before the Commission, many associations brought out this aspect highlighting, inter alia, that the compensation pattern in the private sector is more remunerative. Although private sector wage comparators are difficult to obtain, the Commission feels that this could be the case in respect of only a few specialized segments. The results of the IIM, Ahmedabad study on comparing job families between the government and private/public sector has brought out the fact that while at lower levels salaries are much lower in the private sector as compared to government jobs, at the highest echelons of governance, the compensation in government is nowhere comparable to their counterparts in the private/ public sector.
4.1.14 But a mere comparison of the salaries should not form the benchmark for remuneration, it is to be viewed keeping in mind the uniqueness inherent in the government in terms of security of tenure, assured prospects of financial progression even when no promotional avenues exist, leave and pensionary privileges which are not available to their counterparts in the private/public sector.
4.1.15 Having said this, there is no denying that officers at higher level shoulder maximum responsibility and accountability and hence should be compensated accordingly. In light of this, the Commission has accorded slightly higher index of rationalisation at level of Senior Administrative Grade and above.
4.1.16 The Commission notes that government employees are entitled to a host of tangible and non tangible benefits – from job security, inflation indexed salary, assured prospects of financial progression- to name a few. It may be difficult to monetize some of these non-tangibles. That the government jobs retain their charm is evident from the increasing number of qualified candidates per advertised vacancy as well as from the low turnover rates among recent recruits.
4.1.17 The Commission has adopted an innovative design to make the remuneration structure attractive. It has adopted the need based minimum wage formula for designing the pay matrix. The rationalization of pay levels has been done keeping this minimum pay as the base for all calculations. It has been recommended that the minimum pay at each level will be the entry pay for direct recruits for those levels. Each level has been placed equidistantly. The various stages within a level moves upwards at the rate of 3 percent per annum. Owing to this rationalization, the quantum of increase in pay on promotion, either on regular basis or through the MACP, is likely to be substantial. This design will make the existing remuneration pattern in the government more attractive.
4.1.18 The basis for calculation of minimum and maximum pay, rate of pay progression across levels, basis for rationalisation and uniform approach towards fixation of pay have been clearly spelt out to leave no room for ambiguity or conjecture.
4.1.19 Historically, the qualification and skill set required as well as roles and responsibilities discharged at various levels in the overall hierarchy have been central to the basis for pay grading. The rationalisation index has been applied keeping this principle in mind.
4.1.20 There is uniformity in fixation of pay whether at entry level or on promotion or at the time of migrating from one pay regime to another. The new pay structure will bring out clearly what the total emoluments will be at a given point in time during one’s career span. The rate of pay progression will also be stated upfront for existing as well as new entrants.
4.1.21 Since, substantial delayering had already been attempted by the previous Pay Commissions, this Commission is not removing any levels, but to simplify the pay structure, the grades pay have been subsumed in the pay band to form distinct levels. The new pay structure is a construct in the matrix format and provides open ended progression in pay at all levels.
4.1.22 One recurrent theme in the representations of various associations relates to ‘equity’ or ‘Equal Pay for Equal Work.’ Ideally, the remuneration package should establish horizontal equity: employees should feel that their pay is comparable with the remuneration structure of similarly placed positions outside their organization. The employees should also feel that the pay structure shows linear progression pattern and thus the notion of vertical equity is also maintained. The Pay Matrix addresses these issues as well. The Commission has designed the pay structure in such a manner that the pay progression recognises the importance of vertical relativities and also assigns a reasonable basis to such progression. This has been done by assigning a uniform fitment factor of 2.57.
4.1.23 The Commission feels that there is strong need to create a culture of performance in government – from establishing standards of performance, to measuring, and promoting people based on performance. To emphasize on the culture of performance, the Commission has recommended that all the non-performers in the system should be phased out after 20 years. The Commission has recommended that Performance Related Pay should be introduced in the government and that all Bonus payments should necessarily be linked with productivity.