7th Pay Commission: Compensation changes have a positive though very limited effect – Adil Malia

Let us creatively appreciate the highlights and take a guess whether this additional cost will create gross national value on the hypothesis: ‘happy, engaged and motivated employees co-create better yield’!

The Seventh Pay Commission will actually impact a whopping 47 lakh serving employees and around 52 lac pensioners, and other defence employees. Collectively, this is higher than the population of some countries in the world. And that is where the challenge lies.

Any pay commission mandated to design a compensation, benefits and ‘total rewards’ proposal to cover such a huge and diverse universe of employees, will never be able to satisfy one and all. It will not be able to match the twin challenges either—of first motivating employees and making them strategic partners in our national aspiration to be an economic power-house of the future, and at the same time, avoid burdening the economy, which has many other crucial investment agendas.

The panel has indeed, within that framework, done a good balancing job to ensure that the Rs.1.02 lakh crore impact of its proposals will (moderately) motivate employees without throwing the finances of the Government off-kilter, to make it stay on the course of its fiscal consolidation.

Let us creatively appreciate the highlights and take a guess whether this additional cost will create gross national value on the hypothesis: ‘happy, engaged and motivated employees co-create better yield!’

Here are the various aspects and impacts of the 7th Pay Commission.

A 23 per cent increase in basic pay and allowances
This could, at first blush, help attract better talent to the Government sectors. However, by itself, it is not good enough. The Government will have to supplement this initiative with other suitable HR mechanisms to ensure that competent talent is acquired. Moving away from social employment and objectively right sizing its workforce is the ultimate bitter medicine the Government will have to take, provided it wants real results from the people expenses that have been enhanced. Throwing money at a problem can quickly make the money vanish and the problem persist!

Doubling of house rent allowance
This, I presume, is targeted at enhancing the overall quality of employee life. Considering that the Government has a huge shortfall in its ability to provide housing to its employees, this initiative will certainly help.

Increase in performance-linked pay
As a private-sector compensation professional, this is an important element that spells out the signature mood of the designer. This is aimed at enhancing the per-capita talent yield. However, strengthening of the existing Government’s performance management systems to objectively distinguish high performers from the others is critical, provided this initiative motivates people to change their behaviour and actually perform. The Government recommends stringent observance, at least on paper, of the bell curve. Otherwise, the classical principle of ‘rotating joy’ will distribute the spoils amongst the employees on a rotating basis, to socially distribute the rewards without any performance impact.

Costs enhanced by pension increase is a long-term social benefit
Funding this has always been a national challenge. The Government does not face an acute attrition rate. Thus, the HR implication of low social and political vote-bank , seems to be the purpose of this initiative.

Abolition of 52 different prevailing allowances
They still had things like monthly hair-cut allowance! This will administratively make the employee pay-roll management easy and the black box of their compensation a wee bit more transparent.

Whilst the panel has attempted within limited constraints to bring about competitive offerings to government employees, to place them on par with the private-sector employees, this initiative may not yield that comparative benefit. This is because private sectors would erode that differential advantage through their regular three-yearly 2 (p) Settlements under the ID Act.

Nine per cent of its employees will retire
This is an opportunity to bring about a change in its ‘composition, capability and character’. This raises an urgent need for systematic succession planning in Government organisations — an area that their managers will need to capitalise on, if they seriously want to change the character and nature of government services to people.

All the above plus extension of ‘child care leave’ etc.
Presumably, these are targeted to enhance employee value propositions. Theoretically, it should lead to enhanced ability to attract and retain good calibre talent. However, the compensation differentials —despite these Seventh Pay Commission changes — will not place them as real competitors for talent, vis-a-vis their private-sector competitors. This is purely because the private sector has the flexibility to match up with the differentials without having to go through structured pay commissions, which happen once in a decade!

We have to wait and watch. Compensation changes have a positive, though very limited, effect on the entire sea change of behaviours and motivation that one wants to see. Many other supporting HR changes in practices and programmes may have to be introduced, so that the real changes in attitudes and yield per government employee is enhanced in the national interest.

(The author is group president-HR, Essar group.)