COMPENSATION MANAGEMENT

“ ROLE OF PAY COMMISSION IN WAGE FIXATION”

Presented By:- DEEPANKAR RAO. M.B.A. (FT) IVthSEM.

“INSTITUTE OF BUSINESS MANAGEMENT”

C.S.J.M.UNIVERSITY, KANPUR.

ECONOMY OF INDIA• The post independence period of economy of

India was a litmus test for the economic planners. Having come out of the shadow of colonial rule, the nation had a huge challenge of undoing the exploitation of colonial era. The founding fathers had to use economic upliftment as a tool for nation building. The economy then was backward in nature.

• India resorted to economic planning by the way of five year plans for economic development.

CRISIS IN THE ECONOMY

The beginning of 1990’s, the Indian Economy was under great crisis and faced its stiffest challenge. India faced a serious balance of payment problem and foreign exchange reserves were at record low. That is when the government decided to alter the course of the Indian economy.

POST REFORMSThe introduction of reforms in 1991 resulted in

sweeping changes in the Indian Economy. The reforms process consisted of three processes, liberalization, privatization and globalization (LPG model). Under liberalization markets were deregulated, under privatization private participation was encouraged and many a public sector undertaking (PSU) were privatized and under globalization restrictions on foreign investments were removed. The Indian economy moved away from its isolation, to be integrated with the global economy and to competitively utilize its advantages to make rapid strides in terms of growth.

Contd…

In India today 60% of the population is dependent directly and indirectly on agriculture and agriculture contributes 17% of GDP.

The supply of money into the economy has increased steadily due to FDI’s. (Between April 2008 and January 2009, India received total foreign investments of US $ 15,545 million).The Foreign Institutional Investors (FII’s) have invested heavily in the stock market, resulting in a continual bull run for an extended period of time. The BSE indices scaled a new peak of 21,000 in January 2008.

PAY COMMISSIONThe Pay Commission is an administrative system /

mechanism that the government of India set up in 1956 to determine the salaries of government employees. 

Pay Commission comprises of a panel of members of the Union Cabinet of India who decide on and are responsible for increasing the salaries of government employees.

PAY COMMISSION HISTORY

After the Indian independence in 1947 there have been six pay commissions which have been set up in order to look into and recommend changes in the pay structure of all government employees. 

FIRST CENTRAL PAY COMMISSION (1946-47)

The first pay commission was set up in May 1946 and it took a year to submit its report. The chairman of the first pay commission was Srinivasa Varadachariar.

The First Central Pay Commission innovated the principle of "living wage" to Government employees. It observed that "the test formulated by the Islington Commission is only to be liberally interpreted to suit the conditions of the present day and to be qualified by the condition that in no case should be a man’s pay be less than a living wage." Amplifying the concept of "living wage", it stated that the Government which sponsored the minimum wage legislation for private industry must be willing to give the benefit of that principle to its own employees. In other words, that Commission was of opinion that the salary of the lowest paid employee should not be less than the minimum wage.

SECOND CENTRAL PAY COMMISSION 

(1957-59)The second pay commission was constituted 10 years after

independence in August 1957. It took two years to submit its report. The chairman of the second pay commission was Jaganath Das. The financial impact of the second pay commission was Rs 396 million. 

The Second Central Pay Commission reiterated the principle that the pay structure and the conditions of service of Government employees should be so designed as to ensure recruitment of persons with requisite qualifications and ability at all levels and to maintain their efficiency. It went on to state that, after determining the minimum and the maximum salaries on a combination of both economic and social considerations, the intermediate salaries should be fixed on sound and equitable relativities.

THIRD CENTRAL PAY COMMISSION (1972-73)

The Third Pay Commission was constituted in April 1970 under the chairmanship of Raghubir Dayal. The pay commission gave its report in approximately three years in March 1973. The financial impact of the recommendations of the third pay commission created proposals cost the government Rs 1.44 billion. 

Contd…THIRD CENTRAL PAY COMMISSI

ON (1972-73)

Third Central Pay Commission proceeded on the premise, inter alia, that the pay structure, if it is to be sound, should satisfy the tests of "inclusiveness", "comprehensibility" and "adequacy" and should, at the same time, be fairly simple and rational. Beyond the minimum subsistence level, the adequacy or otherwise of the salary structure should be judged by the level of salaries obtaining in alternative occupations. In the intermediate ranges, the Commission emphasised that a limit should be set by what the economy can afford and the upper range limit should be on considerations of social acceptability. While observing that the Government should formulate a set of principles of wage fixation as suited to its needs, it also remarked that the true test to be adopted should be whether the Government service is attracting and retaining the persons it needs and whether such persons are reasonably satisfied with the pay and other benefits taken together.

FOURTH CENTRAL PAY COMMISSION (1983-86)

The fourth pay commission was set up in June 1983 and it presented a detailed report in three stages in a span of four years. The chairman of the fourth pay commission was P N Singhal. The proposals of the fourth pay commission cost the government Rs.12.82 billion.

The Fourth Central Pay Commission was, however, guided by a number of factors for determining the pay structure, viz., social status regard to which the public employment carries in society, the authority of the post, security of tenure and the welfare measures adopted by the Government for the benefit of its employees. Motivation for employees, efficient performance and comparability were also considered by the Commission. The Commission gave greater importance to the capacity of the State to pay its employee. The Commission observed that the pay structure must be fair from the point of view of employees as well as the people they serve.

FIFTH CENTRAL PAY COMMISSION

(1994-97)Fifth Pay Commission was constituted in 1994. The chairman of

the fifth pay commission was Justice S. Ratnavel Pandian and its recommendations cost the government Rs.17, 000 crore.

The Fifth Central Pay Commission was specifically asked to evolve the principles which should govern the structure of emoluments and other conditions of service. So, the Commission had to survey the principles adopted by the antecedent Commissions and accepted some of the general principles including the three characteristics of a sound pay structure, namely, inclusiveness, comprehensibility and adequacy. The well-accepted principle of supply and demand consideration as emphasised by Islington Commission was also reiterated.

The Commission also laid emphasis on the principle "equal pay for equal work", "fair compensation", "productivity" and "model employer".

SIXTH PAY COMMISSION

Members of the Sixth Pay Commission

Chairman : Mr. Justice B.N.Srikrishna Members : Prof.Ravindra Dholakia,

Mr. J.S.Mathur Member-Secretary : Smt. Sushama Nath

SIXTH PAY COMMISSIONThe sixth pay commission was set up in July 2006 under the

chairmanship of Justice B.N.Srikrishna. The recommendation of the commission cost the government about Rs. 20,000 crore.

The pay commission suggested that arrears be paid to all government employees from January 2006 to September 2008. 40% of these arrears were paid by the government in 2008 and the remaining 60% were paid in 2009. The primary goal of the Sixth Pay Commission was to iron out complications in respect to various pay scales. In fact it recommended the removal of pay scales and introduction of pay bands.

The Sixth Pay Commission mainly focused on removing ambiguity in respect of various pay scales and mainly focused on reducing number of pay scales and bring the idea of pay bands. It recommended for removal of Grouped-D cadre.

SIXTH CENTRAL PAY COMMISSION

TO REVISE SALARIESThe central government approved the setting up of

the sixth pay commission to upwardly revise salaries and perks for its 550,000 employees across the country.

A cabinet meeting headed by Prime Minister Manmohan Singh decided that the term of the commission would be for 18 months.

The commission will comprise one chairman of the rank of minister of state, one part time member and one member-secretary of the rank of secretary or additional secretary in the central government,' Information and Broadcasting Minister Priyaranjan Dasmunsi said after the cabinet meeting.

'The prime minister will appoint the chairman and other members of the commission,' He said-The proposal is estimated to cost the government an additional Rs.200 billion ($4.2 billion).

The implementation of the panel's proposals is expected to take two to three years, and an interim relief of 10-15 percent may be announced for that period.

The sixth pay panel had been announced by Manmohan Singh in February this year. Pay panels are periodically constituted to examine various issues such as pay and allowances, retirement benefits, conditions of service and promotion policies of central government employees. There is no stipulation regarding any specific time period for constitution of a pay commission.

CONTROVERSY RELATED TO PAY COMMISSION

Several government services, most notably the armed forces have complained bitterly of down gradation due to pay commissions exceeding their brief, and introducing anomalies in the relative scales of pay of government services. At present, the armed forces have represented to the government for the removal of anomalies which it is felt that the civil servants on the commission have deliberately introduced to upgrade themselves vis-a-vis service officers in the defence forces.

IMPACT OF PAY COMMISSIONIN GOVERNMENT

Why was there a hue and cry about the Fifth Pay Commission?

What about the state governments?The Fifth Pay Commission just recommended

hiking salaries of government employees?Did the Fifth Pay Commission affect the

economic reform process?What led to the Sixth Pay Commission?Why the turnaround?

IMPACT OF PAY COMMISSIONIN GOVERNMENT

The implementation of the Commission's recommendations ravaged the finances of the central and state governments.

The impact of the Fifth Pay Commission was so brutal that some 13 states did not have money to pay salaries in 2000.

The Commission also suggested that the grant of salary hikes to employees be linked to issues of downsizing government, efficiency and administrative reforms.

The World Bank held the Fifth Pay Commission as the 'single largest adverse shock' to India's strained public finances.

Congress sources say the rising political pressure from the Communists - key partners in the United Progressive Alliance coalition - has prompted Prime Minister Singh to announce the new pay commission.

New Delhi now argues the Sixth Pay Commission will not adversely affect the states as they are sitting on cash surpluses.

The global body said India's civil service was 'not unduly' large, but there was a 'pronounced imbalance' in the skills.

The Twelfth Finance Commission also urged the government to stop the practice of increasing salaries by appointing pay commissions every 10 years.

Contd…

The Indian economy is one of the fastest growing economies in the world. It can also be said that the Indian economy has coped well to the pressures of the global recession, far better than most other nations. The future looks positive for India and one can expect the nation to progress strongly in the path of development.

SUMMARY

thank you…