A significant achievement of Ben Bernanke after leaving the Federal Reserve was that he earned more in a 40-minute speech than he did while serving in the coveted position for a full year. He was paid around $250,000 for a speech in Abu Dhabi, which was at least 25% more than his Fed salary. This amount is also a reflection of the value of a central banker when he or she is out of the office.
The pay of a central banker has been controversial. Should the position be rewarded like that in the private sector or should it be aligned with any other public sector job? There are no answers here if one looks around the structures across countries. The US Fed post carries a salary of around $200,000 per annum. Now these figures are not fully transparent as the perks involved in terms of housing, cars, entertainment, travel, etc, may or may not be a part of the package. One can assume that the amount stated on the website is the cash component. Since such positions do not have bonuses as it is paid by the government directly or indirectly, there can only be tangibles that go with the job but cannot be carried after the tenure ends. Therefore, the incumbent has to think of the future based on this amount.
The Fed position is quite low down the echelon. Mark Carney of the Bank of England was higher with something close to $800,000 per annum that has been justified to an extent on the basis of high housing cost, which presumably is a part of the package. Haruhiko Kuroda of the Bank of Japan was quite low down with $235,000 in 2012, while Mario Draghi of the European Central Bank got $520,000, which again has been justified as being necessary as he serves interests of 17 nations. The highest paid governor was from Hong Kong in 2012 with a pay of $1.2 million. The Swiss National Bank chief was marginally below while the Italian head took in $700,000.
As against these numbers, the RBI governor is paid around R20 lakh (RBI website), which works out to a very low number of less than $35,000. The position is both important and critical as the entire economy functions on the basis of what this institution decides. And given the need to balance the interests of consumers (regulation & safety), banks (intermediation), corporates (lending cost & practices) and government (public debt & monetary policy), the governor has a lot on the plate. Clearly, the institution deserves higher pay structures which would traverse across all lines as it is the organisation that works to achieve these myriad objectives.
RBI should be fully autonomous in terms of pay scales so that there is commensurate reward to the staff as well as incentive for individuals to find the job attractive. Currently, given that the pay could be at 3-5 times in the private sector, it is certainly not attractive in monetary terms, though could be fulfilling otherwise. The institution does provide compensations in terms of generous housing, loans, education allowances, etc, but it does not provide a secure future beyond the public pension schemes. For a governor who has a tenure, unless there is a backup income from the past or in the future, the only motivation could be to steer the ship with limited attention to compensation.
In fact, as the central bank sets the contours for compensation, the same trickles to the public sector banks too where there are vast differences in pay between public and private banks. The top private bank CEO is paid around R5 crore per annum with some dollops of ESOPs thrown in while the average could range from R3-4 crore. But the top public sector bank chiefs who run the same business in a different environment would have a pay in the region of R16-18 lakh (based on websites of some these banks). The fault is evidently not with the private banks that are probably paying based on performance or merit. It is the linking of public sector bank salaries (which is based on running a business) to government scales (which is non-revenue earning administrative in nature) that creates this anomaly.
The result is that public sector bank chiefs have greater pressure, deal with more complex balance sheets, have to drive their staff towards achievement and still earn substantially lower packages compared with their peers in the private sector even when the performance levels are comparable. This creates uncertainty in the post-retirement scenario as the accumulated savings are not adequate. Also, these chiefs have a less glamorous profile as their living standards are more modest with caps on all expenses. Therefore, they do get less media attention and have lesser probability of becoming lifestyle icons for the glossies with less written on their families and children studying in foreign universities or doing innovative business.
The point is that what happens at the top gets translated deeply right through the organisation where there are cultural divides. Some of these banks are trying to get over this ceiling by taking in specialists on contract basis which are rolled over. This is a way out but could discourage others who could be capable but are not chosen for the same job.
There is certainly a requirement to start benchmarking compensations in the banking industry. The RBI Governor’s and hence other senior executives’ compensation packages should be revised. The physical perquisites could be compensated by being included in the salary so that the central banks do not create a ‘real estate’ structure, which is currently the case. The same thought applies for commercial banks, which should also be allowed to do the same alignment with private sector salaries to motivate and reward its own staff and link the same with performance. This would certainly bring parity as well as increase motivation levels.
The author is chief economist, CARE Ratings. Views are personal