North Block caps bank staff bonus at 20%

The finance ministry has cleared the performance-linked incentive scheme for close to eight lakh employees of the public sector banking industry.

A note sent to all PSU bank chiefs yesterday, outlining the scheme, said an individual employee's incentive can be up to 20 per cent of his annual emoluments. In other words, an employee drawing an annual salary of Rs 3 lakh can get up to Rs 60,000 annually in the form of incentives.

The overall limit on the total outgo on account of cash incentives in a bank is capped at 1 per cent of the bank's net profit. Based on last year's performance, State Bank of India will be able to spend around Rs 43 crore on this package. For Punjab National Bank, it will be around Rs 14 crore.

The ministry is expected to come out with a similar scheme for the CEOs of public sector banks very soon.

Heads of 27 public sector banks will get a performance-linked annual incentive package. Besides, all of them will get a lumpsum ex-gratia payment on retirement, depending on the number of years they put in as directors.

The employees in the public sector banking industry will get incentives, based on their performance in five key areas. The five parameters based on which the performance incentive for employees will be worked out include credit growth, deposit mobilisation, quality of assets and recovery of non-performing assets.

Employees of all departments will be considered for the package, which will be independent of a bank's performance on the bourses.

Employees of three unlisted public sector banks will be covered by this package along with the employees of the listed entities. the unlisted banks are Central Bank of India, Indian Bank United Bank of India.

The introduction of the incentive package will make the industry-wide wage pact brokered by the Indian Banks' Association (IBA) irrelevant to some extent.

The chairmen and executive directors of PSU banks will be entitled to two separate packages. Depending on their tenure as directors, they will get ex-gratia payment on retirement.

Besides, they will also get performance-linked annual bonus which can run into over Rs 5 lakh, depending on a CEO's performance. "The ministry is giving the final touches to the CEOs' package. It is expected to reach the banks soon," said a source close to the development.

Their performance will be judged against achievement of targets set in the statements of intent (SoI) given to the finance ministry in the beginning of the year.

Financial incentives given to chairmen and executive directors will be outside the cap (1 per cent of PAT) applicable to bank employees.

After allowing individual banks to chalk out performance-linked pay packets, the finance ministry did a volte face in December and directed the banks to shelve the proposal.

Subsequently, it consulted the Reserve Bank of India and the IBA besides the incentive plans of some of the banks to arrive at a benchmark for the entire industry.