Public sector has lower employee cost than private sector, but public sector finance companies are an exception
It is often said that employees who work in a government-owned company are paid a lower salary than their peers in the corporate sector. Typically, this is because careers in government-owned companies are seen as less competitive and more secure than those in the corporate sector.
But is this prevailing wisdom backed by any data? A survey of all government companies and corporates in the BSE 500 index seems to back the idea that government employees are paid lower than their counterparts. In the five-year period from 2013 to 2017, government-owned companies, like Indian Oil and NTPC, paid an average of 7 per cent of revenue in salaries and benefits to employees. During the same period, corporates, like Asian Paints or Natco Pharma, paid an average of 11 per cent of revenue in salaries and benefits to employees.
Successive governments have made privatisation of government-owned companies a major priority. Employees of such government-run companies often detest the idea. The prevailing wisdom here is that new corporate owners of the company may cut or stagnate salaries and benefits to cut costs. But if the data are indicative of general trend, privatised companies with a new management may increase compensation over time.
A notable exception in the general trend is the financial sector. Most people interact with government-owned companies frequently if they bank with a government-owned bank, like State Bank of India or Bank of Baroda. Most customers of such banks have plenty of anecdotal evidence of the large and inefficient bureaucracy at government banks. This bureaucracy comes at a huge employee cost to the bank itself. While other government-owned companies pay their employees less than their peers in the corporate sector, the banking and finance sectors have a different tale to tell.
In the five-year period from 2013 to 2017, government-owned finance companies, like LIC Housing Finance and Syndicate Bank, paid an average of 11 per cent of revenues in salaries and benefits to employees. During the same period, corporate-financial companies HDFC Bank and JM Financial paid an average of 9 per cent of revenue in salaries and benefits to employees. A difference of a couple of percentage points doesn't seem large enough at face value, but it results in thousands of crores being saved or spent.