India Inc is reeling under wage pressures. Surprisingly, public sector wages are on the rise compared to the private sector making the government-run entities more susceptible in bad times.
An analysis conducted by Singapore-based CLSA on the 10-year trend of 355 listed companies out of the BSE 500 index which employs a total of 4.1 million with a total wage bill of $51 billion and a market capitalisation of $925 billion shows that the average public sector salary at `7,80,000 per year is 14 per cent higher than the average private sector salary.
Further, public sector banks stand out as they pay 28% more than their counterparts in the private sector.
“We believe PSU banks face the twin headwinds of lower growth (as the capital adequacy is poor) and rising employee costs which already stand at a high of 29 per cent of total income,” said CLSA.
Some of the highest paymasters in the PSU space as identified by the global brokerage firm include ONGC, REC, HPCL and Power Grid. PSUs with more than 30% of net sales in employee costs are Coal India, State Bank of India, Canara Bank and NLC.
Over a longer time span, the per employee cost growth for PSUs was up 15% CAGR over financial year 2010 to 2014 as against 14 per cent in the preceding five years.
In comparison, the private sector fared better on employee costs. CLSA finds that per employee cost growth tapered from 18% compounded annual growth rate (CAGR) over financial year 2005-2009 to 10% CAGR over financial year 2010-2014. In the private sector, IT and pharma employee costs as a percentage of net sales has seen an uptrend over the last six years by around 3 percentage points of sales.
The analysis further differentiates between rural wage growth and that of the entire corporate sector. While over the last three years, rural wage growth is down from 20 per cent in financial year 2011 to 16 per cent at present, per employee wage growth in the corporate sector has averaged 12 to 13 per cent. CLSA said,“This has driven the employee cost as a percentage of net sales up by 80 basis points over the last two years to an all-time high of 8.7 per cent as revenue growth has decelerated”.