8th Pay Commission: 5 salary factors IIM Ahmedabad suggested for 7th CPC that may still be relevant

While central government employees are still waiting for an update on the notification of the terms of reference and the appointment of members of the 8th Central Pay Commission (CPC), there is a growing curiosity about the factors that may be considered for determining salary components and levels for employees.

Although much will depend on the terms of reference, which are yet to be declared, a study conducted by IIM Ahmedabad for the 7th Pay Commission in 2015 can offer employees some insight about the factors that typically determine pay levels and salary components. Moreover, these factors may still be relevant for the 8th CPC.

The study identified the following five factors that can determine the level and components of salary:

The study found that where career progression is high, employee salaries increase substantially over the years.

"Such jobs need multiple steps in the grade pay ladder. If career progression is towards technical expertise, then multiple steps in the grade pay ladder are required in the career path. If career progression is towards supervisory roles, then multiple steps in the grade pay ladder need to be linked to different designations in the career path."

"However, if the person is doing the same work, there is no strong basis for high increments, particularly if retention and labour market supply are not a problem."

It further said that when career prospects are high, employees are willing to start at comparably low packages for future expectations.

Potential learning in the job can be initial or continuous.

The study found that if potential learning in the job is mainly at the initial stages, then the entry salary is low (trainee stage) and salary increases when learning happens.

"If labour market supply is a problem, then a retention bonus seems more justified rather than grade increment. If labour supply is a serious constraint then initially attractive salaries need to be paid to ensure that potential talent in schools and colleges are attracted to this job," the study said.

"The competencies needed in many of the jobs are undergoing change because of technological advancements. The salary structure and employment conditions need to incorporate this change," it added.

Attraction of top talent with excellent academic performance required

According to the study, if the job requires top talent with strong academic performance (those who have excellent academic record through school and college), then a high initial salary needs to be paid to attract this talent.

The study suggested that loyalty bonus and differential retirement benefits can be paid to those with long years of service rather than a grade increment. "Grade increment without promotion is required where developing the talent is difficult and so retention is critical. Variable component of the salary is very important for employee motivation, particularly when it is linked to performance and high performers are rewarded. It becomes detrimental when it is linked to performance but mechanisms to identify good performers are missing."

Bonuses are generally a one-time payment or paid as and when required. Allowances are linked to special conditions.

"In the current salary structure, there is no provision for downgrading and so increments are permanent in nature. To provide justifiable bases for these components of pay package, the minimum conditions should be separated from desirable and special conditions. For example, if there is issue in attracting good talent or retaining key competencies in the organisation then joining bonus or retention bonus should be considered," it said.