When the pay scales of government employees trail the cost of living, government in major economies simply mark it up. India has however set up six elaborate pay commissions to do that job. Yet underpaid central and state government employees are the soft conduits through which powerful industrial captains, political bosses and just about anybody who can pay, twist government policies.

So the Sixth Pay Commission has decided to adopt a new tack altogether. It has asked IIM, Ahmedabad to develop a model for performance related pay. The key issues are if such pay packets can be made applicable for all employees, should they be applicable only for officers? And of course, the percentage of pay that should be linked to performance.

XLRI, Jamshedpur is working out a very interesting scenario. A government employee gets various allowances and benefits like housing, transport facilities, telephones, free passes/ LTC, bungalow peons or orderlies, pension, free rations (in armed forces) and job security. XLRI is working out the cost to the government of these tangible and intangible benefits for the Commission to compare that with the private sector standards.

Why is this necessary? In 1956, when the First Pay Commission was set up, the difference in wages between the top level of the bureaucracy and the junior most peon was 12:1. By 2003-04 when the government conducted its latest pay analysis that difference had shrunk to 1.5:1.

The pay commissions, set up every ten years, have impacted the economy in three ways. They have reduced the incentive for the better students to join the civil service. They have made the lower level government staff far better paid than their private sector counterpart, with far less accountability. They have also wrecked the shape of central and state government finances.

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