At least four lenders have announced voluntary pay cuts at the leadership level to conserve capital and cut costs for business sustainability amid the spread of COVID-19 pandemic. The latest one to announce a restructuring in compensation is Yes Bank.
The bank, over the weekend, announced that its leadership team has taken a 'conscious and voluntary decision' for the restructuring of their compensation package for FY21, in a manner wherein up to 30 percent of their total cost to Company (TCC) will be allocated as variable pay.
Earlier, private sector lender IDFC First Bank had also announced salary cuts for the current financial year. “Such pay cut forms part of the Bank’s austerity measures which start at the top. Further, we feel the pain our customers, big, small, micro-enterprises and people at large are going through, and we also want to be empathetic to the situation, ” said V Vaidyanathan, MD & CEO, IDFC FIRST Bank, who has offered to take a 30 percent cut in his compensation- including the fixed income and allowance- for the financial year 2020-21.
IDFC First said its senior management has volunteered to take a 10 percent cut in compensation for 2020-21.
Furthermore, Kotak Mahindra Bank had also said earlier that its leadership team had decided to voluntarily take a 15 percent salary cut for the current year. The bank's Chief Executive Officer Uday Kotak, who is counted among the richest bank bosses in the country, had also opted to forgo his entire salary for FY21, and take a token Re 1 pay instead.
“We are in the midst of a battle to protect both lives and livelihoods. The revival of the economy will depend on a healthy and robust financial sector,” Kotak Mahindra Bank said in its statement announcing these pay cuts.
Kotak Mahindra Bank also declared a 10 percent pay cut for all its staff earning above Rs 25 lakhs per annum, with effect from May 2020.
In an internal memo announcing this pay cut, which was reviewed by CNBC-TV18, Kotak's group chief Human Resources officer Sukhjit S Pasricha said, “What seemed like a 2-3 months phenomenon in the beginning, has turned out to be a pandemic with serious implications on both lives and livelihood. More importantly, it is increasingly clear that the pandemic is not going away anytime soon.”
Non-bank lender, Indiabulls Housing Finance had announced the steepest pay cuts so far among financial institutions. The senior management of the company has taken voluntary pay cuts of an average 35 percent for the current financial year. According to the company release, the decision was taken to “lead the efforts on expense control” by volunteering these cuts.
Its Chairman, Sameer Gehlaut will not be drawing any salary for the current financial year, and it's MD & CEO Gagan Banga will take a steep 75 percent cut in his salary.
One way to look at these pay cuts is to see them as short-term measures to avoid a much more unpleasant outcome- that of widespread layoffs. The other reason for these salary cuts is more obvious: with uncertainty rising, businesses want to preserve cash and maintain sufficient liquidity to sustain themselves through the crisis.
In a recent instance, HDB Financial Services, the NBFC arm of HDFC Bank, laid off at least 100 people, according to people in the know. HDB Financial Services, in a statement to CNBC-TV18 however had then said that these layoffs had “nothing to do with the ongoing lockdown or the resulting economic situation.”
Press Trust of India had reported that Indiabulls Group had asked nearly 2000 employees to resign from the company. Several alleged employees of Indiabulls Housing Finance even took to social media to post recordings of their managers asking them to resign with immediate effect, even though their contract offered a three month notice period. CNBC-TV18 has not independently verified this report.
Surely, if the crisis drags longer than expected and economic activity is further hit, some businesses may find that these pay cuts are not sufficient to stave off job cuts. That businesses will face losses due to the nationwide lockdown is a given now; even the otherwise cheerful Reserve Bank of India Governor Shaktikanta Das looked rather somber as he announced a rate cut to support economic growth, which he expects in the “negative territory” for FY21. The only question is- how bad is it going to get before it gets better?
• Leadership opts for a voluntary restructuring of compensation
• 30 percent of the leadership team's total cost to Company (TCC) to be allocated as variable pay
IDFC First Bank
• Senior management takes a voluntary 10 percent cut in FY21 compensation
• MD & CEO V Vaidyanathan takes a voluntary cut of 30% in FY21 compensation
Kotak Mahindra Bank
• Leadership team voluntarily takes a 15 percent pay cut for FY21
• MD & CEO Uday Kotak opts to forgo his entire salary for FY21, takes token Re 1 pay instead
• Bank hands out a 10 percent pay cut for employees earning over Rs 25 lakh per annum
Indiabulls Housing Finance
• Senior management takes voluntary pay cuts of an average 35 percent for FY21
• Chairman Sameer Gehlaut to not draw any salary for FY21
• MD & CEO Gagan Banga volunteers to take a 75 percent pay cut for FY21