Task force recommends overhaul of salary, service benefits in state-owned enterprises

Kathmandu, Nov. 19: A government-appointed task force has suggested an immediate and comprehensive overhaul of the salary and service benefits structure across Nepal’s state-owned enterprises, regulatory bodies, and academies. 

The report of the task force formed to provide suggestions on establishing uniformity in the remuneration and service benefits of officials and employees of an expansive network of public institutions recommended grouping the institutions into eight separate groups and developing a package of perks and benefits for them. 

The report, published on Tuesday by the Ministry of Finance (MoF), made an assessment of the regulatory bodies, academies, boards, committees, and public enterprises, and other entities financed by the state treasury.

According to it, the eight packages can include - regulatory bodies, institutions operating competitively and for profit, monopoly organisations, public finance institutions, institutions majority-owned by public entities, institutions operating at a loss, institutions fully dependent on government grants, and institutions operating from self-earned revenue in addition to grants.

The findings of the task force expose widespread financial indiscipline and a profound lack of uniformity, highlighting a system riddled with disparity and excessive discretionary power that is creating an enormous fiscal liability for the state treasury. 

The task force was commissioned to address the escalating administrative costs and continuous financial burden placed on the public exchequer by these institutions, which are officially considered the ‘Extended Arms of the Government’.

According to the report, the task force analysed over 60 public institutions and found several pervasive weaknesses. 

Disparity in benefits

The most pressing issue identified is the extensive benefit disparity and the resulting legal chaos. The current regime sees 39 institutions setting salary and allowances solely through their governing boards, with employee benefits being managed under a complicated patchwork of 20 different legal provisions. 

“This has resulted in striking differences in remuneration for similar roles across the public sector,” read the report. For instance, allowances for board meetings can vary, ranging from Rs. 2,000 to Rs. 9,000. The Nepal Rastra Bank (NRB) and the Nepal Electricity Authority (NEA) provide Rs. 9000 as meeting allowance. 

Similarly, the monthly salary for an officer-level (sixth-level) employee can differ significantly. The NRB currently pays the highest amount of salary to the officers at Rs. 115,410, while top executives of the Rastriya Banijya Bank can get their monthly remuneration up to Rs. 450,000. 

Furthermore, the task force cited instances of opaque benefits being provided, including free services, telephone and fuel allowances, and excessive leave accumulation provisions for officials.

The task force found a massive unfunded retirement liability exceeding Rs. 78.5 billion across several key corporations, including major entities like the NEA and Nepal Telecom. 

Meanwhile, many institutions are reporting substantial profits on their financial statements without setting aside mandatory funds via proper actuarial valuation, which the report terms ‘a dangerous financial practice’ that might risk future insolvency. 

This mirrors past failures, such as those at Hetauda Cement, which could not settle billions in long-term liabilities due to the lack of dedicated funds, according to the report. 

Poor link to performance and reward

The task force stated that the poor linkage between performance and reward is another challenge. Despite the high benefits offered, public sector performance is not consistently improving, with 36 out of 52 institutions showing fluctuating annual income. 

According to it, incentive allowances and productivity are not related in public institutions, and many bodies provide a uniform percentage allowance to all staff rather than a genuine performance-based incentive system. Public institutions have ignored the directives on financial discipline from the Auditor General and the Public Accounts Committee of the Parliament. 

To address these maladies, the task force has offered a set of sweeping, radical reforms aimed at establishing uniformity, transparency, and fiscal discipline. 

It has called for centralised financial control, mandating that the Finance Ministry be granted mandatory approval authority over all financial liabilities, including salaries and retirement benefits, for every regulatory body and public corporation. 

‘Scrap 41-type of allowances’

It suggested scrapping the existing 41 types of allowances and replacing them with a single, transparent, and capped performance-based incentive allowance, varying by institutional category, for example, up to 100 per cent of the annual salary for a Category A institution, declining to 25 per cent for a Category D body. 

“Only a single, transparent Employee Welfare Fund should be retained, with all others abolished,” noted the report. 

The task force urged the government to establish an Institutional Transition Management Fund to address the staggering Rs. 78.5 billion unfunded liability through asset monetisation and phased budget allocation, ensuring all future retirement funds are established after proper actuarial valuation.

Similarly, for the ‘sick’ corporations that are perpetually dependent on government grants and running losses for three consecutive years, benefits must not exceed those offered to the civil servants. The task force also recommended a voluntary retirement scheme and transferring operational responsibility to the private sector for specific bodies to stem further losses. 

The implementation of these suggestions, which centre on integrated law, scientific classification, performance-linked remuneration, and full transparency, is positioned as essential to safeguard the state treasury, ensure justice among employees, and enhance the overall efficiency of Nepal’s public sector.