DOWN-SIZING AND GOLDEN HANDSHAKE SCHEME

The scheme offers an unique opportunity to boost long term investment & economic activities both for the Govt. & affectees

By Syed M. Aslam
Oct 20 - 26, 1997

In less than three weeks that fell between August 22 to September 13 a total of 6,495

executives and officers were retired by the Habib Bank Limited and United Bank Limited. The downsizing exercise initiated by HBL on the 22nd of last month and followed the  UBL on the 13th of the current has now spread to National Bank of Pakistan which has  offered voluntary retirement scheme to all its workers till the 25th of this month. A similar  scheme has also been offered by one of the Development Financial Institutions, the Agriculture Development Bank of Pakistan (ADBP) and is expected to be followed by  other DFIs soon. Besides, HBL also offered all 30,000 of its workers and staff a voluntary golden hand- shake scheme and though the HBL president, Shaukat Tareen expected that 10,000  employees would avail the offer, PAGE has learnt that only 6,500 HBL employees have  applied to take advantage of the offer. On the other hand, the president of UBL Zubyr I.  Soomro has said that the downsizing in UBL is completed and there would be no more  retrenchment, mandatory or voluntary, at UBL.

Millionaires & entrepreneurs

While the downsizing at the NCBs and DFIs was deemed necessary to make these institutions productive and profitable, the exercise would also result in an over-night jump in the number of millionaires and potential entrepreneurs as not only the voluntary retirees but also the mandatory ones would be receiving a financial benefits that range from Rs 700,000 to RS 3 million depending on their designation, PAGE has learnt.

While announcing the mandatory retirement of 1079 executives and officers last month, the president of HBL said that each one of them would be receiving between Rs 2.2-3  million. That’s 1079 millionaires over night. According to high placed HBL sources the downsizing exercise, comprising the mandatory retirement of 1079 executives and workers and the 6,500 workers and staff at all levels would cost the bank Rs 9 billion while that at the UBL would cost Rs 6.9 billion.Thus the employees of HBL and UBL among themselves would be receiving a total of Rs 15.9 billion while an expected vontuntary retirement of 5,000 workers and staff would be receiving a amount closer to that of UBL. The golden hand-shake scheme offered by NBP is more generous than those offered by HBL and UBL. The similar scheme offered by the DFIs any time would also bring in a similar amount of money.

It is obvious that the downsizing in the financial sector alone would produce many instant millionaires and people who have a sizeable cash to divert that laid-off expertise to indulge in a suitable business activity. Meanwhile, there are reports that 18,000 employees in  various other government ministries, departments, divisions, public sector corporations and autonomous bodies have opted for golden hand-shake/early retirement scheme.

Cash flow

Human factors apart, the golden hand-shake/early retirement scheme at all levels of the government would allow thousands of these people to have the cash, and the time, to  indulge into any gainful self employment or business activity. While from a purely economic viewpoint, the readily available funds and time should translate into increased economic activity, atleast in the long run, much would still depend on the intelligence and entrepreneurship skills on an individual basis to turn that assumption into a reality.

It is still early to forecast if the downsizing would result in increased economic activity primarily because the affectees are still reeling from the shock of the loss of jobs and also as many of them have yet to receive the settlement money. In addition, as the payment would differ from individual to individual depending on his pay, length of service, etc., it is hard to say how many of them would go into business or how many would choose to invest their funds into various investment schemes. However, a calculated guess could be made.

According to a high placed source in HBL besides the 1079 executives and officers retired mandatory the 6,500 employees who have opted for the golden hand-shake scheme include 500 executives, 4,000 officers and 2000 clerical and non-clerical staff.

PAGE was told that the 500 executives would be receiving an average of Rs 2-2.5 million each, officers between and average of Rs 1.5-2 million each and the rest of the 2000 clerical and non-clerical staff an average of Rs 0.7-1 million each. Relying on the information provided by the HBL management, this means that the bulk of the total 7,579 workers who were either mandatory retired or have opted for golden hand-shake at HBL would be receiving over a million rupees in retirement benefits.

While the downsizing cost of Rs 6.9 billion at the UBL translates into an average  individual payment of Rs 1.27 million the actual individual financial benefit would differ from employee to employee. However, compared to HBL where the number of executives retired mandatory and voluntarily adds upto 1,579 (1079 plus 500 respectively) the retirement scheme at the UBL include only about 390 executives while the bulk comprise of Grade III officers (54 per cent), Grade II officers ( 28 per cent) and the Grade I officers

(7 per cent) of the total 5,416 mandatory retirements.

PAGE visited the Head Office of the UBL a day after the mandatory retirement and talked to a number of officers whose services were terminated by the Bank. The terminated officers told PAGE that while the management chose to terminate their services unceremoniously, many of whom received the termination letters on the 13th to inform them that their services were not required from the 11th, it has not informed them that how much they would be receiving in benefits.

A Grade II officer who had joined the Bank in 1975 as an Assistant (clerk) and had his first promotion in 1981 when he was elevated to Grade III and the second promotion 13 years later in 1994 to Grade II lamented that while his services had been terminated the management chose to remain silent over how much would be paid and when?

The sacked officers and their lucky colleagues who were spared the mandatory retirement at the bottom ladder of the officer cadre said that after the deductions of loans availed, the affectees would only be getting a few hundred thousand rupees in financial compensation, the value of which has already been slashed by the 9 per cent recent currency devaluation  and the 7 per cent income tax of any benefits that they would receive. They refuted the claims of the Bank management that 99 per cent of the affected staff would receive well in excess of their salaries adding that the lower cadre officers would not be getting enough funds to invest in either business or many of the savings scheme.

On the face of it the apprehensions expressed by the affectees seem to make sense as the mandatory retirement at the UBL affected more lower cadre officers than the executives. Nevertheless, as stated above the thousands of the already retired officers at the HBL and UBL plus the 6,500 workers and staff who opted for the golden hand-shake scheme at the HBL, the expected golden hand-shake retirement of 5,000 workers and staff at the NBP, DFIs including ADBP and option taken by 18,000 employees belonging to various departments of the federal government would pay out settlements running between a few hundred thousand rupees to three million rupees which offers great potential for boosting small local investments which can total billions.

According to the chart worked out by the UBL the average after-tax package for executives would be Rs 3.6 million for SEVPs, Rs 2.8 million for EVPs, Rs 2.68 million for SVPs, Rs 2.4 million for VP and Rs 2.13 million for an AVP. In case of Grade I, II and III officers it would be Rs 1.7 million, Rs 1.27 million and Rs 790,000 respectively.

The mandatory retirement scheme implemented by the UBL is no less golden than that of HBL, claimed the UBL management, as it said that the 99 per cent of the affected staff  would receive well in excess of their current salaries, particularly the officers who could earn upto 72 per cent more take home salary per month if they chose to deposit the money  at 16 per cent monthly rate.

However one would have to discount for devaluation and inflation. A chart worked out by UBL shows that the investment of money by the Grade 1, II and III officers would fetch them 50 per cent, 72 per cent and 38 per cent more monthly salary than what they were receiving when they were laid off by the Bank. The same chart shows that a similar investment would bring 59 per cent more monthly income to an AVP, 52 per cent to a VP, 10 per cent more to a SVP while it would slash the monthly income of an EVP and a SEVP by 6 per cent and 26 per cent respectively. The investment scheme thus is not favourable to the affectees of the SEVP and EVP level who would be more inclined to invest their money elsewhere to earn atleast an equivalent of their monthly take home salary or more.

This also shows that while the two top categories of the executives would have more money to invest in other than savings schemes, the comparative smaller number — according to another chart shows that only 3 SEVPs and 10 EVPs were retired, of them will opt for real investment.

Talking to PAGE an executive of NBP who choose to take retirement few months ago said that though it would take time for the affectees of the downsizing to overcome the initial shock, the economic survival of each individual would depend of his/her business in the end.

While the downsizing of the public sector, he said, was a must to revive them the government should make efforts to encourage and offer programme to polish the entrepreneurship skills to the affectees. While many of the youths who joined the NCBs during last six years would be affected by the downsizing there is still time for them to readjust themselves if they are provided the relevant guidance to restructure their career.  He said the downsizing of the public sector reflects the management failure and the public sector itself as there is no difference between public or private management and added that

Pakistan has the vast human potential but needs a management revolution to overcome its economic crisis. PAGE was informed that the HBL has plans to start free of cost out-placement programme for its retirees to offer counseling to people about their options how to invest the retirement proceeds and to alleviate the loss of direction. The Bank has hired the services of a local consultant, Dr Junaid to implement the programme which would offer two groups in Karachi and one group each in Lahore and Rawalpindi. PAGE also learnt that HBL has offered its affected executives the official car and furniture at 10 per cent of the book value or cost after adjustment, which ever is more. It has also offered them to maintain such benefits as domestic travel, transportation allowance and use the residence facility provided by the Bank for the six months. The word down-sizing has become a household word in the contemporary language — and the psyche — of the country and with the momentum created by the NCBs, DFIs and the various departments of the federal government is expected to spread to all other public sector corporations and autonomous bodies.

KPT & Wapda

The managers of the premier port of the country, the Karachi Port Trust are studying a report to offer golden hand-shake to address the over-staffing problems. Sources in KPT  told PAGE that a golden hand-shake scheme would be announced shortly to its 12,000 workers and staff which include 450 officers. There are also reports the premier power generating and distributions company, the Water and Power Development Authority (WAPDA) would be offering a golden hand-shake/early retirement scheme. WAPDA expects that 11,000 of its employees would opt for the scheme. Observers said that the downsizing would pick-up momentum with time to reach all other government departments, public sector corporations and autonomous bodies. It would be survival for only those who have the right entrepreneurship skills, the right know-how in their respected fields or those that polish these skills.

The creation of instant millionaires by the HBL and UBL and creation of more, expected in the wake of golden hand-shake at the NBP and ADBP both of which have fixed 25th of this month as the last date for their employees to avail the opportunity plus the 18,000 government employees who have opted for a similar scheme in addition to thousands of other who are expected to avail the opportunity as and when it is announced, offers tremendous potential for local investment.

Conclusion

While the two most visible options are buying any of the various term deposit certificates or a starting of a business which would depend on the benefit that an individual would receive, both the options offer a great potential to increase the economic activities in the country, the first one indirectly and the other one directly. The start of private enterprises would also create employment which would help in absorbing the effect of retrenchment on the unemployment rate.

As it is the National Savings Scheme of the Pakistan government has offered a 16 per cent interest on deposits and observers said that government could float bonds that should offer even higher returns to tap the money the small portion of which has already been disbursed but the bulk of which has yet to find its way into the money market.

The government should float bonds and certificates that offer 18-20 per cent returns on deposits to tap the huge potential that the existing scenario offers, it was said. This would not only allow the affectees to have a peace of mind to have a guaranteed flow of income but would also help increase the savings rate in the country which remains a low 13 per cent, it was added.

The time to act is now and the government should move quickly to introduce investment schemes to make the best of an opportunity which it never had before. Furthermore, observers said, that the government should also arrange programmes to guide the affectees on to how to invest their money in projects which would not only help them make money but would also provide many services which in itself was unable to undertake due to financial strains.