Break from the past, adopt new ways to work and hire differently
The country has been promised a new pension system, which should have been in place on January 1, 2004. All central government employees recruited after this date are part of the new system. State and local governments are also likely to participate. But before we can reap the benefits of this important reform, the first task is the appointment of the Pensions Fund Regulatory and Development Auth-ority (PFRDA).
Issues related to the selection of a regulator are new in India. Until now, such appointments have been made in a somewhat non-transparent manner, like government appointments. But regulatory bodies are public bodies, with a peculiar mix of public service functions, alongside an autonomy which is effectively a lack of accountability. Internationally, there has been a trend towards more open and transparent selection processes.
It is encouraging to note that a search committee has been put in place to select the PFRDA. This is a marked improvement over the way the government has been appointing regulators until recently. What will the search committee look for? An ideal outcome would be one where the team of four board members and a chairman for the PFRDA will be selected on the basis of their knowledge and expertise in the pension sector.
The role of the chairman will be to provide moral leadership to the PFRDA. According to the PFRDA bill, the chairman will have no special voting powers and will be at par with other board members. But he will be the public face of the PFRDA. He will have to energise various departments of the government, and carry with him various sections of society, to make pension reforms a success.
The search committee will find that all the expertise required might not be available in the public sector. For example, it would be good to have a person who has been doing fund management and comes from a mutual fund background. The sums of money involved will be running into thousands of crore and a weak team could lead to problems like the EPS or Seamen’s Provident Fund, which burn holes in the pocket of the government. How-ever, at the salaries offered by the government, talent in the private sector may be inaccessible. While eventually the salary structure should be revamped, this seems unlikely to happen soon.
| • Select chairman and board members of PFRDA on the basis of their expertise • Hire young people from the private sector willing to take up the challenge |
The only obstacle to hiring a brilliant young candidate from the private sector is the bureaucratic process of making appointments. The traditional civil service mindset will be to mechanically have people of age 55-60 for board membership and 60 or more for the chairman. This is because rank in the civil service comes not from expertise, but from age. Age requirements restrict the scope of those who can be hired and thus narrow the choice of candidates. In India, in contrast to some of the regulators seen internationally, age considerations discriminate against good candidates—sometimes we rule out strong candidates because they are young and sometimes because they are old.
In the private sector, a person aged roughly 60 and above is actually considered a good candidate for a non-executive chairman’s post, but not a CEO. This is the exact opposite of mentality in the government sector. The CEO should be an ambitious and risk-taking person, who has something to prove, who looks forward to career benefits from proving himself in the proposed assignment.
The proposed pension system is a brand new scheme. It is the first time India is stepping into a modern set of institutional arrangements for old age income security, breaking free from our sarkari past. This is the time when new ways to work and recruit should be adopted. The challenge is to break free from traditional mores and bring the best experts to bear on the problem.