Following suit the salary raise of civil servants and State Owned Enterprises (SOEs), Druk Holding and Investments (DHI) and it companies have also raised their salary.
DHI and companies raised their salary from 22% to 60%. The DHI board approved the revised pay scale, 20% of basic pay as corporate allowance and 15% of basic pay as performance based variable allowance (PBVA).
Unlike in the past pay revisions, which were always pegged to the percentage revision in the civil service, this pay revision rationalized the pay structure of regular employees through application of uniform variation of 10% across all grades.
The existing anomaly in the remuneration of contract employees is also addressed by framing a separate pay structure for contract employees of DHI and DHI Owned Companies. This pay revision included the contractual employees of the companies like Chief Executive Officers and Management Team, which was not the case in the past pay revisions.
All allowances and benefits of the companies, including the ones that are specific to the companies were also reviewed, rationalized and approved accordingly.
Like in the government pay revision, DHI and Companies also adopted the salary indexation of 5% or annual inflation rate whichever is lower. Of the total indexation, 2.5% or 3% will be given as the usual annual increment and the balance indexation, if any, will be given as lump sum cost of living adjustment at year end.
With the revision, the overall average increase in pay for DHI Group is 32.59%.
The annual financial implication of the revision is projected to increase by 28.20%, which will be around Nu 1.021bn from the current annual cost of pay, allowances and benefits.
The revised pay structure, allowances and benefits for all categories of employees will be implemented with retrospective effect from October 1, 2019. The annual salary indexation will be implemented with effect from January 1, 2020.
The head of Human Resource and Administration of DHI, Kinga Lotey said that the raise did not benchmark with civil servant salary revision. “On an average DHI and companies get 15% higher than the civil servant,” said Kinga Lotey.
He also said that there are not many changes in daily substance allowance (DSA) of in-country because it is at par with the CS. Only few levels that were Nu 1,000 per day before have increased to Nu 1,250. The DSA for third country is as per the guideline of the ministry of finance.
The provident fund contribution from employees and company is increased from 11% to 15%.
DHI companies included under the scope of this remuneration revision are Druk Green Power Corporation, Bhutan Power Corporation, Bhutan Telecom, Bank of Bhutan, Drukair, Natural Resources Development Corporation, Dungsam Cement, State Mining Corporation, Construction Development Corporation, Dungsum Polymers, Thimphu Techpark, Koufuku International and Wood Craft.
Basic pay comparison with CS, SOEs and DHI companies
Civil servants, SOEs and DHI companies are giving the highest percentage raise to lowest level grade and lowest percentage raise to highest level grade.
DHI companies have given the highest percentage raise with 60% to the lowest level and 22% to the highest level.
Similarly, SOEs and CS have given 35% to lowest level and 6% to highest level.
However, in absolute figure the basic monthly pay of lowest level grade of CS is Nu 9,450, at DHI companies is Nu 8,700 and at SOEs is Nu 10,180.
For the highest level at CS the basic monthly pay for the Prime Minister is Nu 190,800 and highest level at CS is the cabinet secretary at Nu 84,180. At SOEs the highest level basic pay is Nu 75,000 and for DHI companies at Nu 100,000. The salary of CEO also differs from company to company and the highest salary in the DHI companies is paid to the CEO.
Kinga Lotey said that the 60% raise for ESP was including the annual increment, bonus and other allowances.
“Before there was no increment for them and it was consolidated,” said Kinga Lotey.
Civil servants get house rent allowance of 20% of the basic salary and lump sum of Nu 3,500 as HRA for lower level.
SOEs also get house rent allowance of 20% of the basic salary and lump sum of Nu 3,500 as HRA for lower level. SOEs’ 25% corporate allowance is replaced by performance based variable incentives from 15% to 50% of the basic salary.
For DHI companies, employees get corporate allowance of 20% of basic salary and 15% PBVA of basic salary.
There is also position specific allowance (PSA) for heads of the division and department ranging from 10% to 30% of the basic salary and contract employees will not be eligible for PSA.
However, Kinga Lotey said that there will be variation from company to company.
Impact on economy
The impact of the salary hike will depend on the interaction of multiple things. There is no unequivocal way to infer the outcome.
Professor of economics at the Royal Thimphu College and an economist Sanjeev Mehta said that theoretically wages (salary) should be linked to productivity and real wages needs to be protected by making adjustments for inflation.
He mentioned that since their wages are not systematically indexed to inflation, the Bhutan employers both the state and private sector make onetime adjustment in the nominal wages.
“Present pay hike can be justified on this ground as the real wages have been eroded sharply since the last pay hike. The critical question is whether the pay structure represents productivity,” said the professor, adding that if the higher pay to the employees of public corporate sector entity is related to productivity, the pay hike is justified. If the higher profit of these entities is not related to efficiency but to the monopoly power they enjoy, then the pay hike results into disguised tax burden on the people.
He also said that the current expenditure of the government will rise and may put pressure on the already stressed fiscal resources. Yet this burden is justifiable, if it helps to boost productivity (if it not currently linked to the productivity).
On the other hand he said that higher wages tend to reduce demand for labor. “At a time when Bhutan is faced with rising rate of youth unemployment, higher wages will only cut down employment creation. With this pay hike, disparity between wages in the formal corporate sector and informal sector will rise further. Income disparities will rise further.”
He said that pay hike looked from the demand side perspective, a typical Keynesian perspective, is good for the economy as it will boost demand and bring the forces of multiplier in operation.
He said the growth rate may see a jump. But the caveat is, which demand is boosted more- for domestic goods or foreign goods. If the domestic demand is boosted, it bores well for the economy, but if not, imports will rise further. Already burgeoning current account deficit will rise further.
Dechen Dolkar from Thimphu