Published: 12:56 AM, 04 September 2026
The Cost of Public Employment: Pay, Privileges and Performance
Public employees frequently complain that they are underpaid. Their argument usually rests on a simple comparison: monthly salaries in government service are lower than what similarly educated or experienced people can earn in the private sector. On the surface, the argument appears convincing. But salary is only one component of compensation. Once employment security, subsidized credit, accommodation, transportation, allowances, retirement benefits and other privileges are taken into account, the picture can change dramatically. In many cases, what appears to be low pay may actually represent a relatively generous package of total compensation.
The central problem is that public-sector remuneration is generally discussed in terms of monthly cash salary, while a substantial part of its economic value is hidden in benefits received during employment and after retirement. These benefits amount to the capitalization of future income. When they are properly valued, the claim of being underpaid becomes much less straightforward.
Consider the nature of government employment. A public employee generally enjoys a degree of employment security that is difficult to replicate in most private-sector jobs. Dismissal is relatively difficult, career progression is often determined by institutional rules rather than competitive market performance, and income continues through a structured career path. Annual increments, promotions, pension or provident-fund benefits and retirement packages provide a degree of income certainty that has substantial monetary value. An employee does not need to negotiate this value every year in the labour market. Much of it is embedded in the employment contract.
This security is particularly important when comparing public and private compensation. A private-sector employee may receive a considerably higher monthly salary, but that salary compensates for greater employment risk. The employee may have to meet demanding performance targets, generate revenue, satisfy customers, compete with colleagues and accept the possibility of losing the job if performance deteriorates. A government employee may face considerably less of this pressure. Therefore, comparing the monthly salaries of the two groups without adjusting for employment risk is economically misleading.
The second issue is the growing importance of non-cash and deferred benefits. Government employment may provide subsidized housing or accommodation, official or subsidized transportation, medical facilities, leave-related benefits, various allowances and other monetary facilities. Individually, these may appear modest. Collectively, however, they can constitute a significant addition to compensation.
Concessional loans are an especially important example. Suppose an employee receives a housing or vehicle loan at an interest rate substantially below the market rate. The difference between the market interest cost and the amount actually paid by the employee is an economic benefit. It is, in effect, a transfer from the employer or the state to the employee. Calling it a ‘loan’ does not eliminate its compensation value. A Tk 50 lakh loan at a heavily subsidized rate can provide a benefit worth lakhs of Taka over its lifetime.
The same principle applies to accommodation and transportation. If an employee receives government accommodation below market rent, the economic value is the difference between the market rental value and the rent actually paid. If official transportation is provided, the employee avoids fuel, maintenance, depreciation and other costs that a private employee must bear personally. These are not merely administrative conveniences. They are components of total remuneration.
The most underestimated component, however, may be retirement and post-retirement benefits. A pension is essentially a claim on future income. Gratuity, provident-fund contributions and other retirement benefits similarly represent accumulated or deferred compensation.
Their value should ideally be calculated in present-value terms. An employee who receives a modest salary today but has a highly secure stream of retirement income may be economically better compensated than someone earning considerably more today without comparable retirement protection.
There is another dimension that is rarely discussed: the absence of strong performance measurement. In a competitive private enterprise, compensation ultimately has a relationship with productivity. An employee who consistently fails to meet targets, loses customers, increases costs or produces poor-quality work eventually becomes difficult to retain. In contrast, many public-sector positions are not subject to equally rigorous individual key performance indicators, measurable output targets or consequences for persistent under-performance.
This does not mean that public employees do not work hard. Many do, and some perform extremely demanding and socially valuable functions. Nor does it mean that every government employee is overpaid. The problem is systemic: compensation and performance are often insufficiently connected.
When compensation becomes largely detached from output, it increasingly resembles a transfer payment rather than a market-determined reward for productivity. The state collects taxes and other revenues from society and transfers part of those resources to employees in the form of salaries, benefits and future obligations. Such transfers may be justified where the employee performs an essential public function. But the justification becomes weaker when compensation continues to rise without a corresponding improvement in service delivery, efficiency or measurable outcomes.
This creates a paradox. Public employees can genuinely feel underpaid because their visible monthly cash income is relatively low, while taxpayers can simultaneously have a legitimate perception that the overall compensation package is generous. Both perceptions can coexist because they are looking at different measures of remuneration.
The solution is therefore not simply to increase or decrease government salaries. The first requirement is to calculate total compensation. A proper compensation statement should include basic salary, allowances, employer contributions, subsidized loans, accommodation, transportation, medical benefits, leave benefits, pension liabilities and other significant facilities. The present value of future benefits should be estimated. Only then can a meaningful comparison be made with private-sector compensation.
The second requirement is to introduce a stronger connection between pay and performance. Not every government function can be reduced to a simple numerical KPI. Teaching, enforcement, regulating, medicare, or administration perform functions that cannot always be captured by revenue or profit. Nevertheless, measurable indicators of workload, quality, timeliness, service standards, institutional outcomes and professional conduct can be developed.
The third requirement is transparency. Public compensation should be understood as a cost to taxpayers, not merely as an entitlement of employees. When a government provides a subsidized loan, housing, vehicle or pension, somebody ultimately finances that benefit. The fiscal cost may not appear immediately in the monthly payroll, but it remains a real economic cost.
This is particularly important because deferred benefits can create substantial future liabilities. A government may appear fiscally comfortable today while accumulating obligations that will have to be financed by future taxpayers. The capitalization of future income therefore deserves much greater attention in public-sector wage policy.
There is also a broader question of fairness. A country with limited fiscal resources cannot indefinitely increase public compensation without considering the opportunity cost. Money spent on salaries and benefits cannot simultaneously be spent on schools, hospitals, infrastructure, social protection or private-sector development. If compensation rises faster than productivity, the burden ultimately falls on taxpayers and consumers through higher taxes, borrowing or reduced public services.
The appropriate policy response is not hostility towards public employees. Public servants are essential to the functioning of the state, and competent public administration deserves fair compensation. But fairness must operate in both directions. Employees deserve fair pay for productive work; taxpayers deserve productive public services for the compensation they finance.
Ultimately, the real issue is not the size of the government salary. It is the relationship between total compensation and public value created. Where that relationship is strong, higher pay can be justified. Where it is weak, increasing compensation without improving performance simply converts public resources into increasingly generous transfer payments.
The public-sector pay debate should therefore begin with a simple principle: count everything, including the future, and measure the output. Only then can we honestly determine who is underpaid, who is adequately paid and who is being paid far more than the value of the work being delivered.
Mehdi Rahman writes
on foreign trade and
monetary policies.
