The Perks of Disorder

For decades, public debate about Nepal’s government institutions has centered on inefficiency, bureaucratic inertia, and vice delivery. But behind  these familiar complaints lies a deeper and less visible problem: an internal compensation economy that shapes how institutions behave, how resources are distributed, who chooses to work where,  and how billions of taxpayer rupees are ultimately spent. This system includes salaries, allowances, bonuses, welfare funds, perks, and retirement liabilities that have evolved  unevenly over time. It lacks uniform standards, clear accountability, and a solid legal foundation—and its impact on governance, service delivery, and fiscal discipline is significant.

Unlike the civil service, which operates under  a codified pay structure and formal administrative rules, public enterprises, regulators, funds, authorities, boards,  and committees have built their compensation systems piece by piece.  Some rules come  through Acts and Regulations; others stem from internal bylaws, ad hoc board decisions,  or Cabinet directives issued with little oversight. Over time, this patchwork approach has created more than fifty separate compensation systems, each with its own mix of salaries, allowances, insurance benefits, and retirement obligations.
A few institutions expanded these packages aggressively,  while those with weaker finances kept them basic. The result is a confusing  and unequal landscape of compensation with little
consistency—and even less justification.

Former Finance Secretary Bhanu Prasad  Acharya argues  that these divergent frameworks did not emerge by accident. He added that they emerged because the system rewarded discretionary decision-making without requiring  accountability, he said. “There are clear differences in service facilities, but the money being drawn is not tied to efficiency,” he said. “The task force’s report is strong, especially in the way it breaks down data unit by unit. The central problem  is: even though the Ministry of Finance is represented on the boards of these institutions, the boards dominated the decisions.  The Ministry’s role was not assertive enough.”

Acharya added that institutions have repeatedly failed to link benefits with output or performance. “Once one institution increased its benefits, others simply copied it. When  personal interest supersedes institutional interest, boards make arbitrary decisions.  People  talk about ‘autonomous boards,’ but in practice the Finance Ministry is present everywhere,” he said. “A blanket standard cannot be imposed across all institutions either. Take Nepal Rastra Bank, for example. Its compensation is tied to the nature of its work, its output, and its efficiency.”

The Ministry released the findings of the Task force for Ensuring Uniformity in the Remuneration and Benefits of Officials and Employees  of Regulators, Authorities, Boards, Committees, and Public Institutions Funded by the State Treasury  on November 18. Led by Deputy Auditor General Ramu Prasad  Dotel, the task force undertook one of the most comprehensive examinations of Nepal’s public-sector pay structures. Its findings are both illuminating and alarming. The task force concluded that Nepal operates a “system of pay without rules”—where benefits are shaped not
by responsibility or performance but by historical chance,  institutional muscle, political influence, and the absence of strong oversight mechanisms.

The consequences of this system extend far beyond payroll spreadsheets. They distort the labor market within the public sector, deepen inequality between institutions, inflate operational costs, weaken governance, and create long-term liabilities that the state will eventually have to absorb.  The review exposes a system that rewards those with influence, punishes those with weaker financial capacity, and leaves the public footing  the bill.

A Landscape of Extreme Inequality

One of the most striking findings of the task force is the sheer  scale of inequality in compensation across Nepal’s public institutions. The task force reviewed sixty major institutions, ranging from regulatory bodies and state-owned enterprises to committees, authorities, academies, and grant-dependent agencies. Within this group, institutions with similar mandates often paid salaries that differed not by a small margin but by a factor of five. Senior officials at financially strong enterprises earned as much as Rs 400,000 per month, while their counterparts in structurally comparable institutions received barely Rs 80,000.

The inequality extended to meeting allowances as well. Board members could earn anywhere from Rs 2,000  to Rs 9,000 per meeting, depending on the institution. Many boards met four or five times a month with limited substantive agenda items. Meetings became income-generating events rather than governance sessions.

Acharya argues  that these distortions were fueled by institutional incentives that rewarded frequency rather than productivity. “Benefits must be linked to output,” he said. “Institutions should have to justify facilities against clear parameters.” But the deepest inequality becomes  visible when analyzing annual spending per employee. Among 52 institutions that provided full expenditure data,
12 spent more than 1.5 million rupees annually on each employee when combining salaries, allowances, insurance, welfare funds, and other benefits. At the top of the scale, the Employees’ Provident Fund spent an average of Rs 2.22 million per employee per year, while the Civil Aviation Authority of Nepal followed  closely at Rs 2.06 million. Nepal Rastra Bank recorded Rs 1.83 million; the Nepal Academy of Tourism and Hotel Management Rs 1.7 million; and the two state-owned insurance companies—Rastriya Jeevan Beema Company  and Rastriya Beema Company—each spent Rs 1.64 million.

Likewise, Rastriya Banijya Bank averaged Rs 1.57 million per employee, the Securities Board of Nepal Rs 1.576 million, HIDCL Rs 1.572 million, and the Citizen Investment Trust Rs 1.54 million. These amounts rival compensation levels in some of Nepal’s private-sector banks and insurance companies, underscoring the financial asymmetry that exists between public institutions.

The imbalance  deepened when  comparing employee costs to operating income. The National Dairy Development Board spent 248% of its operating income on employees. Public Service Broadcasting Nepal spent 107%, Singha Durbar Vaidyakhana  88.99%, Rastriya Beema Company  78.33%, and the Social Welfare  Council 52.46%.

These figures reveal profound inefficiencies and indicate that for many institutions, compensation frameworks operate independently of financial realities. Several institutions spent more  on employees than they earned.

Even institutions performing similar functions exhibit stark disparities. Nepal Bank Limited’s employee expenditure stood at 36.54% of operating income—dramatically higher than the
Agriculture Development Bank’s 18.12% and Rastriya Banijya Bank’s 15.71%. Overall, employee expenses exceeded operating income at two institutions, ranged  between 60-100% at two others, between 40-60% at four institutions, between 20-40% at eight institutions, and below 20% at 32 institutions. These  patterns highlight a compensation system detached from productivity and institutional viability.

Yet the raw numbers tell only part of the story. Public institutions differ sharply in how they structure allowances, insurance benefits, retirement perks, and welfare funds. Some institutions provide up to 41 types of allowances, including uniform, risk, refreshment, consultant, communication, childcare, housing, electricity, vehicle maintenance, regulation, and other incentives. In other institutions, employees receive  only a few of these benefits—not because their roles are less demanding, but because their institution lacks the financial strength or political influence to justify additional perks. Medical reimbursements differ sharply, ranging from coverage equal to one month’s salary at the lower end to three months’ salary in stronger institutions. Life insurance coverage ranges  from Rs100,000 in weaker institutions to as much as Rs 1.9 million in stronger ones, with a handful offering protection equal to seven  years of salary.

These inconsistencies create a landscape where employees’ welfare is determined not by their responsibility, risk exposure, or contribution, but by the financial muscle and historical decisions  of their institution. This undermines equity, breeds resentment, and distorts labor flows.

How a Ruleless System Took Root

Former Secretary Bimal Wagle, who served as an expert member of the compensation reform commission in 2000,  said the government had already diagnosed these problems more than two decades ago. “The distortions in salaries and benefits across government institutions and public bodies are not new,” he said. “These problems were identified as far back as 2000. At that time, the government made a clear policy decision and even enforced it initially, but the lack of sustained implementation is what has brought us to the current situation.”

According to Wagle,  the 2000 commission  had reviewed around 50 public institutions and found 52 different types of benefits. “We decided to consolidate all facilities into a single lump-sum allowance,  enforce uniform salaries, and require  that any revision to pay or allowances would require  prior approval  from the Ministry of Finance. This was a Cabinet-endorsed decision,” he said.

However, the commission’s reforms were not implemented. “Every institutional board includes at least two government representatives—one from the Ministry of Finance and one from the line ministry. Yet even they allowed  such decisions  to pass unchallenged,” Wagle said. He explained that in Nepal Telecommunications Corporation (now, Nepal Telecom), there was a time when all board members were senior  government officials, yet benefits were increased without securing MoF approval.

The missing link, according  to Wagle, was accountability. “When directors, who hold the key responsibility for implementation, sign off on these measures, the entire system unravels,” he added.

Trade unions played a determinative role. “In some institutions, there were  as many as eight unions divided along party lines. They all were united when  it came to increasing  benefits,” he said. “Salary, allowances, and benefits must be aligned with productivity. Institutions operating as monopolies and those competing in open markets cannot be treated the same.”

The unchecked autonomy granted to institutions enabled boards to unilaterally expand  allowances—fuelled by political appointees, union pressure, and institutional lobbying power.

Financial capacity played an equally important role. Institutions with monopolistic advantages or strong revenue streams—such as telecom operators, hydropower institutions, fund-operating bodies, and aviation authorities—used their financial strength to attract and retain skilled professionals by offering higher salaries and a wider array of allowances. Meanwhile,
grant-dependent boards,  regulatory institutions, and loss-making  enterprises struggled to offer competitive compensation. Over time, financially stronger institutions continued to expand  their benefits, while weaker ones stagnated, creating a dual-track labor market within the public sector.

The Ministry of Finance, despite being formally responsible for ensuring  financial discipline across public institutions, lacked clear statutory authority to enforce uniformity. Many institutions bypassed it when revising allowances or creating new benefits.

Line ministries, often influenced by political considerations, rarely intervened unless a crisis emerged. Political appointees on boards further blurred the lines between governance and patronage.

Trade unions added another powerful force. Particularly in profit-oriented or monopoly institutions, unions  negotiated expansive benefit packages that often pushed institutions beyond their financial comfort zones. Since many board members were political appointees aligned with various parties,  unions found multiple leverage points to advance their demands. These  negotiations contributed significantly to benefit expansion and made later reforms politically costly.

The High Price of Inequality

The consequences of this fragmented compensation system ripple widely across public institutions. One of the most visible effects is the distortion of talent distribution. Capable employees gravitate toward financially strong institutions where salaries and benefits are more attractive. Loss-making or grant-dependent institutions, often  performing critical regulatory or service-delivery roles, struggle to retain employees. Many become training grounds for young professionals who leave as soon as better-paying opportunities arise. This weakens institutions responsible for some of Nepal’s most important public functions.

These disparities also breed frustration and conflict. Employees  in lower-paying institutions often express dissatisfaction through strikes, legal petitions, or lobbying for additional allowances. Leaders in such institutions spend  significant time managing internal pressures instead of focusing on strategic goals or improving service delivery.

The competitive pressures created by compensation inequality also produce an arms race of allowances. Instead of competing based  on performance, innovation, or efficiency, institutions compete by offering new benefits or increasing  existing ones. Even financially weaker institutions feel pressured to expand  allowances, creating liabilities that far exceed their revenue capacity.

The impact extends to the general public. Rising allowances and benefit expansions increase the operational costs of public institutions that provide essential services  such as electricity, water, telecommunications, and transportation. These costs are often  passed on to consumers through higher tariffs, fees, or service charges,  making public services  more expensive in an economy where  household incomes  grow slowly.

One of the most striking paradoxes is that inefficiency often thrives in institutions with generous compensation systems. Among 52 institutions examined closely by the task force, 36 recorded consistent annual losses. Several factories and enterprises, despite halting production years earlier, continued paying full salaries and allowances. Hetauda Cement, Udayapur Cement, Nepal Orind Magnesite, Nepal Aushadhi Limited, and Janakpur Cigarette Factory together received Rs
16.8 billion in government investment, yet their accumulated losses reached Rs 24.38 billion. Employee-related liabilities alone stood at Rs 2.11 billion.

In many of these institutions, machinery remained idle, production lines inactive, and operations suspended, yet salaries and retirement obligations continued uninterrupted. In fiscal year 2023/24 alone, the government spent Rs 1.03 billion to sustain just four such enterprises. Compensation frameworks in these institutions operated entirely  divorced from institutional performance, financial health, or operational relevance.

Retirement liabilities create even deeper long-term risks. Many institutions never established dedicated pension funds or conducted actuarial analyses  to understand the scale of their long-term obligations. As a result, pensions, gratuity payments, and leave encashments accumulate silently, forming a fiscal time bomb that future governments will be forced  to confront. The task force estimates that unfunded retirement liabilities across public institutions now exceed one trillion rupees. Without structural reforms,  these liabilities could overwhelm institutional budgets and force the national  treasury to absorb significant future costs.

How Loss-Making Institutions Pay More

Nowhere is the dysfunction more  pronounced than in the compensation structures of loss-making institutions. A number of public enterprises that have operated at losses for years, and in several cases halted production entirely, still maintain compensation structures that mirror those of functioning enterprises. Employees  in these institutions continue receiving salaries, allowances, and benefits regardless of operational viability. Without a clear mechanism to restructure or settle  liabilities, the government faces recurring fiscal burdens. Salaries and allowances in such institutions have become entitlements disconnected from performance, productivity, or financial sustainability.

This raises a fundamental question about public-sector governance: Should compensation structures operate independently of institutional output? The task force’s answer is unequivocal—they should not. Compensation must reflect an institution’s financial health, relevance, and ability to deliver value. Maintaining generous benefits in fundamentally non-viable institutions not only drains public resources but also creates a culture where inefficiency is tolerated and even rewarded.

Executive Compensation: A Study in Contradictions

The disparities extend to executive leaders  as well. The task force reviewed remuneration packages for executive heads  of 58 institutions and found  extreme inconsistencies. Salaries ranged  from Rs 48,737 per month to Rs 391,000. Twenty-one agencies are paying their chief executives the special-class government rate of Rs 72,082, seven  are paying less, and 30 paying more. At the lower end, the Singha Durbar Vaidyakhana Development Committee offers the least, followed by the Dairy Development Corporation and Nepal Railway Company. At the opposite extreme, the Nepal Tourism Board pays its chief executive Rs 391,000. Agriculture Development Bank, Rastriya Banijya Bank, and Nepal Bank Limited each pay Rs 300,000, while Nepal Telecom pays Rs 250,000. When  salaries are combined with monthly allowances, similar disparities emerge. Twenty-eight institutions provide monthly packages below Rs 100,000, 13 between Rs 100,000 and Rs 200,000, 13 between Rs 200,000 and Rs 300,000, and four above Rs 300,000. The highest monthly package—Rs 4500,000—is at Rastriya Banijya Bank, followed by Rs 400,000 at ADB and Nepal Bank Limited.

Annual allowances for executive heads  add a further layer of inconsistency. Most institutions provide festival expenses equivalent to one month’s salary, but the amounts vary widely depending on salary scale. Nepal Tourism Board provides Rs 391,000, the big three commercial  banks provide  Rs 300,000, and Nepal Telecom provides Rs 250,000. Annual uniform allowance, anniversary allowance,  medical benefits, and welfare fund payments vary significantly, with some institutions offering high-value  benefits. The Employees’ Provident Fund, for example, provides Rs 1.2 million annually under  welfare-fund expenses for its executive head.

Performance-based allowances range from modest amounts in many institutions to extensive packages in a few. The Hydroelectricity Investment and Development Company  offers up to Rs 1.8 million in performance allowances, while the National Transmission Grid Company offers Rs 1.2 million. At Securities Board of Nepal (SEBON) and the state-owned insurance companies, performance allowances may reach up to fifty percent of basic salary. These divergences reveal a system where executive compensation lacks coherence, transparency, and alignment with institutional performance.

Retirement Benefits: Uneven and Unsustainable 

Retirement benefits in public institutions are even more fragmented. Some institutions provide contribution-based schemes, others non-contributory benefits. Some offer pensions after 20 years of service, while others require  30. Some allow employees to choose between monthly pensions and lump-sum  payments equivalent to years of salary; others do not. The task force analyzed retirement benefits for a Section Officer retiring after 30 years of service. Based on uniform basic salary assumptions, the analysis compared benefits in terms of monthly salary equivalents.

The differences were staggering. The Deposit and Credit Guarantee Fund and the Social Security Fund offered retirement benefits equivalent to 261  months of salary, or between Rs 11.4  million and Rs 14.4 million depending on grade progression. CDS & Clearing provided 240 months, Nepal Bank Limited 235 months, and the Nepal Insurance Authority 234 months. Nepal Tourism Board provided 210 months; the Nepal Telecommunications Authority and HIDCL provided 195  months; Rastriya Beema Company 189 months; Nepal Stock Exchange  and Nepal Airlines Corporation 180  months; Agriculture Development Bank 177.5 months; and SEBON and Rastriya Jeevan Beema Company  174 months.

These figures exclude benefits provided through institutional welfare or protection funds, which further increase liabilities. The task force has cautioned that pension-granting institutions may appear stable in the short term but have unlimited long-term liabilities due to the absence of dedicated funds and actuarial planning.

Financial Capacity: Institutions on Different Planets 

An analysis of financial capacity demonstrates stark differences among institutions. Some have net worth exceeding one hundred billion rupees, while others have negative net worth. The strongest include the Employees’ Provident Fund, Nepal Rastra Bank, Civil Aviation Authority, Nepal Electricity Authority, and Nepal Telecom. On the opposite end, institutions such as Nepal Airlines Corporation, Nepal Railway Company, and the Kathmandu Valley Water Supply Management Board have negative net worth and weak financial fundamentals.

Among 45 institutions studied, four had net worth above Rs 100 billion, three between Rs 50-100 billion, six between Rs 20-50 billion, 19 between Rs 1-20  billion, and 13 below Rs 1 billion. When  institutions with limited financial capacity adopt compensation structures modeled on stronger institutions, liabilities can spiral rapidly.

The Reform Blueprint

The task force has proposed one of the most ambitious reform packages in decades. The blueprint seeks to impose coherence where there is fragmentation, discipline where  there is discretion, and accountability where there has been  opacity.

A central component of its recommendation is clarifying the authority of the finance ministry. Amendments to the Allocation of Business Rules would make MoF approval  mandatory for any decision  that creates financial liabilities, including salaries, allowances, bonuses, welfare  funds, and retirement benefits. Institutions would no longer be able to create new benefits unilaterally.

The reform plan also calls for a unified legal framework through two major instruments: standardized service  regulations applicable to all public institutions and a Public Institutions Financial Responsibility Act to govern  remuneration, financial discipline, reporting obligations, liability management, and transparency. These instruments aim to replace  the patchwork of bylaws and directives with consistent standards

Recognizing the diversity among public institutions, the task force has proposed classifying institutions into eight categories and aligning compensation ranges  accordingly. Financially weak
or grant-dependent institutions would face strict caps on benefits, ensuring that their compensation does not exceed civil-service levels. Institutions operating at losses for three consecutive years would be required to undergo fiscal audits and would be prohibited from providing performance incentives.

Similarly, it has recommended replacing the allowance-heavy model by performance-based incentives. Regulators could offer bonuses up to a full year’s salary, profit-oriented enterprises up to 60% of a month’s salary, and other institutions within defined  limits. Loss-making institutions would be barred from offering performance incentives altogether.

Compensation of executives would be rationalized by placing remuneration decisions  under  the Council of Ministers at the time of appointment. Specialized technical roles would receive  competitive salary bands to retain talent without distorting institutional finances.

A central oversight body, the Public Institutions Remuneration Determination Committee chaired by the Finance Secretary, would monitor compliance,  approve salary structures, and classify institutions. Transparency, a recurring  theme in the reform plan, would be strengthened by requiring  institutions to publicly disclose salary structures, allowance  rules, welfare fund provisions,  and annual staff expenditure reports.

Social security and retirement reforms include shifting toward contributory systems, conducting actuarial valuations, and gradually establishing dedicated retirement funds to address unfunded liabilities.

Implementation Will Be Difficult

Despite its strength, the blueprint faces formidable challenges. Resistance from powerful trade unions is likely, especially in profitable or monopolistic institutions where  benefits are deeply entrenched. Political appointees, who currently influence  compensation decisions,  may resist losing discretionary authority. Institutional inertia will further complicate the transition, as many institutions have grown accustomed to autonomy and will perceive uniform rules as restrictive.

The fiscal requirements for establishing dedicated retirement funds will demand sustained budgetary commitment. Legal reforms will require  amendments to dozens of Acts, regulations, and bylaws—a complex and politically sensitive process. Aligning so many disparate institutional frameworks into a single system will be painstaking.

Policymakers,  however, say maintaining the status quo would be far more costly. Inefficiency, inequality, and unchecked liabilities have already destabilized many institutions. Without decisive reform, these trends will deepen, weakening public institutions at a time when Nepal needs them to be stronger.

Will the Era of Ruleless Pay End?

The task force has laid bare a compensation ecosystem built not on principle or performance but on fragmented laws, discretionary decisions,  opaque welfare funds, and a long history of unchallenged benefit expansion. These distortions did not arise suddenly; they accumulated over decades. What began as flexibility for specialized  institutions became a license  for unchecked allowances, inconsistent executive pay, and unfunded retirement liabilities that have ballooned into a fiscal threat.

The proposed reforms offer something Nepal has never had: a coherent, enforceable framework linking compensation to responsibility, financial capacity, and measurable output. Standardized service rules, a dedicated remuneration oversight committee, mandatory Ministry of Finance approval  for financial liabilities, performance-based incentives, actuarial planning, and limits on benefits for grant-dependent institutions together sketch a future where discipline replaces disorder.

But the hardest chapter is still unwritten. Powerful  unions will resist losing bargaining leverage; politically appointed board members will oppose limits on discretion; profit-making monopolies will fight caps on benefits; and loss-making institutions will fear exposure. Without persistent political will, the reform blueprint risks becoming the latest well-designed framework to die in implementation.

Implementing the reforms will demand political courage, administrative consistency, and a willingness to confront entrenched interests. But the alternative is far costlier. This moment offers a rare opportunity to restore fairness, rebuild credibility, and realign public institutions with their mandates. The path to discipline is clearly marked. Whether Nepal’s leadership has the resolve to walk it will determine the shape—and solvency—of the country’s public institutions for decades to come.

(This report was originally published in December 2025 issue of New Business Age magazine.)