Iran Pulse

Iranians in uproar over executive pay at state-owned company

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Article Summary
Leaks of executive pay at Iran’s main state-owned insurance company spark a public backlash, with a hint of what President Hassan Rouhani may face as the country enters election season yet again.

Bimeh Markazi, or the Central Insurance of the Islamic Republic of Iran (CII), is housed in a baroque-style tower alongside Tehran’s upscale Jordan Street. The state-run company, which also acts as a regulator, was established in 1971 and is overseen by the Ministry of Economic Affairs and Finance with the mission to “expand and guide insurance operations in Iran.”

The CII came under fire last week when the pay stub of one of its employees appeared on the popular messaging app Telegram. The name of the employee was crossed out but likely belonged to one of the five members of the CII’s executive team. Subsequently, more stubs were leaked, displaying what appeared to be monthly salaries in the tens of thousands of dollars, interest-free loans and significant overtime payments. The CII responded by releasing two pay stubs belonging to one of the executives, showing a base monthly salary of 85 million rial ($2,800). It argued that the large sum leaked was in fact not a salary, but 84 months of back payment owed to the employee in question. This did not help quell the anger directed at the CII and the government.

One Principlist website claimed to have in its possession a scathing letter written by CII employees addressed to President Hassan Rouhani. The unnamed staff blasted their CEO, Mohammad Ebrahim Amin, a longtime insurance executive, criticizing him for showing favoritism during his tenure and increasing executive pay “astronomically.” The outcry subsequently lead to the resignation of Amin, who began his resignation letter with the words “I am ashamed.” He did not admit to any wrongdoing, but he apologized to the minister of Economic Affairs and Finance for making his ministry look incompetent. Minister Ali Tayyebnia accepted Amin’s resignation and quickly reinstated the former CEO, Abdulnasser Hemmati. But as pointed out by numerous commentators, the removal hardly addresses the roots of a more widespread phenomenon.

Executive pay is one of the less discussed components of the Iranian financial services industry, which is increasingly wanting to compete and operate internationally. This sector until very recently endorsed frugality for top officials as a formal solution to the curtailing of corruption. In this vein, for decades, and especially in the years after the end of the 1980-88 Iraq-Iran War, informal payments have been used as one way of luring competent managers from the private sector to government posts. What the CII leaks revealed has in fact been standard practice — an acceptable truism the public already knows but only reacts to when faced with headlines.

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As per Article 76 of the Civil Service Law, which the Rouhani administration has renewed, “no individual in a government post can be paid more than seven times the lowest earning civil servant.” Most estimates put this minimum at 15 million rial ($500) per month. But the government has no mechanism with which to impose such caps. Across Iran’s myriad state and quasi-state institutions, executives have a host of methods at their disposal to give out bonuses to themselves and their chosen employees, including overtime and “extraordinary” pay as well as interest-free loans.

KhabarOnline, a news outlet supportive of the Rouhani administration, has called the leaks a “violation” and “harmful” and reiterated the CII’s position that the salaries were in fact overdue payments going back 84 months. Pointing to reforms that Amin was pushing for, KhabarOnline questioned the timing of the leaks and claimed they were politically motivated. The popular Reformist-oriented Shargh Daily also took this position. Both outlets described Amin as a reformer who sought to bring more transparency to the insurance industry and prevent insurance companies from reporting distorted and inflated revenues.

Nasim Online, known as a Principlist news organization, took issue with how media outlets close to the Rouhani administration — and specifically KhabarOnline — analyzed the leaks, accusing them of double standards by justifying corruption when it comes from their own side of the political aisle. Principlist parliament member Ahmad Tavakoli weighed in on the leaks on his Telegram channel by simply posting a conversation he once had with an unnamed “government official” who told him he was paid 350 million rial ($11,500) per month. Tavakoli has long been on a crusade to remind state officials that “financial corruption is a great threat to the establishment.”

The economic daily Jahan-e Eqtesad took all sides to task. Columnist Nasser Zakeri pointed to a long tradition of executive pay through back channels, where “government and quasi-government institutions pay bonuses using an assortment of labels in theory to keep their most valuable managers.” He emphasized that in practice, this informal rewarding mechanism leads to cronyism and unfair treatment of lower-tier employees. “Employees are separated into two tiers: ‘general’ and ‘special,’ with the latter usually being friends or those close to the CEO.”

In his resignation letter, Amin alluded to the same line of argument used by the government official quoted by parliament member Tavakoli: Executives working in government forego much larger salaries in the private sector, thereby making a sacrifice to help the “advancement of the country.” If such reasoning is acceptable, why should university professors employed by Iran’s most reputable public universities — who earn monthly government salaries of less than $1,000 — then not have mechanisms to compensate salaries they forego in the private sector? Indeed, recent studies question the very notion that executive pay necessarily will lead to better performance. However, in Iran, the argument is not better performance, but “attracting experienced executives from the private sector.” Yet, in fact, as the CII debacle outlines, such discrepancies help to create hostile work environments, pitting employees against one another. Only one person — the CEO — holds full power to determine how bonuses are divided among employees of the organization in question.

Lack of transparency and accusations of corruption also compromise the integrity of the Rouhani presidency. The president ran a strongly worded anti-corruption campaign in 2013. Since then, he and his ministers have continuously pointed to the “spider web” of financial misconduct they inherited from the previous administration of Mahmoud Ahmadinejad. As election season approaches, with Iran set to hold a presidential vote in 2017, Rouhani’s rivals will be all too quick to use the president’s own condemnations against him, having a wealth of his speeches at their disposal. The media coverage of the CII story has revealed their arguments: The president has the executive branch and now the legislative branch to make sweeping changes, if he so wished. Outside the president’s own circle, no one will acknowledge that parliament has not yet been inaugurated, nor that financial sector reform hardly seems possible within the span of a year. This is one structural issue that might not impact the economy in the short term but can certainly impact the future of Rouhani.

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Found in: tehran, salaries, private sector, principlists, mahmoud ahmadinejad, hassan rouhani, government corruption, civil servants

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