Employment Today, June 2009
By Philippa Youngman Recent controversies over incentive payments in the public sector have the potential to set back employee engagement and effectiveness in our crown agencies, writes Phillippa Youngman.
Predictably the payment of bonuses and other incentives to government employees is coming under media scrutiny in these tight times. Bonus is almost a dirty word in Wellington these days. Understandable perhaps, but the implications of these controversies for human resource professionals and other managers in the public sector could be significant.
A projected $50 billion hole in our economy over the next three years will put pressure on government budgets, but talk of pay freezes and scrapping bonuses is misdirected. It is simply the wrong discussion to have, and risks missing the greatest opportunity in a generation to improve the performance and productivity of our state sector.
Minister of Finance Bill English has been very clear in recent public statements about the tightness of our economic situation, and the subsequent impact on government expenditure. “. . . it's now clear that year-on-year increases in Crown expenditure cannot continue at the same levels we have seen in recent years,” he said.
In other words, it’s a new government in tough times and we’re going to spend money wisely after that profligate Labour crowd. The trouble is, this talk is translated into 0% salary increases and bonus scrapping, generally making life tough for those feather-bedded public servants.
Organisations, public or private, have to be able to reward good people, even more so in tough times when they are so critical. A weakening labour market does mean that the balance of power has shifted a little towards employers, but it will soon shift back the other way as the economy strengthens. Globally the workforce is under-manned and is predicted to remain so for the foreseeable future as the population ages.
Not paying bonuses or other incentives in the public sector can actually have the effect of encouraging mediocrity because a higher base remuneration needs to be set to compensate for the lack of performance-based reward. Why not pay for performance after it has been proven? The key is to prove it.
There is a not a salary restraint problem in the public sector per se, but a measurement problem. As a society we are happy to pay huge salaries to surgeons who save lives – because the value is clear. But we get angry when executives like those at US insurer AIG receive big bonuses when they have clearly failed – they destroyed value rather than creating it.
The debate should be about how you determine who deserves an increase. That debate is the same whether times are tough or times are good. How objectively do you track and reward people that are doing a good job? How do you prove value?
In the private sector, a shareholder or owner is generally very clear about ensuring that increased remuneration is directed to those who make a difference, especially in tough times. The dynamic in government departments can be different, where line managers can be less concerned about scarce resources and more about maintaining the peace in their teams. A common view in the public service is that salary decisions are the responsibility of senior management. There is consequently a trend towards line managers advocating for a salary increase for employees rather than taking accountability to make the hard decisions.
How much would this government save, if they simply made a directive that the bottom 20% of employees in the government sector were not to receive an increase of any sort? Rather than focus on dumbing the system down so nobody gets rewarded, let’s create an environment where standing out gets recognised and those that coast miss out.
A government response to simply squash pay would be short sighted – they should be applying pressure for agencies to develop transparent, accountable, widely accepted remuneration processes. Sounds good, but how do they achieve this?
• There needs to be principles for public sector pay reviews (e.g. be explicit about linking individual performance with pay decisions), and employees need to understand these principles.
• Processes need to be in place to manage the review process effectively i.e. efficiently, consistently and transparently.
• These systems need to link an organisation’s performance review, talent identification and pay review processes tightly together.
Hon Bill English said in a recent speech that one of the three prongs of boosting New Zealand's economic performance is “. . . improving the business of government - providing better, smarter public services.”
There is fantastic opportunity to do this by improving the approach to public sector pay. Not by simply slashing and burning wages, reducing incentives and destroying employee engagement, but by putting in place tight new processes. That’s what will make a difference, and reduce public angst at those ‘terrible’ bonuses. |
