The Public Sector Informant

Clinging stubbornly to the public service's failed remuneration policy

Why does the government treat most of its staff so differently than its executives?

The Public Service Commission's website prominently displays a 2015 report titled Learning from Failure by Professor Peter Shergold. It's irony is excruciating enough to warrant the report being removed.

Why? Because in deciding to continue with its workplace bargaining policy for Commonwealth employees, plus or minus a couple of piddling alterations, the government has persisted with the greatest failure in decades in Commonwealth personnel management. It's bad enough that Shergold is being mocked. More importantly, managers of Commonwealth agencies and their staff are to remain shackled to a policy that is dishonest, costs hundreds of millions of dollars more than the rational alternative and cannot be implemented in its own terms.

The blatant fraud at the policy's core is the impossible stipulation that there be "sufficient productivity gains to offset" any increases in remuneration. In requiring secretaries and agency heads to verify this before they can give their staff a dime more, they are at best being asked to put their hands on their hearts and hope for the best; more realistically, they're being made complicit in deceit.

As this column has pointed out many, many times, the inescapable fact is that productivity (units of output per hour worked) cannot be measured in most of the public sector. For workplace bargaining to function, it is essential for the central facts upon which it is based to be readily established. In this case, that's impossible because there is no reliable measure of productivity gain. So negotiations drag on and on as the policy leaves the parties with nothing to say to each another. A department says it needs more productivity-producing changes, the union says it doesn't and neither party can prove its point. The result: deadlock.

As secretaries and agency heads can't verify that increases in remuneration are offset by productivity, the documents they sign are kept under wraps. Sadly, it's likely that the policy, in its various incarnations, has reduced public service productivity because endless months have been wasted on agency-based bargaining, and relations between staff and managers have been degraded as staff wait for years for pay increases. It's required cheating on an industrial scale and everyone affected, including taxpayers, has been taken to the cleaners. So much for the legislated public service values of integrity, honesty and accountability.


That increases in pay have been too small or too big is not the problem. The problem is that the policy is a rort and a failure that the government, notwithstanding Shergold's report, is clinging to.

How could this come about?

On the mechanics, the new Minister for the Public Service, Kelly O'Dwyer, was asked if the government's decision was made by cabinet on the basis of a formal cabinet submission or, if not, by what other process. She seems to have disowned the whole business; she didn't announce the government's decision or answer the query. Instead, Public Service Commissioner John Lloyd replied, saying: "The answer to your question is yes."

Presumably, Lloyd and his commission would have prepared a draft cabinet submission and submitted it to O'Dwyer or her predecessor, Michaelia Cash.

It's only possible to speculate about the nature of that draft but it can be observed that Lloyd is a very long-term and fully paid-up member of the industrial relations club. Thus, he'd be well aware of the absurdity of the bargaining policy that has immiserated his term as commissioner and undermined a basic building block of personnel management in Commonwealth employment. He would know only too well that it would make overwhelming sense for pay and conditions for the public service proper to be centrally bargained by the Public Service Commission, and adjustments made so that overall standards are reasonably competitive with other employers on an occupational category basis, with non-public service agencies like the ABC and the CSIRO organising their negotiations on a similar market basis. That would be more work for the commissioner but more power, too. So it can be reasonably assumed that Lloyd would have given his minister a draft along these lines.

It's a depressing sign of the depths to which governance can sink when brainless ideology is let off the leash.

Then things get tricky. The minister could have either accepted the draft or asked for it to be changed so as to recommend keeping the discredited policy, if with a few minor amendments.

If the minister had accepted the likely commission draft, it would then have been circulated to departments for coordination comments. Having for many years been forced to eat the generously filled shit sandwich of the old policy, they would almost certainly have provided rapturous endorsement of a recommendation for a centrally bargained, market-based system for the public service as a whole. On the other hand, if a ministerially directed draft cabinet submission recommending retaining the old policy had done the rounds with departments, coordination comments would have brought forth a crescendo of condemnation – secretaries being, on the whole, sensible people.

It's unknown whether the cabinet entertained a submission of workplace bargaining for Commonwealth employment based on Lloyd's commonsense appreciation of real-world industrial relations as practised by other rational employers, or one debased by ill-informed ideology and a willingness to stick with a terrible failure. Whatever, the result is known. The government has decided to stick with failure and the results are predictable: more agony for management and staff, reduced productivity for government organisations and hugely higher operational costs, the money for which taxpayers would likely prefer to see spent on health, education or defence. It's a remarkable trifecta and a depressing sign of the depths to which governance can sink when brainless ideology is let off the leash. Poor Martin Parkinson, the head of the public service and apparently a well-trained economist, must be close to rending his garments in exasperation.

Adding to the stink, the new workplace bargaining policy comes with a strong whiff of double standards. Thus, when it comes to ministers, departmental secretaries and other heads of government agencies, including Lloyd, there's none of this nonsense about productivity justifications for improving their remuneration, either collectively or individually. Oh no, indeed. The substantial increases these officers enjoyed in the last seven years have been largely based on – wait for it – comparisons with remuneration in the outside market, a policy adopted by the Remuneration Tribunal, which determines pay and certain conditions for secretaries (and other agency heads). Unfortunately, while the tribunal has had its heart in the right place, its major determinations for secretaries have been based on comparisons with the wrong markets.

From about 2012, the tribunal began to substantially increase secretaries' pay largely on the basis of what it could see in the private corporate sector. In doing so, it waved aside the fact that hardly any secretaries are recruited from the private sector and it ignored a request from the then government that it base its judgments significantly on comparisons with other parts of the public sector, especially senior state government employees. Egged on by a remuneration consulting firm with little apparent sensitivity to public sector remuneration, in the last seven years, the tribunal has increased secretaries' pay – in rough terms and depending on the salary points chosen – by between 60 and 75 per cent, or about 10 per cent a year.

In doing, so the tribunal has dragged secretaries' remuneration into the orbit of political controversy that's swirled around the steepled levels of private sector executive remuneration. Thus, Greens senator Peter Whish-Wilson has introduced a bill that would cap secretaries' pay at five times the full-time adult average weekly earnings of other Commonwealth employees. The Senate employment committee is now conducting an inquiry into that bill.

The committee has received five submissions, all of them largely unhelpful except for one from Professor Andrew Podger, a former departmental secretary and public service commissioner (and not infrequent contributor to the Informant). Bafflingly, the Public Service Commission – the organisation responsible for Commonwealth remuneration policy – is not listed as having made a submission to the committee, no doubt displeasing secretaries, who have been left with no one to speak up for them.

Podger makes several sensible recommendations. He tips cold water on the notion that senior remuneration should be fixed on the basis of a multiple of a composite of the pay of others; all groups deserve to have their rewards set on their merits. He also says the government should ask the tribunal "to reconsider remuneration for secretaries based primarily on relevant comparisons with state public services, with much less weight given to private sector practice". And so it should.

Podger points out that the tribunal's membership may be part of the problem. For many years, it has been composed of people whose experience and possibly knowledge has been confined almost exclusively to the private sector. It shows. Would any private sector company think of having its remuneration committee made up of people with predominantly public sector experience? It's all just too silly. Appointees to the tribunal should have a mix of backgrounds and experience, some private and public sector, and perhaps someone, on an ex officio basis, from an industrial relations tribunal, either federal or state. The Defence Force Remuneration Tribunal provides a reasonable model: its president is a deputy president of the Fair Work Commission, one of its members is a senior consultant on industrial relations in a major law firm and another is a former senior military officer. With the term of one of the Remuneration Tribunal members expiring later this year, some public sector experience should be added to it.

Another difficulty with the tribunal is that its largely behind-closed-doors methods of operation don't inspire public confidence in its decisions. Rather than cloister itself with remuneration consultants, it should be required by law to give at least six weeks' notice of its major investigations, issue a general invitation for submissions and hold open public hearings, where those making submissions, including the government, could be quizzed about them. At least then if anyone wanted to whinge about its decisions, they could be asked if they'd taken the trouble to put their views to it in the first place.

So there you have it. The Indians in Commonwealth employment have been relocked into a remuneration policy that cannot be rationally and honestly implemented. It is a proven failure that has given them the scours for many years and it has kept annual average pay increases below 2 per cent, and for a lot of them well below 2 per cent. The Remuneration Tribunal has adopted a sensible policy of market comparisons for the chiefs but has not always applied the policy correctly, and since 2010 it has given secretaries annual increases of between about 8 to 10 per cent when averaged out over that period.

From any angle, all this is more than just untidy – it's foolhardy and damaging. The good thing is it's not difficult to fix. The bad thing is that no one in authority in the modern, fast-moving, flexible and innovative public service seems to have the wit or the will to do so.

Paddy Gourley is a former senior public servant.


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