Perverse perk: The 'dud' executives paid to quit
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Perverse perk: The 'dud' executives paid to quit

Many of the bureaucracy's leaders seem to expect a golden handshake upon their departure.

The senior executive service, about 2600 strong, includes some of the nation's brightest managers and policymakers. For the most part, they work brutal hours for relatively scant reward. The recruitment process is arduous. Many of these elite officers oversee projects of greater complexity than those which far more highly paid private-sector executives would ever contemplate.

In other words, they're not slackers.

<em>The Public Sector Informant</em>, February 2019.

The Public Sector Informant, February 2019.Credit:David Pope

Yet something has gone badly wrong in how the Australian Public Service manages these managers, especially those who no longer perform to the standards demanded.

Over the past decade, 2235 SES officers left the bureaucracy. That's not abnormal.

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What is unusual is that almost half of these executives were paid to leave. And no one knows how large these pay-outs were – not even the Public Service Commission, which ostensibly oversees the SES. There is no formal limit on the size of the payments, nor are they reported publicly.

The government's main financial watchdog, the Auditor-General's office, is now concerned enough by the pay-outs that it's considering investigating whether they are used appropriately. They're certainly lawful: they're called "incentive to retire" payments and are allowed under the Public Service Act (section 37).

But the legality of these golden handshakes is not the main point. The more pertinent questions are:

  1. What is their purpose?
  2. How did we arrive at a point where today's senior executives tend not to retire or resign, but rather to wait until they are bribed to leave?

Few officials are prepared to discuss these matters on the record. A spokeswoman for the Public Service Commission pointed out that the pay-outs, as with pretty much all staffing issues these days, were a matter for individual agencies and departments, not the commission. "It is for the agency head, as the delegate, to decide the appropriateness and justification for such a payment."

More surprisingly, she confirmed the government had no idea how much money agencies spent on these executive benefits. "The [commission] does not have visibility of amounts paid," she said.

Which no doubt explains why Auditor-General Grant Hehir has raised his eyebrow and is considering scrutinising the payments more closely.

Somehow, a 'corrupt' payment to a junior public servant is an appropriate and lawful 'incentive' for a senior one.

So, how much are they likely to be worth? The commission says two weeks' pay per year of service, up to 48 weeks, "is an appropriate reference point". Anecdotally, I hear a year's salary is standard, which, today, would be about $195,000 for a typical band 1 senior executive (a deputy secretary might receive about $350,000). A nice farewell, certainly, and most SES also have a handsome pension awaiting them. (If they are in the PSS super fund, the payments also trigger an immediate, lifetime pension, regardless of their age.) Agency heads are advised to consult the public service commissioner if they want to pay an officer more than 48 weeks' salary, though that's a guideline only – who knows whether anyone pays attention to it.

But let's go back to the legality of the pay-outs. Yes, agency heads are allowed, under the act, to grant "a payment of a specified amount" to boost the departing benefits of officers who don't wish to leave. In other words, "incentive to retire" pay-outs are essentially redundancies.

However, various government publications acknowledge that the payments are also used to remove underperforming SES; officers who, for want of skills or motivation, can no longer do their job.

The bizarre thing about this? The government explicitly forbids the use of redundancy payments to get rid of underperforming non-SES staff. It says that to do so is an improper use of public money and, hence, in breach of the APS code of conduct – a form of corruption.

Yet, somehow, a "corrupt" payment to a junior public servant is an appropriate and lawful "incentive" for a senior one.

There's another likely reason for the Auditor-General's office's interest in this matter. In a small note in a 2017 report, its auditors estimated that one in three SES staff who received these payments were duds (or, to use their more polite language, officers who "no longer had the skills to perform at their SES classification"). I asked the office how it arrived at this estimate, but it wouldn't divulge its method. Nonetheless, if we apply its estimate across all 1019 SES officers who received an "incentive to retire" payment over the past decade, it suggests about 340 "elite" senior executives were so poor at their jobs that their agency head threw money at them to go.

Over that same period, not a single SES officer was sacked for underperformance (though four were fired for misconduct).

I began researching this article while toying with the idea of defending the use of redundancies to get rid of dud employees. Yes, it's not lawful but, as most public servants know, it happens all the time. Performance management can be a messy business; many human resources staff warn senior executives not to bother, because the hours lost, and the potential legal costs, pose significant risks. By comparison, and for a relatively small outlay, a targeted redundancy can invigorate an entire team's morale and productivity.

However, the present use of "incentive to retire" payments among the SES is simply immoral. They have clearly become a perverse incentive, encouraging executives who want to move on to instead wait for a lucrative send-off. Nor is there is any justification for the secrecy that surrounds them.

I have no wish to slight the SES; every one of them that I know works harder than me, and could earn more money elsewhere. I don't believe the SES is laden with slackers, nor are these officers grasping. But bad laws induce improper decisions.

It's worth noting that Parliament was warned of these potential problems more than two decades ago. When the draft Public Service Act was scrutinised in the joint committee of public accounts in 1997, former public service commissioner Denis Ives said the clause that dealt with the payments lacked clarity. The committee's report notes Ives "also expressed concerns about the level of any pay-out being at the discretion of the agency head rather than, as is the case currently, being coordinated by the public service commissioner. His view is that a coordinated approach is more likely to result in consistency and reasonability."

Ives was ignored. A couple of months later, Labor senator Barney Cooney asked the government why it wanted to replicate the private sector's practice of massive departure benefits. "[Does] that mean that, from time to time, we may expect substantial pay-outs when senior executive service people leave in the same way as there are very substantial pay-outs to people in the private sector when they leave?" Government frontbencher Chris Ellison responsed with a non-answer, and the matter was dropped.

Let's hope the Auditor-General doesn't let this one drop again.

Markus Mannheim edits The Public Sector Informant and writes regularly about government.

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