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In defence of public sector bonuses: Better use of performance pay would help guard public spend, reports CIPD

  17th June 2010      
 CIPD, Company News

public sectorIf ministers and senior civil servants desire maximum value for the tax payer, whilst also driving through substantial public service reform, then they will have to be brave and make better use of performance associated pay and bonuses in the public sector, instead of less.  This has been made a chief recommendation deriving from a new report from the Charted Institute of Personal Development (CIPD) with the pressing call for pay and pension restructures within the public sector. 

The report looks at Coping with Less: Pay and pensions in the public sector, highlighting statistics that demonstrate expectations of how employees’ pay should be set out and how it changes radically from public and private sector employees.

Just over one third (36%) of public sector workers think they should be paid on the basis of how well they carry out their jobs in contrast to 66% of private sector employees. 

Only 6% of public sector employees view the performance of their company as an appropriate element in deciding their pay, in contrast to one third (35%) of their private sector counterparts. 

Over half of those working in the public sector stress the cost of living as one of their favoured basis for pay (the most favoured choice for this sector), in contrast to one third (33%) of private sector workers. 

Just over one quarter (26%) of those in the public sector would favour a trade union negotiated deal to determine their pay, in contrast to only 4% of private sector workers. 

The report that forms an element of the CIPD’s Building Productive Public Sector Workplaces series, also asks for pressing restructuring of pensions in the public sector, to tackle the analysis in the report that shows for every £1 contributed by public sector workers outside of local government to their pensions, receives a £3.99 contribution from tax payers. 

It also stresses the importance of regional flexibility in public sector pay. They need to consider differences in labour market conditions and the cost of living in other parts of the UK. 

The report also restates the CIPD’s desires for a freeze in the total public sector pay bill, which can therefore allow more room for employers to tackle certain recruitment issues and reward good performance, rather than a crude freeze on every worker’s salary. 

Charles Cotton, expert Reward Adviser at the CIPD, said:

“Given the state of our public finances, and with CIPD analysis now forecasting 725,000 public sector job cuts in the next five years, pay restraint in the public sector is vital. The public sector workforce is going to have to find ways of emulating the kind of restraint the private sector workforce demonstrated during the recession to have any chance at all of minimising the inevitable job losses to come. However, by allowing emotive headlines about ‘snouts in the trough’ to ensure any kind of performance related pay in the public sector becomes morally unacceptable, ministers are simply conceding that poor performance and excellent performance should, fundamentally, be rewarded equally.

“A refusal to make use of bonuses in the public sector removes one of the most powerful tools the new government has to drive up standards and deliver its many and stretching ambitions for public service reform and improvement. Conversely, the status quo is an approach to pay that does little to support meritocracy, and may foster mediocrity. By linking pay far more closely to performance, ministers could find that they are able to get far more bang for the taxpayer buck. Pay is far better used as a carrot than it is as a stick.

“The frequent reliance on uniform, union negotiated pay deals, and length of service as a determinant of individual pay progression has ensured that there is a disconnect in the minds of many public sector workers between their performance and the pay they receive. We need to move beyond this to an approach in which individual and collective performance and achievement of results becomes a significant determinant of how much taxpayers’ cash public sector workers take home.”

Charles Cotton also went on to comment about public sector pensions:

“The need for public sector pension’s reform is well recognised. But the revelation that taxpayers are paying £3.39 for every £1 public sector workers contribute to their pensions highlights the urgency with which the issue needs to be tackled.

“There can be no overnight solution to this problem but, as our report argues, short-term action is required to share the cost and risk of public sector pensions more equitably between employers and employees. In the near future, a fundamental examination of whether the value of public sector pensions is sufficiently well-understood or valued to act as a magnet for talent or driver of performance in the public sector is necessary. And, in the longer term, a shift away from a pay as you go approach towards a far more flexible approach to public sector pensions, more comparable to private sector best practice, will be unavoidable as ministers seek to ensure equity and value for taxpayers.”

To read the full report, please go to: http://www.cipd.co.uk/publicpolicy/public_policy_publications.htm

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