Public Sector Compensation in Times of Austerity

image of Public Sector Compensation in Times of Austerity

Austerity drives are leading governments to reduce operational cuts through the wage bill and staffing levels. A big lesson from past experience suggests that when pay cuts and freezes are necessary, it is essential to assess the savings relative to the costs – the loss of institutional knowledge if key contributors retire or resign, the time lost by managers and employees who have to deal with the issues related to vacancies and reorganizations, the lost productivity while people acquire new skills and learn new jobs, and the falloff in performance among employees who become discouraged or unsatisfied. This assessment does not appear to have taken place in the current crisis.

This report argues that any new approaches to public sector pay must help to: enhance external competitiveness of salaries; promote internal equity throughout the public sector; reflect the values of public organisations; and align compensation with government’s core strategic objectives. It calls for a recognition of the supply and demand for specific expertise.



Key considerations in reforming the government compensation system

With agencies now forced to restructure and “do more with less”, ensuring continuous employee commitment has become a priority. Given that employees have to perceive changes positively, it may be that a new compensation system should be implemented in stages. It is recommended that projects to replace existing systems involve five phases: i) confirmation of the need for change; ii) collection of evidence for decision making; iii) planning and development of the new system; iv) implementation; and v) evaluation. Prior to implementation, top management should commit to system assessment at the end of each year, and to correcting problems as soon as they are detected.


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