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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.

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Managing compensation in a post “New Public Management” era

Rather than simply downsize, governments now must determine appropriate salary levels and performance expectations for all jobs affected by their restructuring efforts – and that will require adequate HR staff capacity. Policies that base salary increases on seniority or job tenure send a clear message that downplays the importance of employee performance. Salary banding introduces a dramatically different way of managing employees, since their pay does not depend on their job description – and that can enhance recognition of their worth. There have been difficulties introducing performance-related pay, the success of which depends on managers’ commitment and a review process to ensure fairness. Executive salaries and bonuses are a hugely contentious issue, but it should be recognised that government executive jobs are simply not comparable to executive jobs in the private sector. There have been advances in gender equality in the world of work, but the gender pay gap persists.

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