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.



Policies and practices governing public sector compensation planning

Compensation planning requires transparency, fairness, and a genuinely inclusive approach – especially during times of austerity. Informed decisions that can be justified to stakeholders require social dialogue. While union involvement would reduce resistance to proposed changes, labour negotiations are normally not the best setting for restructuring pay programmes. Information on labour market trends is central to remaining competitive, although data quality issues, differences in demand, and the frequent lack of counterpart jobs in the private sector must be taken into account. Transition to performance-related pay is perhaps the most difficult change initiative for a public employer, but policy formats such as a “merit matrix” can help facilitate the changeover. Employees need to know as much as possible about plans for the near future and what they can expect. Maximising the total rewards of the work experience can enhance the performance of personnel truly committed to the organisation and its success.


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