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.


Public sector compensation management in a changing world

Times have changed: faced with the urgency of the “Great Recession”, public employers are finally dropping long-standing compensation management methods and adopting alternative ways of setting salaries. Some of these have proved effective but employers generally have little experience with such rethinking, and there is no one textbook answer. Borrowing methods of the private sector, such as performance-related pay, is a strong trend and bound to continue. Other trends are the delegation of responsibility for managing pay from a central office to agencies and ministries, and individualised pay for knowledge jobs. How information is collected for job descriptions is key, since inaccuracies can lead to costly grade inflation. Any restructuring undertaken is now more practical thanks to technology, but each employer must decide on the appropriate balance between internal salary hierarchy (perception of fairness) and external differential increases in occupational pay due to supply and demand in the labour market.


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