The federal government has tied 40 per cent of executives’ at-risk pay to how well they did as a group in finding efficiencies in the public service as a part of the government’s strategic and operating review, the results of which where in the 2012 budget. If executives have fumbled the file, they risk losing a portion of their salary.
The decision came to light last fall, and Treasury Board President Tony Clement (Parry Sound-Muskoka, Ont.) said that it was the first time an executive’s pay would be tied to reducing the size of government.
Federal union leaders and opposition politicians have called the move perverse and worried that the incentive would cause executives to cut too far. That isn’t the case, say compensation experts.
“If the government-wide initiative was to reduce the cost of government and to start to re-shape the public service into the public service in the future, then to me it kind of makes sense that that’s what you’re tying your performance pay to,” said Ms. Flumian, president of the Institute of Governance and a former deputy minister with 30 years of experience in the public sector.
“How do you send a strong signal throughout the system that things need to change? What the government is doing is it’s aligning all of the tools that it has at its disposal to send a strong signal that things are changing,” she added.
The Treasury Board started exploring the option of tying a part of executive compensation to the way executives perform as a cohort on important government-wide programs in 2010.
“I am interested in knowing if and how our performance management program for executives could be used to incent and reward executives in reducing expenditures while achieving their objectives,” then Treasury Board president Stockwell Day wrote to the Advisory Committee on senior level retention and compensation in a letter dated Oct. 5, 2010.
Carol Stephenson, dean of the Richard Ivey School of Business, chairs the advisory committee. She said that her group recommended in February 2011 that the government tie 25 per cent of an executive’s at-risk pay to collective performance, and the government decided to nearly double that proportion when it implemented the recommendation.
“It’s advice that we give, so it’s certainly up to them to modify things,” she said.
At risk pay, contrary to common misconceptions, is not a bonus for public servants. It’s a portion of an individual’s salary that the government sets aside until the end of the year, and whether an executive gets that part of the pay depends on how well the executive met the goals.
It makes up between 12 and 30 per cent of executives’ and deputies’ salaries. The higher the rank, the greater proportion of salary is at-risk, so for Clerk of the Privy Council Wayne Wouters it would be 30 per cent, noted Phil Johnson, global head of the Hay Group Spectrum. The Hay Group works with the federal government to develop position classifications and provides information on how government jobs compare to ones in the private sector.
The average pay for a first-level executive in 2010 was $166,800 in total. Of that figure, 12 per cent, or $20,016, would be held back and handed over to the executive after his or her boss determines the executive has met the stipulated goals for the year. If the executive failed in his or her goals, the executive could loose that portion of her pay.
In 2002-2011, there were 6,966 executives, 42 deputy ministers, and 37 associate deputy ministers in the core public service. In that time period, the most recent for which there are statistics, the core public service had 282,352 people.
As a part of the strategic and operating review, the government announced that it would cut $5.2-billion and 19,200 federal positions from departments over the next three years. Executives will make up about 600 of those cuts, a reduction of about 7.4 per cent of the cohort, according to the government’s Chief Human Resources Officer Daphne Meredith.
“It’s not perverse to have objectives link to productivity or efficiency measures at all, it’s normal business,” Mr. Johnson said of the move.
“Everywhere, executives and managers are given incentives to keep costs under control and find efficiencies, improve productivity, which inevitably means you’re saving on labour costs,” he explained.
In 2010-2011, the government paid out $72.4-million in at-risk pay to 5,712 executives.
Public service executives at every level make less than their counterparts in the private sector, and the gap widens the higher up the executive ladder one climbs.
For executives below the deputy-minister level, pay starts at $104,600, and can reach up to $198,300 for those in the upper-most echelons, according to Treasury Board Secretariat figures. Deputy ministers, assistant deputies and those of similar stature can make in the range of $420,000 annually.
An entry level public service executive’s pay is closest to that of an equivalent private-sector job, but that person is still earning about $9,000 less, according to the advisory committee report. At the deputy minister level, a mid-range DM earning $418,800 a year will be making less than half that she could be earning in the private sector.
Between ranks of executives, pay can increase by 12 to 20 per cent, but this does not keep pace with the private sector. In the private sector, that deputy minister would be making $893,000, according to the report.
“What they’re basically saying is we’re aiming to grow from within our senior executives from our junior executive ranks,” said Mr. Johnson.
At the beginning of a new year, an executive and her boss meet and discuss the executive’s goals and responsibilities for that year, and draw up a performance contract, said Mr. Johnson. At the end of the year, the executive is evaluated against that contract.
“Just showing up isn’t going to get you that piece,” he said.
“They have to be able to look at your objectives and say, ‘Yes you did a satisfactory job against achieving what you were here to achieve,’” said Mr. Johnson. He added that the overwhelming majority of executives qualify for their at-risk pay, and to not get it is a clear performance rebuke.
In 2010-2011, 331 executives did not get their pay at-risk, according to the numbers published by the Treasury Board Secretariat.
At-risk pay is one component of an executives’ “variable pay” said Mr. Johnson. The other component is a bonus. Only a small number of executives qualify for a bonus, he said, and even those who do are given a very modest amount compared to the private sector.
In 2010-2011, the government awarded more than $2.2-million in bonuses to 538 executives, and the average bonus was $4,156, according to TBS figures. Bonuses range from three per cent of pay for lower level executives up to nine per cent for the heavyweights.
Ms. Stephenson said that to her knowledge, the government has recently ceased the practice of awarding executives one week of severance pay for every year of service up to 28 weeks, something her committee recommended. But confusingly, the pay is still listed in the government’s manual on compensating executives, which was updated April 1, 2012.
Treasury Board Secretariat did not respond to request for information on executive compensation for this story.
Ms. Stephenson said that the government has stopped letting executives accumulate the money, and has given them the option of cashing out.
“When you compare it with the private sector, severance usually is associated with somebody being fired. What the government had was essentially a retiring benefit, so to speak, so you accumulated all this time, and then when you left, which would be a voluntary thing to retire, you took with a certain amount of pay based on the years of service,” she explained.
The government has also been negotiating severance pay out of the collective agreements of thousands of public servants in the past two years. But the severance of the thousands of public servants who are currently being laid off will cost the government $850-million in 2012-2013, according to supplementary estimates, which were tabled on May 17 in the House.
It’s easy for the uninformed to “take shots” at public service executives, and public servants generally, noted Ms. Flumian, but she said that the majority of executives do a lot of hard work that rarely gets acknowledged.
She said: “If you have to work on the weekend, you have to work on the weekend. If an issue breaks in the evening, you probably have to leave your family to go back and deal with those issues. When crisis occurs people have to deal with it. Oftentimes, crises may be occurring that are not in the public domain, and people have to deal with them. There’s not much you can do except go and deal with them. There are a lot of unsung heroes in that space.”
Original Article
Source: hill times
Author: JESSICA BRUNO
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