PUBLIC SECTOR
Reaction to Policy Exchange report - Hay Group
The main findings of the recent Policy Exchange report [e-reward.co.uk news] are misleading in several ways, according to Peter Smith, director of public sector consulting at Hay Group.
It is true, as the report points out, that since 2008 pay in the public sector has outstripped private sector wage growth. In particular, it continued to increase during the recession. What’s more, public sector pensions are relatively expensive and valuable – which is why Lord Hutton recently reviewed them and recommended changes.
But Smith reckons that some of the other key findings highlighted by Policy Exchange are misleading. As he points out, looking at overall average salaries for the public and private sectors tell us very little about the realities of pay. “The fact that the average for the public sector exceeds the private sector tells us more about the composition of the workforce: public services rely on the work of a large number of qualified professionals,” he says.
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For Smith, a much more meaningful analysis is to look at “how the different parts of the economy pay jobs of similar size”. This shows that:
Public sector pay competes well with the private sector for “smaller jobs”, and when the value of pensions and holidays is added, overall package value in the public sector exceeds the average for the private sector up to and including experienced professional and first line manager level. Above that, the advantage swings towards the private sector.
On a like-for-like comparison senior managers and executives in the private sector are "far better rewarded than their public sector counterparts".
Policy Exchange uses annual survey information from National Statistics for 2010 and there have been further developments since then. “As the economy picks up, private sector pay is beginning to recover compared to the public sector,” Smith says.
Reforming public sector pay
But Smith was most concerned about the report’s recommendation of a pay bill freeze, which “will prevent what the public sector really needs: fundamental reform of pay philosophy and systems”.
This should concentrate on:
1. Improving the controllability of pay, but moving away from automatic pay increments each year. “At the moment, even the imposition of a pay freeze does not actually stop all increases,” says Smith.
2. Making pay more responsive to the needs of each public sector organisation. For Smith, this could well include less national and more local bargaining. “There are certainly signs that the government will want to see more regional variation in public sector pay. Public sector incomes (especially those on national pay scales) are much higher in some regions than others, when compared to the rest of the economy and to the cost of living.”
3. Ensuring that pay is linked to the performance of organisations, teams and individuals. “Once again, debate is focusing on how much people are paid,” says Smith.
Smith concludes: “The real issues are different: public sector pay should be more flexible – related to market need and to contribution."
Want to know more?
If you would like to discuss this further, or have any other issues relating to public sector pay, contact Hay Group’s Peter Smith, email: peter.smith@haygroup.com.
Hay Group describes itself as: “A global management consulting firm that works with leaders to transform strategy into reality. We develop talent, organise people to be more effective and motivate them to perform at their best. Our focus is on making change happen and helping people and organisations realise their potential.” It has over 2,600 employees working in 85 offices in 47 countries. For more information visit www.haygroup.com/uk.