The last great international effort to refashion the public sector took place during the 1980s in tandem with efforts of conservative politicians to limit the size of government and to lower taxes in order to stimulate economic growth. The characteristics of the New Public Management (NPM) doctrine were to preserve the “steering” role for government and give the “rowing” role to non-governmental agencies such as the private sector or not-for-profit organizations that specialized in service delivery.
One of the elements of NPM that persists to this day is the use of performance rewards as a way of increasing workplace motivation that in turn is intended to increase productivity and improve service delivery. While there is little reliable empirical evidence that bonuses and other forms of financial rewards actually improve outcomes, most modern public service organizations, nonetheless, moved to emulate the popular private sector practice of establishing performance-based incentive systems for many executive positions.
In addition to establishing bonus systems for executives, during the past 15 years public service compensation in Canada also increased to keep pace with the cost of living and economic growth that characterized the latter years of the 1990s.
Finally, at the highest executive levels in the public sector, governments also established a compensation system that was more competitive with the private sector by increasing salaries in the core public service and in those agencies that constitute the larger public service. The primary reason to seek comparability was to ensure that the public service could compete with the private sector for the “best and the brightest” graduates to take on leadership roles in the public sector and to retain them in subsequent years.
As a consequence, the compensation packages of deputy ministers and the CEOs of public institutions such as crown corporations, hospitals, universities, liquor commissions, provincial lotteries, airports and ferry services were all ramped up to match the risk/ reward balance that emulated the model used in the private sector.
The logic of the argument was articulated by the Advisory Committee on Senior Level Retention and Compensation chaired by Carole Stephenson (the dean of the Ivey Business School at Western University) in the following way: managing a large public organization is difficult and demands first-class management skills and a high level of expertise.
Given the importance of these institutions to the well-being of Canadians, every effort should be made to ensure that the most qualified people occupy the most senior positions. To attract and retain this level of talent, the level of compensation should reflect the risk of accomplishing the organization’s short- and long-term goals, the level of personal accountability and the degree of public oversight.
The “key” elements in designing the best compensation system for a particular organization was in finding the right mix of base salary, performance pay, outcomes and time frames.
While compensation is a significant determinant of overall government costs, the issue of executive compensation in the Canadian public sector has received little public attention and only limited interest among public management experts. In fact, it appears that the only time compensation gains any public scrutiny is when there are reports of officials spending “too much” on travel or entertainment.
However, in recent years the House of Commons in the United Kingdom has looked at the issue of public sector compensation and other related human resource issues as a way of ensuring that their public services are led by the most qualified professionals who are producing high value public goods. For example, in the past six months, the U.K. government has published reports on executive compensation, public sector recruitment and the appointment process in government. The general implication of this work is that the current human resource system in the U.K. needs a fundamental overhaul that should create a more diverse workforce with a broader set of modern management skills to reflect the changing needs of their public sector.
The U.K. reports are a useful reminder that executive compensation is an issue that should be of interest to legislators as they look for new ways to improve value for money, to be more innovative and to constrain government expenditures. At the same time, the weak link between performance and bonuses suggests that there may be a better way to structure public sector executive compensation that avoids negative reaction to large bonuses and yet produces more positive results.
David Zussman holds the Jarislowsky Chair in Public Sector Management and is the Director of the Graduate School of Public and International Affairs at the University of Ottawa (firstname.lastname@example.org).