On October 30, 2014, the Legislature of the government of Ontario began second reading of the Public Sector and MPP Accountability and Transparency Act. Despite its esoteric sounding title, the legislation is designed to play a major role in constraining the overall cost of government and bringing the provincial fiscal house in order. Given the wide sweep of this legislation, it will also be a key element in assessing the effectiveness of Premier Kathleen Wynne’s government in the next provincial election.
As a starting point, the current legislation extends the public sector wage freeze that was announced in 2012 as part of the first round of cost containment exercises in Ontario. More important, the purpose of the Act is to manage executive compensation in the broader public sector by establishing frameworks for designated employers and employees. Consequently, the legislation broadens the reach of the current wage freeze well beyond the core public service by setting salary caps for executives earning more than $100,000 in 64 additional agencies including organizations such as TVO, LCBO, ORNGE air ambulance service, Metrolinx, eHealth, all hospitals, universities and education boards.
Most government observers are well aware that the government of Ontario has major fiscal issues to resolve in the next few years to be able to respond to the anticipated demands for more public services in health care, education and infrastructure, to name the three most pressing issues. To achieve a smooth transition to a balanced budget the Ontario government has identified the need to restrain growth in government spending to less than one percent. As a result, compensation costs have been identified as a primary target for cost containment since they account for more than 50 percent of Ontario’s total program spending, either as compensation within the Ontario Public Service or as part of the government’s transfer payments to schools, hospitals and other public sector organizations. Moreover, pension costs are going to almost double between now and 2018, adding further fiscal pressures on the provincial government.
Not only are public sector salaries the most significant category of government costs, public sector mismanagement revelations in recent years have drawn attention to the generous salaries and severance packages that were paid to a small number of government and public sector executives who were seen to have not “earned” their compensation. This has created serious political problems for Premier Wynne and she has been under great pressure to punish the non-performers.
The compensation frameworks are the cornerstones of the Act, which gives the Management Board of Cabinet the authority to create a structure that will set the limits on salary, benefits, perquisites, bonuses, and incentives for all who work in the broader public sector. To complete the feedback loop, the Management Board will also be able to gather detailed information about compensation from each of these organizations to ensure that the frameworks are being well managed and within the agreed upon structure.
The Act also seeks to enhance government accountability and transparency by ensuring that individual records are preserved so that auditors and evaluators have access to all the information pertaining to an organization and its employee.
Finally, the Act will broaden the role of the provincial ombudsman to investigate matters related to school boards, universities, and “municipal sector entities” such as municipalities and local school boards. It also will create the position of “patient ombudsman” to receive complaints from patients and former patients with regard to their experiences with the healthcare system.
This Act is going to profoundly change the nature of public sector compensation in Ontario in a number of ways. First, the cumulative impact of “frozen” salaries is going to have a significant effect on the standard of living of thousands of Ontario public sector workers if it continues for many more years, which in turn will lead to employee unrest in a wide range of public services.
Second, the Act signals that the public sector is no longer going to try to benchmark executive compensation levels with those in the private sector. Instead, executive public sector recruitment will emphasize the value of public service as the incentive instead of offering comparable levels of private sector compensation.
Third, it is going to be a very significant administrative challenge setting the compensation frameworks for each of the broad public sector entities, thus exposing the government to charges of mismanagement and incompetence. Getting it right from the outset will be a great test for the Ontario Public Service which will require a close working relationship based on mutual trust between the public service and the Management Board.
